The Netherlands’ Minimum Wage 1969–2022: Can We Learn from Decline?

Abstract

Abstract This paper evaluates the evolution of the Dutch minimum wage since its introduction in 1969 and discusses this as an intriguing case suggesting that a deeper, economic analysis of firm and employee behaviours is required for minimum-wage analysis in general. The real level of the minimum wage has fallen tremendously after 1979, all the way back nowadays to the level of the early 1970s, due to the system of uprating and to government interventions. The minimum-wage employment share shows an even stronger decline after 1979, but, surprisingly, the share below the unchanged real minimum wage of 1979 and in bands above this has remained largely unchanged. Intriguingly, firms have continued paying the same. Composition shifts in minimum-wage employment are significant, towards larger enterprise on the demand side and towards part-time employees on the supply side. Nationally and internationally, virtually all available minimum-wage analyses of employment effects focus on rises of the minimum wage and ignore drops. However, OECD data show that declines are surprisingly frequent, making them perfectly normal economic occurrences that firms will account for. I argue that declines deserve examination in their own right, certainly also from a monopsonistic perspective. Plausibly, declines incite different responses from increases, and their analysis will require the examination of heterogeneous behaviour of both firms and employees. Such analysis will reinforce the economics of minimum-wage analysis as advocated by David Neumark and its integration in labour economics as advocated by David Card.