‘Dutch labour system unfavourable to unemployment’

‘Unemployment in the North of the Netherlands could be reduced by over 1 percentage point if we introduced the Danish “flexicurity system” instead of our own system. Labour participation would then also increase by 2 percentage points’, according to the new professor by special appointment in Regional Economics of the Faculty of Economics and Business (FEB) of the University of Groningen, Prof. Paul Elhorst. On 1 October 2011 he was appointed for a period of five years.

Elhorst will be giving his first public lecture in his new position on 10 October. He will be speaking on the impact of migration on the Groningen labour market at the invitation of the Province of Groningen in a series of lunch lectures on Europe. Location and time: 12 noon, Provinciehuis (the provincial government building).

Chair

The regional unemployment problem in the North is one of the most important research themes for the chair, which has partly been made possible by the Regional Economics Chair Foundation, set up by the three northern provinces. The chair, previously held by Professor Jan Oosterhaven, forms part of the department of Economics, Econometrics & Finance within FEB. J. Paul Elhorst (1958) studied econometrics and gained a PhD in Economics from the University of Amsterdam; he joined FEB in 1992.

Flexicurity

‘The Danish labour system could be an example for us’, according to Elhorst. ‘It’s known as the “flexicurity system” and is based on three pillars. There is relatively low labour protection, which means that employees can be fired more easily than in the Netherlands. On the other hand, the unemployment benefits and the investment in an active labour market policy are relatively high, which means that employees can find another job faster.’ Elhorst has calculated that copying this system would result in lower unemployment (- 1%) and higher labour participation (+ 2%) for us. ‘However, the greatest threats to achieving this are anchored in our own system. There is a significant chance that the unions would oppose a reduction in protection against dismissal, and on the other hand that employers and the government would oppose higher social security benefits and an active labour market policy as this would increase the national debt.’

- The article on which the results of the research into the Danish flexicurity system are based can be downloaded at http://www.regroningen.nl/elhorst
- You can also watch a video of Paul Elhorst, ‘Wat zijn de maatschappelijk kosten van werken en werkloosheid’ [What are the social costs of working and unemployment]

Zuiderzee Line

The new professor will concentrate on two main research themes – regional unemployment and the related costs. The practical policy consequences of his research will constantly be passed on to government institutions.
‘The North of the Netherlands, and particularly Groningen, despite a great deal of effort, is still faced with high unemployment’, says Elhorst. ‘I am/we are going to conduct an in-depth analysis of the underlying causes, as well as verify the controversial conclusions of my predecessor Jan Oosterhaven, among which was that the North of the Netherlands would have caught up with the rest of the country long ago if the Zuiderzee Line had been realized.’ Elhorst will not only be using data from the three northern provinces, but also from other EU regions faced with similar problems, because the North and the EU cannot be viewed in isolation.

The cost of unemployment

The cost of unemployment can be determined by asking the question, How much does the economy need to grow to reduce unemployment by one percentage point? Elhorst: ‘According to the man who thought up this question, the economist Arthur Okun, that’s three percent, but later studies have resulted in lower percentages. Thus far, when people have estimated Okun’s law, they have not taken into account the fact that regions or countries are interwoven with each other. When economic growth in a region increases, that also benefits neighbouring regions, for example because the jobs are filled by commuters from outside.’ Elhorst is going to reopen the research and determine the size of Okun’s coefficient for each of the provinces of Groningen, Friesland and Drenthe.

Note for the press

For further information contact: prof. Paul Elhorst, tel. +31(0)50 363 3893, e-mail: j.p.elhorst rug.nl