Businesses face Rising Labor Costs and a Tight Job Market in The Netherlands

The job market in the Netherlands remains tight, and wages keep increasing. Good news for employees, but a challenge for business owners. In January, salaries rose by an average of 4.5%, and unions continue to push for wage increases of up to 7%. This means companies are facing higher labor costs while economic uncertainty remains. While this is based on the situation in the Netherlands, similar trends are expected in other Northern and Western European countries. How can businesses respond?

The Impact of Rising Wages

The increase in wages is mainly driven by labor shortages and strong demands from unions. Employees have more negotiating power, and switching jobs often comes with a significant salary boost. While this benefits workers, it creates challenges for businesses:

• Pressure on margins: Higher labor costs reduce profitability.
• Competitive disadvantage: Companies with low margins struggle to compete with cheaper alternatives.
• Uncertain future: Inflation and economic uncertainty make long-term planning difficult.

What Strategies Can Businesses Use?

To deal with these challenges, companies need to stay flexible and adjust their strategies. Here are three possible solutions:

1. Increase Efficiency

By optimizing internal processes and using technology wisely, companies can improve productivity without hiring more staff. Automating repetitive tasks and digitalizing workflows can help. However, this requires significant investment before results become visible.

2. Explore Alternative Hiring Strategies

The job market is tight, but talent is still available. Businesses can look at untapped talent pools, such as career changers, international workers, or freelancers. Investing in employer branding also helps attract talent. However, stricter regulations, such as those around false self-employment, can make this strategy more complex.

3. Look Beyond Borders

For some companies, expanding recruitment beyond national borders can be a smart move. In certain European countries, the same work can be done at significantly lower labor costs. This can help businesses manage expenses and ensure long-term stability.

Of these three strategies, hiring internationally is by far the fastest and most cost-effective.

To simplify this process, working with an Employer of Record (EOR) can be a great solution. An EOR handles compliance, tax filings, social security contributions, payroll, and employee benefits—while the employee is still managed by the company in the home country.

A good example is Portugal, where employers can save up to 30% on labor costs compared to the Netherlands. Bridgeshore EOR+ goes even further than a traditional EOR by also handling local recruitment and offering professionals a fully equipped workspace in their Lisbon office, located by the Tagus River.