Case | HBS Case Collection | December 2001 (Revised February 2003)

Netherlands:The, A "Third Way?"

by Bruce R. Scott and Jamie Matthews

Abstract

The economic success of The Netherlands in the 1960s can be attributed to Dutch wages that were kept substantially below those in neighboring countries. But increased pressures in the 1970s led to a wage explosion, which in turn pushed unemployment and disguised unemployment (i.e., disability/sickness schemes and early retirement), up to extraordinary levels--a situation that came to be known as the Dutch disease. Through a series of meetings in the early 1980s, union and employer groups came to a consensus to bring wage levels down. As a result, employee compensation as a share of GDP dropped from almost 60% in 1980 to just over 50% in the mid-1990s. After other reforms, the Netherlands had clearly turned the situation around. By the mid-1990s, it was back up to nearly full employment, was growing at a faster rate than its neighbors, and had a productivity/hour rate that was among the highest in the world. In addition, its corporate profitability performance matched or exceeded that in the United States and, unlike Germany, the Netherlands seemed to be keeping up in the high-technology sector. All this was in striking contrast to Sweden, a country that has experienced much more difficulty in trying to bring its wages back down.

Keywords: Wages; History; Policy; Problems and Challenges; Macroeconomics; Economic Systems; Employment; Performance Productivity; Jobs and Positions; Economic Growth; Netherlands;

Citation:

Scott, Bruce R., and Jamie Matthews. Netherlands:The, A "Third Way?". Harvard Business School Case 702-015, December 2001. (Revised February 2003.)