## sipea2025120 ## Source details **Canonical URL:** [sipea2025120](https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025120.pdf) ## Other formats - [Markdown version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025120.pdf.md) - [Structured JSON version](/-/media/files/publications/selected-issues-papers/2025/english/sipea2025120.pdf.json) --- ### Context - Prepared by Shinya Kotera (EUR). - Despite one of the highest labor productivity levels globally, the Netherlands faces challenges in enhancing productivity growth. - Key policy levers identified: improving education outcomes, enhancing vocational training (especially in SMEs), reducing labor market duality (given lower productivity of the self-employed), maintaining high skills across generations amid population aging, and effectively integrating migrants. - Firm-level priorities: promote business dynamics, encourage productivity-enhancing investment, complete the EU single market, address factors affecting investment activities (electricity grid, labor shortage, policy uncertainty), and promote productivity spillovers domestically and internationally while encouraging SMEs to engage in R&D. - Phasing out of gas extraction: started in 2014, turned off in October 2023, and permanently closed in 2024. ### Macro Level Perspective - Aggregate decomposition approach: - Following Ando (2020), aggregate labor productivity = within-sector labor productivity growth + reallocation of each sector’s labor share. - Recent trends and sector drivers: - Labor productivity and TFP growth rates declined after the global financial crisis; disappointing productivity growth during 2013–19 despite high real GDP growth. - Slowdown during 2013–19 attributed to: (i) mining (phasing out of gas extraction), (ii) manufacturing (slowdown in chemicals and electrical engineering manufacturing), and (iii) transport and storage (more labor inputs for parcel transportation due to rise of online ordering). - Contribution shares and international comparison: - Around 80 percent of total labor productivity growth during 2019–23 can be attributed to within-sector productivity growth. - The Netherlands ranks fifth out of seven in terms of both total growth and within-sector contributions (peer countries: AUT, BEL, DEU, FIN, FRA, SWE). - Sectors supporting growth (2019–23 average): market services and high-tech knowledge-intensive services. - Sectors hindering growth: other knowledge-intensive services (public, education, and social work), mining, and financial sectors. - Manufacturing: high- to medium-technology sectors improved efficiency; medium- to low-technology sectors stagnated. - Reallocation effects: - Positive allocation effects: administrative & support services and hospitality. - Negative allocation effects: health & social and construction. - Policy tradeoff: reallocating resources to higher-productivity sectors aids aggregate productivity but may conflict with socially desirable expansions (e.g., health and education). - Within-sector gaps and potential: - Compared with peers, the Netherlands performed better than the median in 6 out of 15 sectors but lower than the top-runner in all sectors but one (professional, scientific and technical activities). - Larger gaps observed in: 1) public, education, and social (PES), 2) finance, 3) real estate, 4) trade, and 5) manufacturing. - Simply achieving top-performer within-sector contributions could have raised Dutch productivity growth by 1.7 ppt (excluding mining). - Regional considerations: - Labor productivity dispersion among provinces increased moderately over the past eight years. - Groningen province productivity declined by 23 percent from 2015 to 2023 due to gas field closure. - OECD TL3 regions: Netherlands labor productivity dispersion (ratio of max to min) = 1.6; median for 23 OECD countries = 1.8. - Risk of further widening regional disparities; recommend monitoring drivers and leveraging regional innovation systems to promote regional growth and equity. ### Employment Level Perspective - Current skill levels: - PIAAC (31 countries/economies): Dutch workers score higher than other OECD countries on key information processing skills; Netherlands ranked between second (numeracy in medium firms) and ninth (problem solving in large firms) and fourth based on average scores among the 31 countries and economies. - Share of workers with above-basic digital skills in the Netherlands is among the highest across all employment categories in 27 European countries (Eurostat). - Declining educational outcomes and staffing shortages: - PISA average score ranking: fifth in 2006 and 22nd in 2022 (average of mathematics, reading, and science). - In 2022, 72 percent of Dutch students were in schools where principals reported instructional issues due to staff shortages and 46 percent were in schools with inadequately qualified staff; these ratios were 36 percent and 24 percent in 2018 (OECD, 2023b). - Concern: declining PISA scores and school staffing issues raise concerns about future worker skill levels as younger cohorts enter the labor market. - Use of skills at work and firm size gradients: - PIAAC-based indexes of use of skills at work for the Netherlands stand around the median of OECD countries. - Netherlands ranking across four indicators ranged between 10th (reading in micro firms) and 22nd (numeracy in micro firms), with an average ranking of 15th out of 31 countries and economies. - Numeric and ICT skills usage particularly lower for Dutch workers in micro and small firms. - Empirical correlation: across countries and firm sizes, higher learning opportunities correlate with higher ICT skill usage, but the Netherlands shows lower skill usage than implied by learning opportunities, especially in smaller firms. - Adult learning participation: EU-LFS indicates the Netherlands is among the highest in EU countries, but CBS data show workers in smaller firms are significantly less likely to participate in training and education. - Implications: - Need to improve quality of vocational training and support access to training in smaller companies. - Deepening capital stocks (e.g., ICT equipment and software) could help better utilize workers’ skills. ### Older Workers, ICT Use, and Lifelong Learning - Workforce aging is projected to reduce labor productivity growth (Aiyar et al., 2016). - Older workers globally use ICT skills less compared to young and middle-aged workers; the magnitude of this decline is higher for Dutch older workers, especially those aged 55–65. - Index of learning at work constructed from opportunities to: 1) learn new things, 2) learn by doing, and 3) keep up to date at work. - Policy implication: Support lifelong learning to increase potential, mobility, and employability (OECD, 2018), and adapt technological innovation to favor both young and older workers. ### Labor Market Duality and the Self-Employed (SE) - The share of freelance self-employed (SE) increased over the last two decades, increasing labor market fragmentation (IMF, 2024a). - Regression analysis (2010–2022, 11 provinces, Groningen excluded) shows a statistically significant negative relationship between labor productivity and the SE share (coefficient of self-employed statistically significant at the 5 percent level). - Independent variables: self-employed share (hours worked), 8 sectoral shares, year dummies, province dummies. - Possible reason for lower productivity of SE: lack of sufficient opportunities for skill development; employees often receive company-specific training (Bovenberg and Groot, 2022; Bondt, 2018). - Policy considerations: Tackle labor market duality; reduce false SE; introduce mandatory disability insurance and strengthen pension arrangements for SE. ### Migrant Integration and Population Dynamics - Recent employment growth has been supported by the increase in foreign workers. - Medium-term population projected to grow due to net migration with negative or near zero contributions from natural growth. - Simulation analysis (Caselli et al., 2024): GDP per capita drops if a TFP gap between natives and immigrants persists, but not if that gap gradually closes over time. - Based on PIAAC scores, the skills gap between natives and foreign-born in the Netherlands appears higher compared with OECD countries. - Migrant Integration Policy Index: the Netherlands stands between the median and 75th percentile among EU27 countries, except for family reunification and permanent residence, where the Netherlands is below the median. - Policy implication: Better integration policies are needed to close skills/TFP gaps and integrate migrants in productivity-enhancing ways. ### Firm-level Productivity Dispersion and Dynamism - Labor productivity dispersion among firms (90th/10th percentile) increased among SMEs from 2010 to 2021, but remained unchanged for large firms. - Frontier micro firms were almost 11 times as productive as laggard micro firms in 2021. - Productivity growth by percentile shows positive correlation between growth rates and productivity levels in SMEs; productivity growth is negative for small and micro firms at the 10th and 20th percentiles. - Interpretation: Widening dispersion implies less efficient resource allocation unless aggregate productivity is raised by reallocating resources to more productive firms. - Business churn: - Business birth rate around EU median since ~2014; death rate at or below lower edge of interquartile range. - Contributions from business dynamics (new and closing firms) to sectoral productivity growth show a declining trend. - Cross-country evidence: business dynamism positively correlates with lower regulatory burdens, efficient insolvency resolution, better access to finance, greater support for innovation, and higher education levels (Calvino et al., 2020). - Policy implication: Promote firm dynamism and efficient creative destruction to improve resource reallocation and productivity. ### Capital Stock, Investment, and Bottlenecks - Capital stock for Non-Financial Corporations (NFCs) (percent of NFC gross value added) declined from 2018 to 2023; the Netherlands’ level of capital stock is the lowest among peers. - EU KLEMS estimates: real growth rate of intangible assets between 2017–21 was almost zero for the Netherlands, while other countries grew. - NFC investment (percent of NFC gross value added) is the second lowest among EU countries (average of 2021-23). - Dutch firms’ investment mainly focuses on replacement rather than capacity expansion or new products/services. - Long-term barriers to investment (percent of firms, 2024): skilled staff, energy costs, uncertainty, business regulations, labor market regulation, demand, transport infrastructure, digital infrastructure, availability of finance. - Note: Calculated as 0.5 * (share of firms responding as minor obstacle) + 1 * (share of firms responding as major obstacle). - Specific bottlenecks and remedies: - Energy costs and long queues for large-scale electricity connections → enhance electricity grid. - Labor market shortages → promote training and labor mobility toward priority sectors. - Domestic policy uncertainty and regulatory complexity → improve predictability and stability of government policies and streamline regulation. - Policy implication: Remove investment barriers to promote capital deepening and productivity-enhancing investment. ### Financial Access for SMEs and Non-Bank Financing - SMEs, especially start-ups, innovative companies, and fast-growing firms, face difficulties accessing finance (CBS, 2025). - Dutch firms have traditionally relied on bank funding; bank loans may be suboptimal for some SMEs due to initial unprofitability and inadequate collateral. - Non-banking financing targeting SMEs increased by 16.4 percent in 2024 (SMF, 2025). - Policy recommendation: Domestic capital market reforms to improve valuations, stimulate investor demand for equity and debt instruments, and simplify debt issuances to expand funding options for SMEs. ### Intangible Investment, R&D, and Knowledge Spillovers - Intangible investment importance: - EU KLEMS: intangible investment was about 1.2 times higher than tangible investment (excluding residential structures) in the Netherlands in 2021. - Firm-level analysis (Orbis, 2016–2022, sample size 10,810): intangibles have positive and statistically significant impacts on productivity growth, especially for laggard enterprises; elasticity of labor productivity w.r.t. intangible assets tends to be higher for micro and small firms. - Regression controls: firm size (number of employees), NACE (4-digit), year; labor productivity measured by value added per employee; deflated per employee; period 2016–2022. - R&D investment: - Total and business sector R&D expenditures in the Netherlands are slightly lower than the OECD average. - About 70 percent of in-house R&D expenditure came from large firms in 2022. - Existing schemes (e.g., Research and Development Promotion Act (WBSO)) support small businesses only to a limited extent (De Ridder, 2024). - Knowledge diffusion and spillovers: - Regression across 12 sectors (2010–2020) shows a positive and statistically significant correlation between sectoral TFP and other sectors’ R&D stock (weighted by intermediate consumption), controlling for own innovative property capital stock, sector and year dummies (coefficient of R&D statistically significant at the 10 percent level). - Empirical evidence: exporters and domestic firms connected to exporters receive productivity benefits; horizontal FDI shows higher productivity effects than vertical FDI due to stronger linkages (Wache et al., 2025; Bettendorf and Polder, 2025). - Policy implications: Promote investments with high spillovers (e.g., fundamental research), facilitate closer firm connections, support completion of the EU single market, and reduce trade barriers. ### Conclusion and Policy Recommendations - Encourage lifelong learning and ICT skill usage among older workers to mitigate productivity losses from population aging. - Tackle labor market duality and address coverage and social protection for self-employed workers. - Improve migrant integration policies to close skills/TFP gaps between natives and foreign-born (stepped-up language training, vocational training, job search support, recognition of foreign qualifications). - Promote firm dynamism and reduce barriers to reallocation to address rising productivity dispersion among SMEs. - Remove bottlenecks to investment (energy grid, labor shortages, policy predictability, regulatory reform). - Reform domestic capital markets to improve SME access to non-bank financing. - Increase intangible investment and R&D, especially targeted to smaller firms, and bolster policies that enhance knowledge spillovers domestically and internationally. - Promote completion and better functioning of the EU single market to reduce trade costs and boost productivity spillovers. ### Key Statistics and Indicators Cited - Phasing out of gas extraction: started in 2014, turned off in October 2023, and permanently closed in 2024. - Around 80 percent of total labor productivity growth during 2019–23 attributed to within-sector productivity growth. - Achieving top-performer within-sector contributions could have raised Dutch productivity growth by 1.7 ppt (excluding mining). - Groningen province productivity declined by 23 percent from 2015 to 2023. - OECD TL3 regions: Netherlands labor productivity dispersion (ratio of max to min) = 1.6; median for 23 OECD countries = 1.8. - PISA rank: fifth in 2006 and 22nd in 2022 (average of mathematics, reading, and science). - In 2022, 72 percent of Dutch students in schools reporting instructional issues due to staff shortages; 46 percent in schools with inadequately qualified staff (versus 36 percent and 24 percent in 2018). - Self-employed coefficient statistically significant at the 5 percent level in province regression (2010–2022, 11 provinces). - Frontier micro firms almost 11 times as productive as laggard micro firms in 2021. - Non-banking financing targeting SMEs increased by 16.4 percent in 2024. - EU KLEMS: intangible investment was about 1.2 times higher than tangible investment (excluding residential structures) in the Netherlands in 2021. - About 70 percent of in-house R&D expenditure came from large firms in 2022. - Average intra-EU trade costs: a tariff equivalent of about 44 percent for goods and about 110 percent for services (IMF, 2024b). - Noord-Brabant accounted for over 30 percent of private R&D expenditure in the Netherlands. - Noord-Brabant ranks eighth in business R&D intensity among the 198 NUTS II regions in the EU (CBS, 2022). - OECD insolvency indicator 2022: the Netherlands ranked 6th among the most unfavorable insolvency frameworks out of 24 EU countries. - Migrant Integration Policy Index (2023): the Netherlands scored particularly low for 1) education and vocational training and study grants and 2) economic integration measures of third-country nationals. *Source: sipea2025120 - Selected Issues Paper, June 30, 2025.* ### 1. Context ______________________________________________________________________________ 4 ### sipea2025120 - 1. Context ### A. Context - Prepared by Shinya Kotera (EUR). - Despite one of the highest labor productivity levels globally, the Netherlands faces challenges in enhancing productivity growth. - Key policy levers identified: improving education outcomes, enhancing vocational training (especially in SMEs), reducing labor market duality (given lower productivity of the self-employed), maintaining high skills across generations amid population aging, and effectively integrating migrants. - Firm-level priorities: promote business dynamics, encourage productivity-enhancing investment, complete the EU single market, address factors affecting investment activities (electricity grid, labor shortage, policy uncertainty), and promote productivity spillovers domestically and internationally while encouraging SMEs to engage in R&D. - Phasing out of gas extraction: started in 2014, turned off in October 2023, and permanently closed in 2024. ### B. Macro Level Perspective - Aggregate decomposition approach: following Ando (2020), aggregate labor productivity = within-sector labor productivity growth + reallocation of each sector’s labor share. - Recent trends and sector drivers: - Labor productivity and TFP growth rates declined after the global financial crisis; disappointing productivity growth during 2013–19 despite high real GDP growth. - Slowdown during 2013–19 attributed to: (i) mining (phasing out of gas extraction), (ii) manufacturing (slowdown in chemicals and electrical engineering manufacturing), and (iii) transport and storage (more labor inputs for parcel transportation due to rise of online ordering). - Contribution shares and international comparison: - Around 80 percent of total labor productivity growth during 2019–23 can be attributed to within-sector productivity growth. - The Netherlands ranks fifth out of seven in terms of both total growth and within-sector contributions (peer countries: AUT, BEL, DEU, FIN, FRA, SWE). - Sectors supporting growth (2019–23 average): market services and high-tech knowledge-intensive services. - Sectors hindering growth: other knowledge-intensive services (public, education, and social work), mining, and financial sectors. - Manufacturing: high- to medium-technology sectors improved efficiency; medium- to low-technology sectors stagnated. - Reallocation effects: - Positive allocation effects observed in administrative & support services and hospitality. - Negative allocation effects observed in health & social and construction. - Policy tradeoff noted: reallocating resources to higher-productivity sectors aids aggregate productivity but may not align with evolving social needs (e.g., health and education expansion may be socially desirable even if lower productivity). - Within-sector gaps and potential: - Compared with peers, the Netherlands performed better than the median in 6 out of 15 sectors but lower than the top-runner in all sectors but one (professional, scientific and technical activities). - Larger gaps observed in: 1) public, education, and social (PES), 2) finance, 3) real estate, 4) trade, and 5) manufacturing. - Simply achieving top-performer within-sector contributions could have raised Dutch productivity growth by 1.7 ppt (excluding mining). - Regional considerations: - Labor productivity dispersion among provinces increased moderately over the past eight years. - Example: Groningen province productivity declined by 23 percent from 2015 to 2023 due to gas field closure. - OECD TL3 regions data: Netherlands labor productivity dispersion (ratio of max to min) = 1.6; median for 23 OECD countries = 1.8. - Risk of further widening of regional disparities noted; recommend monitoring drivers and leveraging regional innovation systems to promote regional growth and equity. ### C. Employment Level Perspective - Current skill levels: - According to PIAAC (31 countries/economies), Dutch workers score higher than other OECD countries on key information processing skills; Netherlands ranked between second (numeracy in medium firms) and ninth (problem solving in large firms) and fourth based on average scores among the 31 countries and economies. - Share of workers with above-basic digital skills in the Netherlands is among the highest across all employment categories in 27 European countries (Eurostat). - Declining educational outcomes and staffing shortages: - PISA average score ranking: fifth in 2006 and 22nd in 2022 (average of mathematics, reading, and science). - In 2022, 72 percent of Dutch students were in schools where principals reported instructional issues due to staff shortages and 46 percent were in schools with inadequately qualified staff; these ratios were 36 percent and 24 percent in 2018 (OECD, 2023b). - Concern: declining PISA scores and school staffing issues raise concerns about future worker skill levels as younger cohorts enter the labor market. - Use of skills at work and firm size gradients: - PIAAC-based indexes of use of skills at work for the Netherlands stand around the median of OECD countries. - Netherlands ranking across four indicators ranged between 10th (reading in micro firms) and 22nd (numeracy in micro firms), with an average ranking of 15th out of 31 countries and economies. - Numeric and ICT skills usage particularly lower for Dutch workers in micro and small firms. - Empirical correlation: across countries and firm sizes, higher learning opportunities correlate with higher ICT skill usage, but the Netherlands shows lower skill usage than implied by learning opportunities, especially in smaller firms. - Adult learning participation: EU-LFS indicates the Netherlands is among the highest in EU countries, but CBS data show workers in smaller firms are significantly less likely to participate in training and education. - Implications: - Need to improve quality of vocational training and support access to training in smaller companies. - Deepening capital stocks (e.g., ICT equipment and software) could help better utilize workers’ skills. *Source: sipea2025120 - 1. Context (Selected Issues Paper, June 30, 2025)* ### 10. Given population aging, older workers should be encouraged to keep their skill levels ### 10. Given population aging, older workers should be encouraged to keep their skill levels ### Older workers, ICT use, and lifelong learning - Workforce aging is projected to reduce labor productivity growth (Aiyar et al., 2016). - Older workers globally use ICT skills less compared to young and middle-aged workers; the magnitude of this decline is higher for Dutch older workers, especially those aged 55–65 (Figure 6). - Index of learning at work is constructed based on workers’ opportunities of 1) learning new things, 2) learning by doing, and 3) keeping up to date at work. - Policy implication: Support lifelong learning to increase potential, mobility, and employability (OECD, 2018), and adapt technological innovation to favor both young and older workers. ### Labor market duality and the self-employed (SE) - The share of freelance self-employed (SE) increased over the last two decades in the Netherlands, increasing labor market fragmentation (IMF, 2024a). - A regression analysis among provinces shows a statistically significant negative relationship between labor productivity and the SE share (coefficient of self-employed is statistically significant at the 5 percent level) (Figure 7). - Regression details: covers 2010–2022 and 11 provinces (Groningen excluded). Independent variables: self-employed share (hours worked), 8 sectoral shares, year dummies, province dummies. - Possible reason for lower productivity of SE: lack of sufficient opportunities for skill development; employees often receive company-specific training to enhance productivity (Bovenberg and Groot, 2022; Bondt, 2018). - Policy considerations: Tackle labor market duality; reduce false SE; introduce mandatory disability insurance and strengthen pension arrangements for SE. ### Migrant integration and population dynamics - Recent employment growth has been supported by the increase in foreign workers (Figure 8, upper left). - Over the medium-term, population is projected to grow due to net migration with negative or near zero contributions from natural growth (Figure 8, upper right). - Simulation analysis (Caselli et al., 2024): GDP per capita drops if a TFP gap between natives and immigrants persists, but not if that gap gradually closes over time. - Based on PIAAC scores, the skills gap between natives and foreign-born in the Netherlands appears higher compared with OECD countries (Figure 8, lower left). - Migrant Integration Policy Index: the Netherlands stands between the median and 75th percentile among EU27 countries, except for family reunification and permanent residence, where the Netherlands is below the median (Figure 8, lower right). - Policy implication: Better integration policies are needed to close skills/TFP gaps and integrate migrants in productivity-enhancing ways. ### Firm-level productivity dispersion and dynamism - Labor productivity dispersion among firms (ratio of 90th percentile to 10th percentile) increased among SMEs from 2010 to 2021, but remained unchanged for large firms (Figure 9, left). - The increase in dispersion was particularly high for micro firms (industry and services); frontier micro firms were almost 11 times as productive as laggard micro firms in 2021. - Productivity growth by percentile shows a positive correlation between growth rates and productivity levels in SMEs; productivity growth is negative for small and micro firms at the 10th and 20th percentiles (Figure 9, right). - Interpretation: Widening dispersion implies less efficient resource allocation unless aggregate productivity is raised by reallocating resources to more productive firms. - Business churn (firm births and deaths) is relatively low in the Netherlands compared to the EU median; birth rate around EU median since ~2014, death rate at or below lower edge of interquartile range (Figure 10, left). - Contributions from business dynamics (new and closing firms) to sectoral productivity growth show a declining trend (Figure 10, right). - Cross-country evidence: business dynamism positively correlates with lower regulatory burdens, efficient insolvency resolution, better access to finance, greater support for innovation, and higher education levels (Calvino et al., 2020). - Policy implication: Promote firm dynamism and efficient creative destruction to improve resource reallocation and productivity. ### Capital stock, investment, and bottlenecks - Capital stock for Non-Financial Corporations (NFCs) (as a percent of NFC gross value added) declined from 2018 to 2023; the Netherlands’ level of capital stock is the lowest among peers (Figure 11, upper left). - EU KLEMS estimates (including intangibles) show real growth rate of intangible assets between 2017–21 was almost zero for the Netherlands, while other countries grew (Figure 11, upper right). - NFC investment (as a percent of NFC gross value added) is the second lowest among EU countries (average of 2021-23) (Figure 11, middle). - Dutch firms’ investment mainly focuses on replacement rather than capacity expansion or new products/services (Figure 11, lower right). - Long-term barriers to investment (percent of firms, 2024): skilled staff, energy costs, uncertainty, business regulations, labor market regulation, demand, transport infrastructure, digital infrastructure, availability of finance are identified obstacles (Figure 12). - Note: Calculated as 0.5 * (share of firms responding as minor obstacle) + 1 * (share of firms responding as major obstacle). - Specific bottlenecks and remedies: - Energy costs and long queues for large-scale electricity connections → enhance electricity grid. - Labor market shortages → promote training and labor mobility toward priority sectors. - Domestic policy uncertainty and regulatory complexity → improve predictability and stability of government policies and streamline regulation. - Policy implication: Remove investment barriers to promote capital deepening and productivity-enhancing investment. ### Financial access for SMEs and non-bank financing - SMEs, especially start-ups, innovative companies, and fast-growing firms, face difficulties accessing finance (CBS, 2025). - Dutch firms have traditionally relied on bank funding; bank loans may be suboptimal for some SMEs due to initial unprofitability and inadequate collateral. - Non-banking financing targeting SMEs increased by 16.4 percent in 2024 (SMF, 2025). - Policy recommendation: Domestic capital market reforms to improve valuations, stimulate investor demand for equity and debt instruments, and simplify debt issuances to expand funding options for SMEs. ### Intangible investment, R&D, and knowledge spillovers - Intangible investment importance: - EU KLEMS: intangible investment was about 1.2 times higher than tangible investment (excluding residential structures) in the Netherlands in 2021. - Firm-level analysis (Orbis, 2016–2022, sample size 10,810): intangibles have positive and statistically significant impacts on productivity growth, especially for laggard enterprises; elasticity of labor productivity w.r.t. intangible assets tends to be higher for micro and small firms (Figure 13, left). - Regression controls: firm size (number of employees), NACE (4-digit), year; labor productivity measured by value added per employee; deflated per employee; period 2016–2022. - R&D investment: - Total and business sector R&D expenditures in the Netherlands are slightly lower than the OECD average (Figure 13, right). - About 70 percent of in-house R&D expenditure came from large firms in 2022. - Existing schemes (e.g., Research and Development Promotion Act (WBSO)) support small businesses only to a limited extent (De Ridder, 2024). - Knowledge diffusion and spillovers: - Regression across 12 sectors (2010–2020) shows a positive and statistically significant correlation between sectoral TFP and other sectors’ R&D stock (weighted by intermediate consumption), even after controlling for own innovative property capital stock, sector and year dummies (coefficient of R&D statistically significant at the 10 percent level) (Figure 14). - Empirical evidence: exporters and domestic firms connected to exporters receive productivity benefits; horizontal FDI shows higher productivity effects than vertical FDI due to stronger linkages (Wache et al., 2025; Bettendorf and Polder, 2025). - Policy implications: Promote investments with high spillovers (e.g., fundamental research), facilitate closer firm connections, support completion of the EU single market, and reduce trade barriers. ### Conclusion and policy considerations (extractable implications) - Encourage lifelong learning and ICT skill usage among older workers to mitigate productivity losses from population aging. - Tackle labor market duality and address coverage and social protection for self-employed workers. - Improve migrant integration policies to close skills/TFP gaps between natives and foreign-born. - Promote firm dynamism and reduce barriers to reallocation to address rising productivity dispersion among SMEs. - Remove bottlenecks to investment (energy grid, labor shortages, policy predictability, regulatory reform). - Reform domestic capital markets to improve SME access to non-bank financing. - Increase intangible investment and R&D, especially targeted to smaller firms, and bolster policies that enhance knowledge spillovers domestically and internationally. *Source: KINGDOM OF THE NETHERLANDS—THE NETHERLANDS (International Monetary Fund), content unit 10.* ### 21. The analysis highlights the Netherlands’ potential to enhance productivity by ### sipea2025120 - 21. The analysis highlights the Netherlands’ potential to enhance productivity by ### Summary of main findings - The Netherlands has one of the highest productivity levels globally but faces challenges in enhancing productivity growth. - Average intra-EU trade costs are estimated to be as high as a tariff equivalent of about 44 percent for goods and about 110 percent for services (IMF, 2024b). - Skill levels of Dutch workers are generally high, but: - Skills might not be fully utilized at work (especially in SMEs). - Declining skill levels of young students raise concerns. - Self-employed workers show lower productivity. - Population aging makes it crucial to maintain high skills across generations and integrate migrants effectively into the labor market. - Signs of resource misallocation and low business churn and investment levels point to the need for higher business dynamics and capital deepening. - Factors impeding investment include the electricity grid, labor shortage, and policy uncertainty. - Promoting productivity spillovers domestically and internationally and encouraging SMEs to engage in more R&D would benefit productivity growth. ### Case study: Brainport-Eindhoven - Region and R&D: - Noord-Brabant accounted for over 30 percent of private R&D expenditure in the Netherlands. - The region ranks eighth in business R&D intensity among the 198 NUTS II regions in the EU (CBS, 2022). - Historical drivers: - Transformation rooted in Philips’ historical presence, leading to Eindhoven University of Technology and later firms such as ASML and NXP Semiconductors. - Establishment of other research institutes strengthened the knowledge infrastructure. - Governance and collaboration: - Collaborative governance using a “triple helix model” (local government, educational institutions, industries as equal partners). - The Brainport Foundation (established in 2006) coordinates stakeholders and aligns initiatives with strategic goals. - Physical and innovation infrastructure: - Multiple physical hotspots (e.g., High Tech Campus Eindhoven) facilitate informal interaction and idea exchange. - Daily rentals for cleanrooms and testing instruments and presence of knowledge brokers support startups and new value chains. - Replicability: - The ecosystem’s uniqueness and location-based factors make replication difficult, but stakeholder collaboration as equal partners is highlighted as a transferable element to enhance regional labor productivity. - Note: The box is summarized based on Romme (2022a and 2022b) and Stam et al. (2016). ### Policy recommendations and angles to enhance productivity growth - Improve education outcomes to enhance future workers’ skills: - Invest in early childhood education, boost secondary educational attainment, and address teaching staff shortages. - Align education with (future) labor market needs, and improve career guidance and counseling. - Enhance vocational training and lifelong learning: - Foster close collaboration between training institutions and business representatives. - Reorient active labor market policies toward skills needed to address shortages and incorporate new technologies. - Promote e-learning resources and provide financial assistance, especially to those from disadvantaged backgrounds and workers in smaller firms. - Promote awareness and local initiatives to foster continuous education in SMEs. - Continue to reduce labor market duality: - Phase-out of the self-employed person’s tax has been introduced and accelerated. - Reduce false self-employment; introduce mandatory disability insurance and strengthen pension arrangements for the self-employed to enhance social protection. - Effectively integrate migrants into the labor market: - Provide stepped-up language training together with vocational training, support job search, and recognize qualifications acquired abroad. - Promote business dynamism to enhance resource allocation: - Deepen the single EU market and re-examine the efficiency of regulatory barriers to entry and the insolvency regime. - Remove hurdles to scaling up businesses (e.g., eliminating the reduced profit tax rate for SMEs). - Facilitate labor mobility toward priority sectors. - Encourage productivity-enhancing investment for capital deepening: - Address firm investment constraints such as the electricity grid, labor shortages, nitrogen constraints, and domestic policy predictability. - Encourage investment in new technologies (e.g., digitalization), implement tax reforms incentivizing productive investment, enhance access to finance for SMEs through domestic capital market reform, and promote R&D activities, especially for smaller businesses. - Promote productivity spillovers: - Implement and promote investments with large spillover effects (e.g., research parks and networks) to build connections among firms, research institutions, and regions. - Enhancing the functioning of the EU single market will yield productivity gains for the Netherlands. ### Key statistics and indicators cited - Average intra-EU trade costs: a tariff equivalent of about 44 percent for goods and about 110 percent for services (IMF, 2024b). - Noord-Brabant private R&D expenditure: over 30 percent of private R&D expenditure in the Netherlands. - Regional R&D ranking: eighth in business R&D intensity among the 198 NUTS II regions in the EU (CBS, 2022). - OECD insolvency indicator 2022: the Netherlands ranked 6th among the most unfavorable insolvency frameworks out of 24 EU countries (André and Demmou, 2022). - Migrant Integration Policy Index (2023): the Netherlands scored particularly low for 1) education and vocational training and study grants and 2) economic integration measures of third-country nationals. *Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025120.pdf* --- _Source: https://www.imf.org/-/media/files/publications/selected-issues-papers/2025/english/sipea2025120.pdf_