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The labour market in 2025

Four scenarios for the composition of the labour force and the labour productivity

Rapport 'Reshaping work'

The future of the Dutch labour market is strongly related to the dynamics surrounding flexible work and the speed at which the workforce learns new, digital skills. Because both developments are highly uncertain, PwC has developed four scenarios of what the labor market could look like in 2025. 

The scenarios can be found in the report Reshaping work. Future scenarios for the labor market in the Netherlands. Each scenario leads to different outcomes when it comes to, for example, the composition of the labor force (a division between permanent, flexible and self-employed) and labor productivity.

The publication is intended to give all parties involved, employers, (flexible) employees and the government, more insight into the consequences of possible developments and policy decisions, so they can take them into account in their strategies. The report does not express a preference for any of the scenarios. 

Depending on the scenario, the share of flexible and self-employed workers may increase to 57 per cent of the workforce or remain stable at the current 39 per cent. Labor productivity, which has increased by an average of 0.8 per cent in recent years, could increase by 1.8 per cent annually or by only 0.3 per cent.

Will employers take on part of the risks of flexible work?

The scenarios are set up along two axes or uncertainties. The first uncertainty is whether employers' obligations to 'flex workers' and self-employed workers will increase or decrease. In this report, this group of 'flex workers' is defined as everyone without a permanent contract. 

Currently, the biggest risks of flex work, such as sick leave, unemployment, but also the responsibility for retraining and upskilling, lie with these flex workers or self-employed workers. The report assumes that if employers take over (part of) these risks, the number of flex workers will increase. Previous research has shown that a large proportion of working people prefer to have more control over their working days and careers. If the risk difference between fixed and flex is less large than it is now, a larger proportion of workers would opt for a more flexible employment relationship.

Fast or moderate skills transition?

The other axis moves along the question of the pace at which the Netherlands will go through the so-called 'skills transition'. Digitalization in particular, but also developments such as the transition to sustainable energy, mean that other skills will gradually be required of the workforce. How fast the skills transition will take place depends in part on how urgently employers, employees and the government perceive this problem. The PwC study How to make vulnerable jobs ready for the future states that 1.6 million jobs are at the risk of disappearing due to, among other things, automation and that retraining is crucial to prevent these people from actually standing on the sidelines.

The four scenarios

The two uncertainties - whether or not employers will increase their responsibilities to flex workers and the pace of the skills transition - leads to four scenarios.

Scenario 1: competitive labour market

  • The share of flex workers in the total workforce increases (to a maximum of 57 per cent), as the difference between flex and permanent becomes much smaller.

  • The government and employers are investing heavily in the training of employees. 

  • Partly because of this, labor productivity increases by a maximum of 1.8 per cent per year. 

  • Because the costs for employers of permanent and flexible jobs are similar in this scenario, they will be more inclined to offer permanent jobs to low-skilled workers in particular. For this group, at the same time, training opportunities increase. 

  • For higher-skilled workers, who already find it easier to find a permanent job, this scenario could mean attractive flexible opportunities. Because their skills are scarcer, employers will be more willing to offer more options, including flexible employment contracts.

Scenario 2: vulnerable labour market

  • The preference for flexible work also increases in this scenario, but less than in scenario 1. Although the risks of flexible work are better distributed, because the so-called skill transition is gradual, the share of flexible or self-employed in this scenario will reach a maximum of 49 per cent compared to 57 per cent in scenario 1. This is caused by the expectation of workers that they have more continuing education opportunities in a permanent job than when they work flexibly. 

  • Labor productivity increases, but at a much slower pace. 

  • The gradual transition to new skills will mean that employers will prioritize retraining people to increase productivity. They will focus much less on upskilling jobs that can be automated or have little relevance to the future.

  • While sharing the risks of flexible work is beneficial to workers, a highly flexible workforce combined with slower skill transitions creates a vulnerable situation, especially for lower-skilled workers. This scenario means that they have fewer retraining opportunities.

Scenario 3: status quo challenge

  • In this scenario, little or nothing changes in employers' obligations to flexible workers or the self-employed. As a result, there is no change in employees' preference for fixed or flexible work. In the short term, the share of 'flex' is even expected to decline (from 39 to 37 per cent) due to the effects of Covid-19. 

  • The transition to new skills will also continue at the same pace as now, and employers will continue to invest more in permanent workers than in flexible or self-employed workers. This puts a damper on labour productivity improvements in the economy, which in this scenario will grow only 0.3 per cent annually through 2025. 

  • In many ways, this scenario is similar to the current situation, with only minor changes in the structure of the labor force or the effect on the economy. Employers will continue to face a shortage of the right skills and it will be important for them to make targeted investments in upskilling their permanent workforce.

  • Because the transition to new skills is incremental, employers will prioritize upskilling and reskilling in areas where it will yield the greatest return. Lower-skilled jobs will remain vulnerable, as some of them may become obsolete before they have a chance to retrain.

Scenario 4: secure labour market

  • Since the risks of flexible and self-employment do not decrease in this scenario either, the preference for flexibility is not expected to increase substantially. The preference will continue to decline slightly and remain in the same order of magnitude as today (38 per cent).

  • A rapid skill transition is likely to have a significant effect on the labor force and the economy as a whole. Employers and the government will invest more in upskilling and retraining which will narrow the gap in upskilling opportunities for permanent, flexible and self-employed workers.  

  • The impact on labor productivity is favorable and may increase by 1.4% annually until 2025 (maximum effect). 

  • The skills of the labor force in general improve, including the skills of flexible workers and the self-employed. As a result, they will be able to charge a higher average hourly wage, they will be more competitive in the labor market, and they will be less at risk of skills lagging behind.

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Bastiaan Starink

Bastiaan Starink

Partner, PwC Netherlands

Tel: +31 (0)65 375 58 28

Jan Willem Velthuijsen

Jan Willem Velthuijsen

Chief Economist, PwC Netherlands

Tel: +31 (0)62 248 32 93

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