Labour market institutions and economic performance in the Netherlands

Abstract

The central question of this article is whether or not effectiveness and efficiency are improved by the stronger reliance on markets given Dutch labour market institutions and their resulting corporatist wage formation. In answering this question, besides the influence on the production costs (neoclassical approach), we explicitly deal with and quantify the ‘hidden’ transaction costs (institutional economics approach) of more decentralized labour relations, flexibilization of the labour market, and working conditions ‘à la carte’. The results presented cast doubt on both the efficiency and the effectiveness of recently introduced tailor-made solutions in the Dutch economy.

Keywords:

• Corporatism
• economic performance
• Netherlands
• transaction costs

Acknowledgements

The authors thank the participants of the conference Flexibility and Performance: International Perspectives on Labor Market Institutions, July, 19–20, 2004, Seoul, Korea, Woo-Yung Kim and Stanley Siebert in particular, for their helpful comments and suggestions. The usual disclaimer applies.

Notes

¹A general definition of trust is by Sako (1992: 32): ‘… a state of mind, an expectation held by one trading partner about another, that the other behaves or responds in a predictable and mutually expected manner’, cited in Nooteboom (2003).

²The CPB provides objective and, wherever possible, scientific founded information for policymaking. In particular, the quality of the prognoses plays a positive part in this. In this way, the Social-Economic Council is provided with macro-economic figures, analyses and recommendations that are trusted by all parties involved.

³Although there are surely economic benefits to be expected from a monetary union, the main driving force behind EMU concerns political considerations. Its aim is also largely political. Monetary union is regarded as an engine of European integration (see Fratianni et al., 1992; Feldmann, 1997).

⁴The other countries in the top five in 2000 were: France, the UK, Austria and Germany.