Labor productivity growth has been declining over the past 50 years

In 2023, labor productivity fell by more than 1.3% from the previous year. This is the second largest drop in labor productivity in 50 years. The only year with a larger drop was during the financial crisis in 2009, when it fell by 2.2%.

Labor productivity A measure of economic value added per hour worked. Factors that can increase productivity include innovation, the use of more machines and better-trained or experienced employees. Labour productivity growth is generally lower in the services sector, where it is relatively difficult to introduce new technologies and innovations. The share of the services sector in the Dutch economy has been growing over the past 50 years.

Productivity gains were modest in most sectors

The decline in labour productivity has affected almost all sectors of the economy. In the mining and quarrying sector, labour productivity growth has turned to decline. This is linked to the phasing out of natural gas extraction in the northern province of Groningen. In the decade since 2014, labour productivity in this sector has fallen by almost 16% per year, compared to an average growth rate of 0.7% before 2014. In the government and healthcare sectors, labour productivity has also fallen since 2014.

In addition to mining and quarrying, the slowdown in labor productivity growth has also affected agriculture, financial services, and manufacturing. In contrast, labor productivity growth in construction, business services, and cultural and recreational services has actually accelerated since 2014 compared with previous decades.

Economic growth is mainly due to an increase in working hours

Economic growth can be achieved either by increasing working hours or by creating more value per hour. The economic growth of the past decade has been mainly achieved by increasing working hours.

In the decades after World War II, increases in labor productivity were the main factor in Dutch economic growth. The tail end of growth occurred between 1974 and 1983. In more recent decades, productivity growth has steadily declined. After 2014, productivity growth has been well below the levels of previous decades.

In the decade before 2014, the growth in hours worked slowed significantly as unemployment rose in the wake of the financial crisis. However, since 2014, the growth in hours worked has been faster than it was between 1984 and 2004.

Dutch labour productivity growth lags behind other EU countries

Over the past decade, the Netherlands’ labour productivity has increased less than the EU average. Five countries had lower increases in labour productivity than the Netherlands (and one of them saw a decline). The remaining countries had higher increases in labour productivity than the Netherlands. Ireland had the highest increase in labour productivity, at 5% per year. In contrast, Luxembourg’s labour productivity fell by 0.4% per year on average.