In the early 1980s, labour force participation of prime-aged women in the Netherlands was among the lowest in the OECD. As shown in Figure 1, in the following two decades, labour force participation increased substantially to almost the OECD average (OECD, 2004). The rise in participation rates was mainly due to women working part-time. However, whereas in, for example, Scandinavian countries the incidence of part-time work went down after the initial rise in participation rates, female part-time work remains much more popular in the Netherlands than in any other OECD country (see Figure 2).
Figure 1. Labour force participation rates of prime-age women (aged 25-54)
During the 1980s and 1990s, part-time work was praised as a way to increase the low female participation rates. However, the attitude towards part-time work among policymakers has changed. Now, a part-time job is often considered a trap in which the full potential of women remains unexploited. Part-time working women are paid less and have fewer opportunities for promotions. Therefore, increasing working hours would be beneficial for their labour market position. Stimulating female labour supply is also considered to be a potential source to increase economic growth and deal with the costs of an ageing society.
Figure 2. Proportion of employed women aged 25-54 who are in part-time jobs
In 2008, the “Committee on Labour Force Participation” installed by the Dutch government argued that the high number of part-time workers is one of the main weaknesses of the Dutch labour market. The committee advised the government to stimulate participation rates and increase working hours, particularly among women. To stimulate non-working women to enter the labour market and working women to increase their working hours, income tax rules should be changed to make work pay more.
Labour supply and taxes
The plea for labour supply incentives through a change in income taxes is not new. In fact, in 2001 there was a tax reform in the Netherlands that had these features. Prior to 2001, all individuals had a general tax allowance and additional tax allowances for working and parenting. It was possible to transfer unused tax allowances between partners. Due to the progressive nature of the Dutch tax system, it was financially unattractive for women to work at a low income if they had a high-income partner. The 2001 tax reform replaced the general allowance by a tax credit, a reduction in tax, independent of the marginal tax rate. The tax credit was still transferable between partners, but the total tax reduction would not be affected by the transfer. Therefore, the tax reform reduced the costs of entering the labour market. Moreover, the 2001 tax reform also reduced marginal tax rates. As shown in Figure 3, the magnitude of this reduction differed substantially between income levels, being the highest around the average taxable income of women (15,000).
Figure 3. Marginal tax rates before and after the 2001 tax reform
Source: Bosch and Van der Klaauw (2009)
We find that the Dutch tax reform of 2001 increased female labour force participation by about 3.5 percentage points (Bosch and Van der Klaauw 2009). This effect is mainly attributable to the shift from tax allowance to tax credit, which made work much more financially attractive for women with a high-income partner. The effect of the changed marginal tax rates was small and insignificant. More precisely, women slightly reduced their working hours in response to receiving a higher after-tax hourly wage. Overall the tax reform increased average weekly hours of work by 0.4, which is about 2% of average working hours in the population.
Why tax incentives don’t increase working hours
Apparently tax incentives are better at stimulating participation than increasing working hours. The key question is why women do not increase their working hours when it becomes financially more attractive. Recent surveys by the Netherlands Institute for Social Research (SCP) provide some insight into the motivation of women working part-time (see Portegijs and Keuzenkamp, 2008; and Portegijs et al., 2008). Dutch women report being satisfied with their part-time jobs. Only 4% of women working part-time would prefer to work fulltime. In other countries with much lower rates of part-time work, this percentage is much higher (e.g. 15% in Germany and Denmark and 30% in France and Spain). An important reason is that part-time jobs are much more institutionalised in the Netherlands (Bosch, Deelen and Euwals, 2008). Whereas part-time jobs are often marginal jobs in most countries, relatively high-skilled work can be done part-time in the Netherlands.
Initially, part-time work was popular because it allowed women to combine work and care for young children. About 40% of both Dutch men and women think that the family would suffer if the woman would work full-time. This opinion has not changed much during the past decades and across generations. Although part-time work among men is higher in the Netherlands than in most other countries, men are not expected to reduce their working hours when there are young children in the family.
Taking care of (young) children is the most important reason for part-time work for women. Women often reduce their working hours after their first child is born. Indeed, part-time work is highest among women with dependent children. However, as shown in Figure 4, women without dependent children also often work part-time. Usually women do not increase their working hours when their children become older. And young women without children often choose not to work full-time after leaving full-time education.
Figure 4. Distribution of weekly working hours for women with and without children
Source: Dutch Labour Force Survey.
Other important reasons mentioned in the SCP surveys for working part-time are housekeeping, having time for oneself, and having time for friends and hobbies. Furthermore, it seems that financial need for long working hours is less severe for Dutch women than for women in other countries. In the Netherlands, less than 40% of women indicate that they do not work less because of financial constraints. In other European countries, where many more women work full-time, over 50% of women say they do not work less due to financial constraints. It should be noted that due to part-time work, about 25% of working Dutch women earn less than what would be considered the minimum income for being financially independent.
Finally, there is the issue of the distribution of household work and paid work within the family. Van Ours (2008) notes that if women increase their working hours, their tasks in the household are not taken over by their partner. Figure 5 shows how hours of household work change with increasing hours of paid work by women whose male partners have a full-time job. Clearly, the burden of the additional paid working hours is not shared. For each additional working hour, women reduce housekeeping by 33 minutes, while men increase housekeeping by only 6 minutes.
Figure 5. Hours of household work by hours of women’s market work; 2000
Source: Van Ours (2008).
Without part-time work, female labour force participation rates in the Netherlands would not have increased as fast as they did in past decades. However, whereas part-time work was a transitional phase in Scandinavian countries, part-time work is more persistent in the Netherlands. Women are satisfied working part-time, because relatively high-skilled work can be done part-time, full-time work is not a financial necessity, and the burden of additional working hours is not shared within partnered families. Whereas financial incentives have been successful in increasing female participation rates, they have hardly influenced female working hours.
Bosch, N., A. Deelen & R. Euwals (2008), “Is part time employment here to stay? Evidence from the Dutch labour force survey 1992-2005”, IZA Discussion Paper 3367.
Bosch, N. & B. van der Klaauw (2009), “Analyzing female labour supply evidence from a Dutch tax reform”, CEPR Discussion Paper 7337.
OECD (2004), Female labour force participation: past trends and main determinants in OECD countries, Economics Department, Working Paper.
Portegijs, W., M. Clo¨ın, S. Keuzenkamp, A. Merens & E. Steenvoorden (2008), “Verdeelde tijd: waarom vrouwen in deeltijd werken”, Sociaal Cultureel Planbureau. (In Dutch)
Portegijs, W. & S. Keuzenkamp (2008), “Nederland deeltijdland: vrouwen en deeltijdwerk”, Sociaal Cultureel Planbureau. (In Dutch)
Van Ours, J.C. (2008), “De Nederlandse vrouw die meer wil werken staat onder dubbele druk”, Me Judice December 23, 2008. (In Dutch)