The wage costs of Dutch companies will increase by 6.1 percent in 2023, or about 17 billion euros. This is calculated by economists at ABN Amro a report released Tuesday. The main causes of the increase are high inflation and the tight labor market.
In 2022, collectively agreed wages will already have risen by 3.2 percent, which at the time was the largest increase since 2008. For this year, ABN Amro expects an average collectively agreed wage increase of 5.3 percent. The total wage costs for companies will rise even faster due to the increase in the minimum wage, which was implemented in January and will amount to 13 percent from July.
As labor costs rise, the economy cools. In 2022, growth was still over 4 percent, but the bank now expects growth of only 1.2 percent in 2023 and 1.3 percent in 2024. According to the economists, the catch-up of the pandemic is behind us and rising interest rates are “starting to bite more and more”. For example, house buyers can borrow less, which leads to falling house prices, and it is less attractive for companies to take out loans for the purchase of new machines and appliances.
Cooling economy
The cooling economy will make it a lot more difficult for companies to pass on higher costs for energy, rent, purchasing and wages to the customer. In 2022, entrepreneurs were still “reasonably” successful in this, says ABN Amro. This is in line with findings Rabobank published at the beginning of this month about ‘grab inflation’, a phenomenon in which companies raise their prices further than their costs have risen in order to grab higher profit margins. According to them, this was the case with Dutch companies. The researchers did note, however, that it was unlikely that supermarkets would have benefited greatly from the price increases, because the competition in that sector is too fierce for this.
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Whether entrepreneurs will also succeed in pricing in the increased costs in their products in 2023 depends, among other things, on their market power and the product range, say the ABN Amro economists. At luxury stores, such as jewelers or food specialty stores, a price increase is easier to achieve than at clothing stores or consumer electronics stores. With the latter, entrepreneurs run the risk of pricing themselves out of the market because there is a lot of competition.
For companies where a relatively large part of the total costs consist of wage costs, profit margins are also coming under pressure. Here it is becoming increasingly interesting to use new technologies. For example, large construction companies are focusing on industrial construction in which robots play a role and the productivity of customer services can increase through the use of artificial intelligence, the report states. The question is how quickly companies will switch to this: in the recently published Future Of Jobs Report 2023 think tank World Economic Forum found that business automation increased by just 1 percentage point between 2020 and 2022, from 33 to 34 percent. The surveyed companies did, however, express the expectation that 42 percent of their tasks will be automated by 2027.
Actions and strikes
The General Employers Association of the Netherlands (AWVN) noted an average collective labor agreement wage increase of 7.5 percent in April, she announced in her monthly report on Tuesday. For the first time, the AWVN saw that actions and strikes by the unions mean that it took longer on average to conclude a new collective labor agreement. In recent months, FNV and CNV, among others, have campaigned at Albert Heijn distribution centers and in regional transport.
AWVN states that it is “concerned” about the “hardening of the negotiating climate”. On several occasions, the employers’ club spoke out against the high wage demands of the unions, while inflation is declining. In this view, AWVN received support from Klaas Knot, president of De Nederlandsche Bank, who appeared in a TV program on 8 May Buitenhof called for wage demands to be moderated, a few days after Albert Heijn made a 10 percent wage offer to striking workers. Trade unions, in turn, point out that workers have not yet been compensated by their employers for the loss of purchasing power due to last year’s high inflation.