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Subject Economic Growth
Topic International Finance
Key Words Economic Growth, Productivity, Labor Shortage
News Story

The Netherlands is one of the European Union's fastest growing economies and it has the lowest unemployment of the 12 Euro nations. As a consequence of its rapid and sustained growth, the Netherlands faces a labor shortage. Help wanted signs appear all over the city and firms actively recruit workers in other countries. The scarcity of workers in virtually every category has prompted firms and government employers to adopt extraordinary measures to attract labor and increase productivity. Labor costs, however, are rising and this is partly responsible for the Netherlands having the highest rate of inflation among the Euro nations.

What strategies have Dutch firms used to attract prospective workers? Firms are offering bounties to any worker who brings a friend into the firm. Companies are offering trips to Paris or bright yellow scooters to students who sign with them. A shortage of nurses has led hospitals to raise nurses' wages by 12 percent. They have also tried, without much success, importing nurses from South Africa. The Dutch have changed some laws to attract more spouses into the labor force. A new tax law lowered the tax rate on spousal income. The Dutch government has also been reconsidering some of its immigration laws and Dutch companies have started training programs for immigrants.

The Netherlands depends heavily on exports to fuel its economic growth. The slowdown in the U.S. and German economies has slowed Dutch growth. The Dutch slowdown has not, however, eased the country's labor shortage. Instead, Dutch firms find wages rising and productivity falling; both factors threaten to erase the Dutch cost advantage. The Netherlands does not have control of its money supply and therefore cannot slow its economy by monetary measures. The European Central Bank, the agency responsible for determining monetary policy for the European Union, must contend with an unemployment rate of 10 percent in parts of Germany, a slowdown in the German economy and inflation in the Netherlands. Faced with these conflicting needs, it is difficult for the Bank to develop a monetary policy that is appropriate for all EU member nations.

(Updated September 1, 2001)

Questions
1. Some states in the U.S. have rapidly expanding labor markets while others have stagnant economies. As a consequence, we find workers moving from one state to another in search of jobs. Why is the same thing not happening in the Netherlands?
2. European nations are having a difficult time shaping their economies. The European Union puts constraints on a country's spending and tax policies as well as eliminating a country's ability to control its monetary policy. Given these constraints, why would a country agree to join the EU?
3. In the face of labor shortages, a country has only 3 options - increase productivity, increase the labor force participation rate or increase immigration. Explain how each of these measures would ease the Netherlands' labor shortage.
Source Edmund L. Andrews, "Robust Economy Short of Workers," The New York Times, August 9, 2001.

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