Shortage on the labor market, get used to it

According to the vacancy indicator of Statistics Netherlands – which indicates how many vacancies companies expect to post – the number of vacancies in the industry is historically high. Never before has the expectation of the number of new vacancies been so high.

A similar picture emerges from the most recent European Commission survey. In it, entrepreneurs in various sectors are asked which factors hinder the scaling up of their production capacity. For most industrial companies in European countries, high raw material prices and supply line problems are the biggest production bottlenecks. In the Netherlands, the shortage of labor in the industrial sector is even more acute than the shortage of materials.

If we look at the service sector, we see a similar picture. While companies in the service sector in other European countries more often answered ‘lack of demand’, ‘no bottlenecks’ or ‘other problems’ to the question of where the bottlenecks are, labor shortages are also at the top of the list in the service sector in the Netherlands. Historically this is unique.

This tight labor market is not a new phenomenon. We entered the corona crisis with an exceptionally tight labor market and the generous support measures from the government have resulted in hardly any unemployment.

The main structural factor for labor market tightness – the fact that all baby boomers are retiring while the economy continues to grow – remains. Moreover, the factors that contributed to a widening of the labor market on their return. Think of the unification of the European Union, which started a stream of labor migrants, mainly from Eastern Europe. Although there will of course still be labor migrants from Eastern Europe, there will no longer be a sharp increase.

In addition, outsourcing production to low-wage countries is outdated. The companies that could potentially benefit from this have already done so. But it also appears that outsourcing to low-wage countries is not always convenient due to corona. Due to the lockdowns in developing countries and the problems in the supply chains, companies are even considering bringing their production back to the Netherlands, resulting in more demand for labour.

And the people standing on the side? The Netherlands has about 300,000 unemployed. During the labor shortage before corona, this was 270,000. Unfortunately, there is always a ‘natural’ unemployment, as economists call it. Not everyone who wants to work is actually suitable to participate in the labor process. So there isn’t much room there either.

About 200,000 people do not receive unemployment benefits, but they may be available to work. Just before the corona crisis, there were approximately 140,000. So there is also a bit of space there (about 60,000 people), but not much.

The phasing out of the support measures could lead to an increase in bankruptcies and thus new job seekers. But, as I wrote before with my colleagues, that will be sparse.

In short, rising demand for labor and little new recruits ensure that the shortage remains.

Labor market shortages can also be solved if workers start working more hours. However, there seems to be a reverse trend. According to the CBS, the number of working people has decreased in recent years more would like to work hours. The number of workers who less wanting to work hours increased. Corona added a little extra to that. The approximately 1.5 million self-employed in the Netherlands have started working three hours less during and after corona. Now you can say that this was not voluntary, but despite the lifting of the measures last summer and last quarter, the number of hours worked is not increasing. The self-employed may also want to work to live, rather than live to work.

By way of illustration: if we want to absorb those three hours less work per self-employed person, we need approximately 110,000 extra people. full time. Where do we get it from?

The economy is continuing to pick up and hands are needed to meet all this demand.

People who are now on the sidelines to report to the labor market and/or motivate the current employees to work more hours can only do one way: increase the pay. Particularly in those professions that are incredibly important to society, but where there is now an urgent shortage – such as in health care, the police and education – there is only one thing to do: raise wages.

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