News item | 18-01-2024 | 9:00 am
The Netherlands has great ambitions. For example, we want to build sufficient homes, have a healthy economy and be climate neutral. At the same time, we are faced with various scarcities, which means that these goals are not all achievable at the same time. Such as a shortage of workers, raw materials, grid capacity, housing, physical space and government finances.
Enlarge image
The choices we make now also influence (possible) future shortages. By accepting that these shortages exist and acting accordingly, we can increase our broad prosperity. Secretary-General Sandor Gaastra of the Ministry of Economic Affairs and Climate mentions two examples of socially relevant scarcities and how we can better deal with them in his annual new year’s article in Economic Statistical Reports (ESB).
Scarcity
Scarcity always exists in the economy and can even increase prosperity. Demand that exceeds supply can be an incentive to increase supply. However, Gaastra also explains that a larger offering is not always possible or desirable. This applies, for example, to labor and space for nitrogen emissions. Gaastra therefore advocates, among other things, making choices and prioritizing. He explains this on the basis of two scarcities: (1) labor and (2) physical environment.
1. Labor shortage
The labor market shortage is still historically large and has no easy solutions. Sufficient workers are of great importance for the business climate and social ambitions. The labor shortage is therefore increasingly threatening to become a bottleneck for housing construction, the energy and climate transition, education, healthcare and childcare, among other things.
Reducing the labor market shortage is a complex puzzle. It remains the preference to ensure higher labor productivity. This way we can do more, with the same number of people. In addition, it is possible to focus on a larger labor supply. This can be done by encouraging either labor participation or the number of hours people work. However, this possibility is limited: labor participation is already historically high. A point of attention remains that working (more) must pay off. Gaastra notes that with an additional increase in the minimum wage, the link with benefits, including the AOW, limits the positive effect of a higher minimum wage on the labor supply. Furthermore, the labor supply can be increased through labor migration, but this also means a higher demand for housing, for example. This argues for a differentiated approach that focuses on highly productive sectors and socially relevant tight sectors.
Because the above will not be sufficient and the labor market shortage is expected to continue in the coming years, we must also look at the distribution of labor supply and demand. This means that prioritization is necessary. For example, by taking a critical look at the labor demand in (semi-)public sectors. Another option that Gaastra mentions is encouraging labor mobility, which will encourage workers to move more towards tight sectors and activities with a high economic value. Making permanent contracts less permanent is an example of how you can increase labor mobility. In addition, the connection between education and the labor market remains essential.
2. Shortage of (nitrogen) space
The available physical space in the Netherlands is limited. Due to the major influence on the quality of nature, there is also limited room for greenhouse gas and nitrogen emissions. In the article, Gaastra focuses on the distribution of nitrogen space. In the short term, there are no longer any attractive options to ‘create nitrogen space’ and painful choices are therefore inevitable. The government has already taken various measures, such as the buyout scheme for farmers. For the long term, it is important that the government focuses on preconditions and leaves the concrete implementation to entrepreneurs.
In his article, Gaastra discusses one specific solution, namely emissions trading. An emissions trading system for nitrogen space has a lot of potential and can efficiently distribute the available nitrogen space at a regional level. Companies can trade these emission allowances among themselves and create an incentive to reduce emissions. In addition, Gaastra outlines that emissions trading has several additional benefits. A better balance is created between projects with relatively low emissions (which are now more difficult to obtain a permit) and existing activities with relatively high emissions. Entrepreneurial freedom is guaranteed and innovation aimed at reducing emissions is stimulated. It is important to take into account the local nature of the nitrogen problem with such an instrument. Feasibility and foreign emissions must also be taken into account.
Lessons and choices
Although the nature of the scarcity of labor and that of space for nitrogen differs, Gaastra draws three lessons from these two cases. Firstly, it is important to recognize the scarcity and actually act on it. This is possible through the right preconditions and thereby arrive at a distribution of scarce resources. An efficient way to set generic preconditions is to use the price mechanism – this is the second lesson. An emissions trading system is an example of this. The third lesson is to stimulate economic dynamism. This also gives new economic activities the opportunity to grow. With these tools, the economy will not get bogged down in the status quo, but will be enabled to grow.