Dutch competitive position under pressure due to rising wages
A Dutch export product is 22% more expensive than the same product from the US, but still 13% cheaper than the Eurozone average.
Published on March 1, 2025
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The Netherlands has a strong competitive position due to low unit labor costs compared to the rest of the Eurozone. However, between 2015 and 2023 these costs grew faster than average, putting pressure on sectors such as chemicals and food. The Netherlands owes its good starting position to structural factors, but must remain vigilant to increase productivity and maintain competitive advantages, according to economic research by Rabobank. How can we balance growing labor costs and necessary productivity increases? What does this shift mean for the future of the Dutch economy and its position in the European market?
The researchers note that a Dutch export product is 22% more expensive than the same product from the United States, but still 13% cheaper than the eurozone average. However, this relatively favorable position is under pressure from rising labor costs. In particular, sectors such as chemicals, agriculture, transport and the food and beverage industry are seeing their labor costs rise faster than their labor productivity. The situation is further complicated by high energy and electricity prices in Europe compared to the U.S., particularly affecting energy-intensive sectors.
Purchasing power recovery and productivity
After years of economic challenges, in January 2025 purchasing power will finally return to its pre-corona crisis level in 2020. Workers have not experienced real wage growth for five years. The most significant wage increase in 40 years has primarily eliminated the inflation pain, but productivity growth lags. This discrepancy between wage growth and productivity is putting pressure on competitiveness. It is particularly noticeable in chemicals, agriculture, and the food industry.
Southern European competition is increasing
A new dynamic is emerging in Europe. France, Belgium, and the Netherlands are losing their lead in labor cost effectiveness to Southern European countries and Ireland. The pandemic has accelerated this shift, which has affected investment patterns and productivity growth. The Netherlands and Austria have suffered most from labor cost competition since the introduction of the euro. Unit labor costs have accelerated post-pandemic, necessitating urgent action to address declining competitiveness.
Sectoral differences and opportunities
The impact of rising labor costs varies widely by sector. Specialist business services, trade, pharmaceuticals and mechanical engineering are performing relatively well with low labor costs compared to the eurozone and US. ASML and the Brainport region in Eindhoven show that high labor costs do not automatically lead to reduced competitiveness - in fact, they become more competitive every year. These successful examples underscore the importance of innovation and productivity growth in maintaining competitiveness.