Labour market institutions and economic performance in the Netherlands

The central question of this article is whether or not effectiveness and efficiency are improved by the stronger reliance on markets given Dutch labour market institutions and their resulting corporatist wage formation. In answering this question, besides the influence on the production costs (neoclassical approach), we explicitly deal with and quantify the 'hidden' transaction costs (institutional economics approach) of more decentralized labour relations, flexibilization of the labour market, and working conditions 'a la carte'. The results presented cast doubt on both the efficiency and the effectiveness of recently introduced tailor-made solutions in the Dutch economy.