Tilburg University Perceived constraints for Dutch unemployment policy Keuzenkamp, H.A.; van der Ploeg, F. Publication date: 1992 Link to publication in Tilburg University Research Portal Citation for published version (APA): Keuzenkamp, H. A., & van der Ploeg, F. (1992). Perceived constraints for Dutch unemployment policy. (Reprint series / CentER for Economic Research; Vol. 74). Unknown Publisher. General rights Copyright and moral rights for the publications made accessible in the public portal are retained by the authors and/or other copyright owners and it is a condition of accessing publications that users recognise and abide by the legal requirements associated with these rights. • Users may download and print one copy of any publication from the public portal for the purpose of private study or research. • You may not further distribute the material or use it for any profit-making activity or commercial gain • You may freely distribute the URL identifying the publication in the public portal Take down policy If you believe that this document breaches copyright please contact us providing details, and we will remove access to the work immediately and investigate your claim. Download date: 24. sep. 2021 CBM R 8823 for 1992 ~mic Research llllllf'mllnlf~lnlllll 74 I''Illlllllllllllllllllll Perceived Constraints for Dutch Unemployment Policy by H.A. Keuzenkamp and F. van der Ploeg Reprinted from C. de Neubourg (ed.), The Art of Fuli Employment - Unemployment Policy in Open Economies, Amsterdam: Elsevier Science Publishers (North-Holland), 1991 ~`~Q' ~ Reprint Series , J~ -,~~, , ~~~eJQ~ , : ~; no. 74 CF.N'1'FA FOR ECONOMIC RESEARCH Research Staff Helmut Bester Eric van Damme Board Helmut Bester Eric van Damme, director Arie Kapteyn Scientific Council Eduard Bomhoff Erasmus University Rotterdem Willem Buiter Yale University Jacques Dréze Université Catholique de Louvain Theo van de Klundert Tilburg University Simon Kuipers Groningen University Jean-Jacques Laffont Université des Sciences Sociales de Toulouse Merton Miller University of Chicago Stephen Nickell University of Oxford Pieter Ruys Tilburg University Jacques Sijben Tilburg University Residential Fellows Svend Albaek European University Institute Pramila Krishnan San Francisco State University Jan Magnus Tilburg University Eduardo Siandra UCLA Dale Stahl II University of Texas at Austin Hideo Suehiro Kobe University Doctoral Students Roel Beetsma Hans Bloemen Sjaak Hurkens Frank de Jong Pieter Kop Jansen Address: Warandelaan 2, P.O. Box 90153. 5~ LE Tilburg, The Netherlands Phone : f31 13 663050 Telex : 52426 kub nl Telefax: ~31 13 663066 E-mail : "centerEhtikub5.bitnet" ISSN o924-7874 1991 Q~~-1Z ~ for Economic Research Perceived Constraints for Dutch Unemployment Policy by H.A. Keuzenkamp and F. van der Ploeg Reprinted from C. de Neubourg (ed.), The Art of Full Employment - Unemployment Policy in Open Economies, Amsterdam: Elsevier Science Publishers (North-Holland), 1991 Reprint Series no. 74 Thc Art o! Full Employment C. dc Ncubourg (Editor) ~ Elsevier Science Publishers B.V. (North-Holland), 1991 7 PERCEIVED CONSTRAINTS FOR DUTCH UNEMPLOYAIENT POLiC~' H.A. Keuzenkamp and F. van der Plceg' 1 Introduction Apart from a very short interval in 1982 the Netherlands have been governed by a central-right coalition from 1978 to 1989. During the first four years Mr. van Agt was prime minister. This coalition was secured with 76 of the 150 seats in parliament. This period was marked by a sharp increase in unemployment and quickly deteriorating govemment finances. Halfway during its term, the Minister of Finance, Frans Andriessen, quit after a quarrel in which he insisted on further restrictions on government spendin~ whereas his colleagues did not give him sufficient support. In 1982 a central-left government took over, but was unable to agree on its policies. Govetnment finance deteriorated further and so did unemployment. New elections in 1982 brought a gain of ten seats for the conservative-liberal party, VVD, and a small loss for the centrist Christian Democrats (CDA). They formed a new coalítion under Mr. Ruud Lubbers as prime minister and former banker Dr. Onno Ruding as Minister of Finance. The program of this govetnment strongly emphasised the need for sound government finances, and a recovery of the market sector to beat the unemployment problem. First priority became to beat the budget deficit, whatever the means. The Lubbers government was more convinced and convincing on its goals than its two predecessors. Hence, Mr. Lubbers secured a second term of office after the election on 21 May, 1986 and was able to continue to focus on his policy of sound bovernment finance. However, some fatigue with this policy started to occur as budget discipline deteriorated during the course of the second government of Lubbers and Ruding. On the nibht of 2 May, 1989 the VVD forced a break in the coalition over the finance of the National Environment Plan. The election results of 6 September 1989 resulted in a change of coalition leading to a centrist-left wing coalition with a rather pragmatic program. Sound government finance is still very much emphasised, but the days of benign neglect of the unemployment problem seem to be past. The new coalition still has to face a number of unpleasant constraints to device a new unemployment policy. They are discussed in this paper. There are many constraints for Dutch unemployment policy, but the main ones are financial ones and the associated lack of government investment. However, the 8 H.A. KeuZeriknmp arut F. van der Ploeg true constraints differ from the perceived coostraints. Hence, we strongly believe that there are possibilities for an effective reduction of unemployment despite these perceived financial and other constraints. This issue has occupied the minds of politicians, journalists and economists in the Netherlands during the last decade. Our purpose is to review the debate, pin-point the areas of concern for the future development of the Dutch economy, pay attentioa to the composition of the pool of unemployed, which is the main problem facing the Dutch economy, and provide some macroeconomic analysis. Section 2 discusses the unemployment problem. Section 3 describes the attempts that have been made by the governments under Mr. Lubbers to make finances of the public sector more hexlthy. Section 4 discusses the policy of De Nederlandsche Bank and the strong external constraints it is faced with. Section 5 discusses savings, the current account and credit constraints. Section 6 goes on to investment and constraints on productive capacíty, human capital and the environment. Section 7 concludes the paper. 2 The economic problem: alienation of the long-term ununployed The Netherlands has a very high rate of unemployment compared with other OECD countries. After the second oil crisis in 1979, unemployment figures doubled. A peak occurred in 1983 at 1246 (adjusted by the OECD secretariat. The unadjusted peak is 15.446 in 1984. This adjustment is made to facilitate international comparisons. It amounts to deleting employed persons registered as unemployed, and adding unemployed persons not registered at the unemployment office). Table 2.1 presents some unemployment figures for 1977 (the fall of the centre-socialist government), 1982 (the starting year for the present prime minister, Mr. Lubbers) and the years after, up to 1987 (the most recent figures available from the OECD). The standardised unemployment rates for 1987 were 9.6 46 for the Netherlands, 6 96 for the US and Germany and only 2 4b for Sweden, so the Netherlands clearly scores relatively very badly on the target for unemployment. The rise in unemployment can partly be ascribed to a fairly strong increase in the Dutch labour force, particularly because of an increase in the participation rate of women. In 1975, this participation rate was embarrassing low at 31.09b, the lowest in the OECD (the OECD average was 49.596). In ten years time, female participation rose by ten percentage points, as Table 2.2 shows. This growth in labour supply was accompanied by a decline in private-sector employment. This decline started in 1972 and lasted till about 1984. Since then, a rather strong recovery in employment occurred (see Table 2.3). In 1985, 25.3 96 of the total labour force worked part time (less than 35 hours s week), and 55.246 of females work part time. Both figures are the highest within the OECD (see OECD, Economrc Outlook, December 1988, Table 1.4). It is obvious that jobs taken up by females are, in a sense, inferior jobs. It is no surprise that there are strong Perceived Constraints for Dutch Unemployment Poticy 9 political pressures in the Netherlands for more public and private provisions for child care and day-centres. Table 2.1 Unemployment rates 1977 1982 1983 1984 1985 1986 1987 19 8 8 Netherlands 5.3 11.4 12.0 11.8 10.6 9.9 9.6 9.3 (unadjusted) 5.5 12.4 15.0 15.4 14.2 13.2 12.6 - Sweden 1.8 3.2 3.5 3.1 2.8 2.7 1.9 - US 6.9 9.5 9.5 7.4 7.1 6.9 6.1 5.4 Germany 3.6 6.1 8.0 7.1 7.2 6.4 6.2 6.2 UK 6.0 11.3 12.4 11.7 11.2 11.2 10.3 8.3 Belgium 7.4 12.6 12.1 12.1 11.3 11.2 11.1 10.1 Italy 7.0 8.4 9.3 9.9 10.1 10.9 11.8 - lreland (unadjusted) 8.8 11.4 14.0 I5.5 17.4 17.4 17.7 - Source: OECD, Economic Outlook, December 1988 (Table R.17, unadjusted figures: Table R.18); Centraal Economisch Plan, 1989. Table 2.2 Participation rates 1975 1985 Total: Netherlands 57.3 59.9 OECD 68.3 69.4 Male: Netherlands g3,2 7g.2 OECD 87.3 83.5 Female: Netherlands 31.0 41.2 OECD 49.5 56.1 Source: OECD, Employment Outlook, Table I and J 10 H.A.