What does it mean that employment is clustering in Amsterdam and Utrecht?

In the Netherlands, 32 percent of all workers are employed outside the region where they live, according to new research by Rabobank. The economic growth regions of Greater Amsterdam and Utrecht in particular attract large numbers of commuters. What does this mean for the country as a whole? We discussed it with Thijs Knaap, Chief Economist at APG.

From an economic perspective, the Randstad, and especially Amsterdam and Utrecht, are only becoming more popular. Is that right?
“That’s true, and it has a lot to do with the type of economy we have today. Broadly speaking, the Netherlands has shifted from agriculture, via industry, to services. Business services, still a growing sector, thrive on proximity. In industry or agriculture, location often matters less: a factory or industrial site can be located almost anywhere. But in business services, you want to be close to other companies. That leads to clustering: everyone wants to be near each other, and as a result large cities attract more and more economic activity. So it’s not just that companies can more easily attract workers from farther away, but also that companies themselves are increasingly drawn to one another.”

During the COVID‑19 pandemic, people were seen leaving the Randstad for quieter regions to live. Do those employees now commute or work from home?
“The cost of housing and other amenities in the city is high, and supply is limited. Anyone looking for a house with a garden, some space or a nice view quickly runs into constraints in the city. Outside the Randstad, those things are often easier and more affordable to find. On top of that, it has become easier since the pandemic to live farther away from your job. Reliable digital connections make working from home possible, and that has become much more widely accepted in recent years. Ten years ago it was often technically feasible, but we simply did it less. Good physical connections also help. If you can easily reach your workplace by train, living farther away becomes less of an obstacle. In short, companies want to be in the city because of clustering and accessibility, while employees partly want to leave because of affordability and quality of life. Together, those movements explain much of what we are seeing today.”

What role does the tight labor market play in this development?
“It is crucial. Unemployment has hovered around 3 to 4 percent for years; in the past it averaged about 6 percent. That difference is substantial. Because of this scarcity, employers can no longer afford to be as demanding and have to become more creative: they recruit over greater distances, allow remote work, and deliberately choose attractive, well-connected locations.”

Is there a limit to this outflow from the Randstad?
“Yes, ultimately there is. It comes down to trade-offs. People are willing to travel farther if they can live significantly cheaper or better. But once the price difference becomes too small, the extra travel time no longer outweighs the benefit. We are unlikely to see places like Enschede become as expensive as Amsterdam, but the gaps may narrow. Historically, this is also a striking reversal: for years, people in their thirties and forties moved to the city in large numbers. That pattern really does seem to be turning.

“Interestingly, this does not apply to retirees. There was always an assumption that they would leave the expensive Randstad en masse for cheaper regions, but we see little evidence of that. Retirees probably feel housing pressure less acutely, because their homes are often already paid off. There are also many factors that keep them where they are, such as social networks, amenities, and familiarity.”

What does all of this mean for the Netherlands as a whole?
“As an economist, I mainly see positive aspects here. Removing distance barriers increases prosperity. Employees gain more choice, companies gain access to a larger labor pool, people can find better housing within their budget, and partners can more easily work in different locations without having to move.

“Regions that were previously seen as ‘economically lagging’ also gain new opportunities. Dual-income households with good jobs elsewhere are now settling there, which stimulates local economies. In that sense, this is a reversal of the classic picture of shrinking regions.”

Are there also downsides to this trend?
“Yes, there are. More commuting leads to congestion, especially at peak times. In practice, working from home often means that large numbers of people come to the office on Tuesdays and Thursdays: the so-called ‘camel week’. That is bad for accessibility and the environment. At the same time, people often underestimate how good accessibility is outside peak hours. Those who are flexible in their travel times tend to experience the Netherlands as very well connected.”