Why does the Netherlands rank high in productivity but show little growth?

The Netherlands has long been one of the most productive countries in the world, but growth has stalled. Employers’ association AWVN wants to put productivity growth more firmly on the collective labor agreement agenda, for example through agreements on training and working hours. Why is labor productivity barely increasing? We gave Charles Kalshoven, expert strategist at APG, a quick call.

How is the Netherlands doing overall?
“At first glance, the picture still looks positive. In 2025, productivity grew by about 2.4 percent. But over the past ten years, there has been hardly any growth. So it’s too early to say we’re seeing a real turnaround.”

Why is productivity growth so important?
“In the long run, economic growth essentially comes from one source: productivity—creating more value per hour worked. The potential workforce is no longer growing and will likely shrink due to aging. Labor force participation may increase a bit further, but there are limits.

That means additional prosperity has to come from somewhere else. Without productivity growth, it becomes harder to fund social services, deliver healthcare with fewer workers, and keep public debt manageable. It also matters for maintaining control over our own course as a country, including European security. Productivity growth helps free up resources—both money and people—for priorities like defense. A strong economy also supports our strategic autonomy. Growth is not an end in itself, but a condition for sustaining our welfare state and safeguarding democracy.”

Why has labor productivity growth in the Netherlands slowed down?
“Part of the answer is almost a compliment: we already operate at a relatively high level of productivity, which makes further gains harder. Countries that can still catch up technologically often grow faster.

There are also several structural factors holding back growth. Labor participation has increased significantly, which is positive, but it can lower average productivity. When more people enter the workforce, including in jobs with lower added value, that shows up in the average.

Sector composition plays a role as well. The Netherlands is less represented in sectors where productivity is currently rising the fastest, such as technology. On top of that, companies face practical constraints: the electricity grid is congested, space is limited, and nitrogen regulations are slowing down investment. And for productivity, it matters that people are in the right jobs. If the housing market makes it hard to move, people are less likely to switch jobs, and opportunities are missed.”

What else is happening beneath the surface?
“Competition matters too. Innovations and best practices don’t always spread quickly within sectors. When competition is limited, improvements tend to stay with a small group of frontrunners. Meanwhile, companies that are barely viable—sometimes called ‘zombie firms’—continue to operate, even though their people and capital could be used more productively elsewhere.

There’s also a cyclical effect. In good times, companies can often produce slightly more with the same workforce. In downturns, the opposite happens: output falls, but companies hold on to their employees. Those workers were often hard to find, and the slowdown may be temporary. That shows up in the data as low or even negative productivity growth.”

What is needed to get growth going again?
“More competition helps innovations spread faster. That requires simpler rules, fewer national add-ons to European legislation, and a better-functioning internal market. It also requires making choices. Not every sector contributes equally to future growth. If you try to preserve everything as it is, you hold back renewal. Sometimes progress means certain activities shrink to make room for new, more productive sectors.

Investment is crucial—both in innovation and in people and skills, which is why AWVN is emphasizing this. It’s also important to ensure sufficient capital for startups and scale-ups so they can grow here instead of moving to the U.S. Reports by Mario Draghi on European competitiveness and Peter Wennink on the Netherlands’ future earning capacity offer clear guidance.”

So there are still opportunities?
“Absolutely. The current lack of productivity growth is not an unsolvable problem. The Netherlands has a strong foundation: a well-educated workforce, an open economy, and a high level of knowledge. With the right incentives and a willingness to make choices, there is still plenty of potential—we just need to act.

It’s not always necessary to invent new technologies yourself to become more productive. Smart adoption of existing technology can already make a big difference. Take AI, for example. In sectors where the Netherlands is strong, such as services and education, it could deliver substantial productivity gains.

Historically, productivity growth in services has lagged behind industry because human work is harder to standardize and scale. But AI may open up new possibilities—hopefully without making things impersonal. For instance, education could become much more tailored to individual students.

In addition, technologies can reinforce each other. AI can accelerate research into proteins, new materials, or photonics—areas where the Netherlands has a strong position. If we capitalize on that, we can benefit from new waves of productivity growth in the future.”