Long-Term Unemployment and the Great Recession in the Netherlands: Economic Mechanisms and Policy Implications

Abstract

A decomposition of GDP changes during the Great Recession shows that a relatively large part of the economic shock in the Netherlands translated into unemployment. Wages absorbed a larger part of the shock in Germany, the UK, and the US. The Netherlands has faced more long-term unemployment than other countries, particularly in recent years. Long-term unemployed workers are on the margins of the Dutch labour market. Neither real wages nor the number of vacancies respond to an increasing rate of long-term unemployment. Long-term unemployment is for an important part a problem of older unemployed workers. In the Netherlands, 40 % of the long-term unemployed workers are over age 50, which is almost twice as much as in the EU and the US. We identify three possible avenues for labour market reform: unemployment insurance, employment protection legislation and active labour market policies.