Kopafbeelding publicaties CPB

Long-term unemployment in the Netherlands

This document is in dutch only!

CPB Policy Brief 2015/11, 11 June 2015

Long-term unemployment will decline as the economy recovers, but this will not solve the problem of older long-term unemployed. Institutional reforms are needed to solve this problem.

Read the accompanying press release, the presentation, Background Document 'Labour market adjustments during the Great Recession: an international comparison' and Background Document 'Are the Long-Run Unemployed on the Margins of the Dutch Labor Market?'.

In the aftermath of the Great Recession, the Netherlands is faced with 270,000 people who have been unemployed for more than one year, representing over 3% of the labour force. In this respect, the Netherlands is doing worse than Germany, the United States and the Nordic countries. Long-term unemployment negatively affects people’s happiness as well as their employability. Moreover, for the government it also means a decline in tax revenue and an increase in social security expenditure.

As the economy recovers, long-term unemployment will go down, even without government intervention. Following earlier recessions, the decline has been around 1% and this is currently also a realistic prospect. The current relatively high level of long-term unemployment in the Netherlands is the result of a slower economic recovery than in other countries. Wage developments and the alleged inflexibility of the Dutch labour market also play a role, but to a lesser degree.

Nevertheless, certain short-term measures may help to reduce long-term unemployment. A temporary measure that could be effective is to provide unemployed people with a financial bonus when they manage to find and hold on to a job. Retraining may help people who used to work in one of the few shrinking sectors and who are therefore unable to return to their former profession.

The current long-term unemployment has however brought a persistent problem to light, namely that of the labour market for older people. More than 40% of the long-term unemployed are over the age of fifty. Older employees do not lose their job more often than others, but once they do become unemployed, their chances of ending up in long-term unemployment are nearly double the average. Employers hesitate to hire older unemployed people because these often demand a higher wage than the employers are willing to pay.

The high share of older people among the long-term unemployment is a structural problem rather than a cyclical one. Before the start of the crisis, this level was already on the rise. The current package of policy measures – largely aimed at lower wage costs – is insufficient to help the older unemployed to find another job. More fundamental reforms– such as unemployment benefits that decrease with the duration of unemployment, employment protection that is less dependent on the length of the labour contract, and less age-dependent arrangements in collective labour agreements – are necessary to permanently improve the position of the older unemployed.

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