Title: Wage-led or Profit-led Supply: Wages, Productivity and Investment
Abstract: According to standard writing class instructions, a surefire way of having one's manuscripts ignored is to start off with a lengthy prologue. We deliberately offend this golden rule and take a detour, treating our readers to a perhaps unusual account of a well-known piece of recent economic history — the 'Dutch employment miracle' of the 1980s and 1990s (Blanchard 2000; The Economist 2002). What was so miraculous to many was the sharp and sustained drop in the supposedly sclerotic Dutch unemployment rate, which had peaked at more than 11 per cent of the labour force in 1982 — a rate which was 2.1 percentage points higher than the average EU-15 unemployment rate in the same year. By 1990, Dutch unemployment had come down to 5.1 per cent, a full 2.1 percentage points below the EU-15 unemployment rate in the same year, and it declined further to only 3.1 per cent in 2000, with the EU-15 unemployment rate stuck at 7.7 per cent; the Dutch managed to maintain the momentum, keeping unemployment down at 3.8 per cent of the labour force during the period 2000–10, a full 4 percentage points lower than the unemployment rate in the EU-15. This labour market success is generally ascribed to the Dutch socioeconomic model, colloquially known as the 'Polder Model'.