OECD Economic Surveys: Netherlands 2021

Report

OECD Economic Surveys: Netherlands

16 June 2021

2. Productivity and digitalisation for a stronger recovery after COVID-19

Abstract

Slow productivity growth in the decade leading up to the COVID-19 pandemic raises concerns for future living standards. Digital technologies have the potential to boost productivity growth, but their uptake and efficient utilisation depend on a good business climate and access to complementary skills. The COVID-19 crisis has accelerated the digital transformation, but there is scope to further speed up the digital take-up among enterprises that currently lag behind. Encouraging enterprises to implement digital security standards, extending e-government services to businesses, enhancing public-private R&D partnerships, and improving access to equity finance would help the digital transformation and productivity. Skill shortages, notably a lack of ICT professionals, is a concern. More diverse and flexible higher education pathways and a stronger involvement of the private sector in the design of vocational and higher education programmes would boost the supply of skills in high demand on the labour market. Doing more to train job seekers and low-skilled workers, regardless of their employment contract, would be beneficial to productivity and help ensure that its benefits are widely shared.

Productivity performance in the Netherlands has been disappointing since the financial crisis (Figure 2.1). Several factors played into this development. Weak investment in the five years following the Global Financial Crisis has dampened productivity growth. Skill shortages increased on the back of stronger economic growth. Difficulties to find skilled workers constrained labour productivity growth. Furthermore, the adoption of digital technologies with the potential to boost productivity has been concentrated among the largest firms with slow diffusion to the rest of the economy. Smaller firms lack the finance, skills and know-how, which are key to get the most out of the digital transformation. In addition, part of the labour productivity underperformance mirrors a substantial rise in labour force participation, including more own-account workers with lower skills and access to training.

Figure 2.1. Labour productivity is high while productivity growth is slow

Digital technologies have the potential to improve productivity, giving room for raised wages and living standards, better public services and greater well-being (OECD, 2019[1]; 2019[2]; Gal et al., 2019[3]). Digital tools offer governments better ways to interact with citizens, allow firms to design, produce and sell new goods and services, and facilitate social and economic interactions among individuals. Recently, the pandemic may have further accelerated trends towards automation (Chernoff and Warman, 2020[4]) and advanced the digital economy. With a favourable business environment and a highly skilled population, the Netherlands is well positioned to take advantage of the digital transformation to boost productivity for a stronger recovery following the Covid-19 economic crisis. The country is also making efforts to benefit from frontier technologies such as artificial intelligence and quantum computing. Up-skilling and re-skilling efforts should be ramped up to facilitate this process and reduce the associated social cost.

The COVID-19 crisis has created additional challenges for productivity. School closures reduced skill accumulation. Parts of the job losses may become permanent in some sectors due to changed consumer demand and accelerated digitalisation and automation, which are set to increase skill mismatches going forward. Generous grants and deferred tax payment have helped businesses to stay afloat during the height of the crisis, but they risk locking-in resources in low-productivity firms and constrain the effective reallocation of resources to most productive firms. Increasing corporate debt may weigh on investment and productivity. Rising concentration in some sectors, increasing shipping costs, weaker trade flows and the reorganisation of global value chains are further risks to productivity. Going forward, it will be key to pivot towards policies facilitating a reallocation of resources towards highly productive sectors and firms. Temporary higher unemployment and bankruptcies are an integral part of this necessary adjustment to allow sound productivity growth in the longer term.

Digitalisation can boost productivity, and can help make growth greener and more inclusive. It can increase resilience to shocks and be part of the solution to challenges the Dutch society is facing. During the COVID‑19 crisis, e-commerce and teleworking proved helpful in cushioning the immediate economic shock as many firms rapidly stepped up their information and communication technology (ICT) capacities and adopted digital technologies to stay in business (OECD, 2020[5]). Digital technologies can also help pave the way out of the crisis, for example in reducing the cost and raising the quality of activities to re-skill people affected by structural change. Artificial Intelligence (AI) systems have been crucial in monitoring the evolution of COVID-19 and in guiding policy responses. The fight against climate change is also pushing the government and the private sector to pay more attention to new technologies to support the transition of the economy towards carbon neutrality increase economic resilience and resource efficiency.

This chapter looks at productivity challenges through the lens of digitalisation and associated policies in the Netherlands. It presents policy recommendations to seize the productive potential of digital technologies and ensure sustainability and inclusiveness in an increasingly digital society. It draws heavily on the OECD’s Going Digital Policy framework (OECD, 2019[1]) and previous OECD work on productivity (Gal et al., 2019[3]; Sorbe et al., 2019[6]; Andrews, Nicoletti and Timiliotis, 2018[7]), the OECD Skills Outlook (OECD, 2019[8]) and the OECD Jobs Strategy (OECD, 2018[9]). To take advantage of the productive potential of digitalisation, the Netherlands must facilitate and encourage firms to adopt new technologies, maintain high usage of digital infrastructure, ease financing conditions for young and innovative firms, and better target R&D support. Education and active labour market policies need to address skill shortages and ensure all workers are equipped with the right skills to prosper in the digital age.

Supporting an inclusive and efficient digital transformation

The Netherlands is among the most digitalised OECD countries (Figure 2.2), with a high share of households having a broadband connection, using digital government services, teleworking regularly and shopping on-line. A high share of businesses have fast broadband connections (>30Mbps) and purchase cloud services compared to the OECD average. Some weaker spots include that the share of small businesses selling on-line is well behind leading countries, although slightly above the OECD average. ICT patents and the share of young female coders are low. Trust in privacy protection and transaction security on-line are below the OECD average (OECD, 2019[1]).

Figure 2.2. The Netherlands is more digitalised than the OECD average

ICT adoption, composite index, 2019

Digital technologies are constantly pushing up the technology frontier. The Netherlands is investing considerable resources in frontier digital technologies, notably quantum computing and artificial intelligence, which received substantial funding through the first tranche of the National Growth Fund. Such technologies expand the limits of what is humanly possible, and offer a vast productivity growth potential. However, translating innovations, even those that are already commercially available, such as cloud computing, big data analytics and artificial intelligence into productivity growth requires that a large share of firms adopt available digital technologies to improve their processes and outputs. As an illustration, recent empirical analysis suggests that a 10 percentage point increase in the sector average adoption rate of cloud computing is associated with a 3.5% productivity increase for the average European firm after five years (Gal et al., 2019[3]).

Policy has an important role to play to support the digital uptake. Recent OECD work (Sorbe et al., 2019[6]) shows that digitalisation could be boosted by reducing regulatory barriers to competition, improving reallocating talents and capital, upgrading skills, and easing financing conditions of young and innovative firms (Figure 2.3).

Figure 2.3. A range of policies can support productivity through digital adoption in the Netherlands

The COVID-19 pandemic has accelerated the pace of digitalisation by speeding up automation, moving shopping and working online. Teleworking was high among workers already before the onset of the virus outbreak, and the share of workers teleworking has nearly doubled (Figure 2.4). Post-crisis incidence of teleworking is expected to remain above pre-crisis levels, with uncertain effects on productivity. Governments can address potential concerns for workers’ productivity by implementing best practices for teleworking, for example regarding working hours and screen-free breaks (OECD, 2020[10]). Furthermore, the current tax regime puts teleworkers at a disadvantage by allowing deductions for work-related expenses such as commuting, while not allowing deducting costs related to home offices. Aligning the tax treatment of job-related expenses for teleworkers could help creating more equity.

Figure 2.4. Teleworking was common already before COVID-19

Share of respondents working from home

Further broadband upgrades will be needed

Most Dutch firms have access to broadband with at least 30Mbit/s (Figure 2.5, Panel A), but there is room to increase the share of firms with higher speed broadband connections, notably among small- and medium-sized enterprises (Figure 2.5, Panel B). The broadband infrastructure, which relies heavily on an extensive cable network, allows sufficient capacity for most uses today. However, further deployment and take-up of high-capacity fixed networks (e.g. fibre networks) (Figure 2.5, Panel C) and 5G among households and businesses will allow to face the increasing data demands of the near future. These demands stem from the digital transformation such as artificial intelligence, self-driving vehicles and the Internet of Things connecting objects over the internet with embedded sensors, software and other technologies (OECD, 2019[1]; 2019[11]).

Figure 2.5. Most firms have a broadband connection but the uptake of high-speed internet is low

Extending high-capacity fixed networks and building next-generation 5G networks is one of the priorities of the government, as stated in the Digital Strategy and the Dutch Connectivity Action Plan (Ministry of Economic Affairs and Climate Policy, 2019[12]; Ministry of Economic Affairs and Climate Policy, 2018[13]; Ministry of Economic Affairs and Climate Policy, 2018[14]). The penetration of high-speed broadband with at least 1 Gbit/s download speed is projected to increase from currently 37% to 65% by 2023 (Dialogic, 2019[15]). The rollout is progressing swiftly in rural areas, but its deployment in urban areas has slowed recently due to lower-than-expected investment by private operators. The government is examining how to promote private sector investment in high-capacity fixed broadband networks within the telecommunication bill, including guidelines for infrastructure sharing (Ministry of Economic Affairs and Climate Policy, 2019[16]). The first 5G commercial network was launched in the Netherlands in April 2020. The government auctioned 5G-suitable frequency bands in July 2020, and the auction for additional frequency bands is expected to take place in early 2022. Based on national risk analyses three measures have been announced in July 2019 to ensure the integrity and security of the current and future telecom networks and associated facilities, including technical and organisational requirements for providers of public electronic communications networks or public electronic communications services, and an obligation for providers of a public electronic communications network or service to exclusively use products or services of parties specified by the government in the critical parts of that network or associated facilities. Further, a structural system will be put in in place to monitor technological developments and take the appropriate measures to ensure that networks remain safe and secure.

Strengthen digital security

Digital security ensures that citizens and businesses can trust digital infrastructure, technologies and services, underpinning digital uptake and associated productivity growth. Cybercrime is a continuous threat, as became apparent during the COVID-19 pandemic, which has accelerated the use of internet and the reliance on digital technologies (OECD, 2020[17]; 2020[18]). The government has stepped up its digital security efforts and has established a National Cyber Security Centre. Its Roadmap for Digital Hardware and Software Security outlines measures to improve the digital security of ICT products and services, including connected devices associated with the Internet of Things (Ministry of Economic Affairs and Climate Policy and Ministry of Justice and Security, 2018[19]). The roadmap has been followed up by a new law to fight computer crime and awareness-raising activities amongst others. With the European Cyber Security Act, the government has committed to develop and implement EU-wide cybersecurity certification systems for ICT products and services. In addition, the government encourages public and private organisations to welcome vulnerability reports from security researchers. The Ministry of Justice has created a safe harbour to protect researchers from legal threats and the National Cyber Security Centre’s Guidelines on Coordinated Vulnerability Disclosure have become an international reference in this area (OECD, 2021[20]; National Cyber Security Centre, 2018[21]).

These efforts notwithstanding, only 32% of Dutch enterprises had defined a cybersecurity policy in 2019. This is lower than in peer countries like Denmark (42%), United Kingdom (40%), and Sweden (39%) (Eurostat, 2021[22]). The government made EUR 5 million available in 2019 to raise awareness about digital security among businesses. The Digital Trust Centre (DTC) organise workshops for small and medium enterprises around open source Internet of Things systems and standards. Further, businesses are provided with reliable and independent information on digital vulnerabilities and concrete advice on the actions they should take. In addition to fostering cyber security alliances between businesses, DTC aims to help businesses improve their cyber security arrangements and to increase their resilience to cyber threats. These steps are welcome.

Regulatory barriers are lean, but there is scope for improvement

Lean regulations supporting entrepreneurship and boosting business dynamics can allow innovative and digitally advanced companies to gain a market foothold and can allow the most productive companies to grow even further. A favourable business environment thus provides the foundations for digital diffusion and productivity growth (Sorbe et al., 2019[6]; OECD, 2018[23]). The Netherlands has in general a favourable business environment with business-friendly regulations and low barriers to trade. Regulatory procedures are among the simplest in the OECD and barriers to competition are particularly low for professional services, retail trade and e-communications. Barriers to trade in services are the third-lowest in the OECD. Nonetheless, the country has further scope to improve digital adoption and productivity by easing employment regulations for the regular employed (Figure 2.6). Proposals from an expert commission to reduce labour market duality by reducing regulations on regular employed somewhat, while increasing protections for flexible workers are discussed in Chapter 1.

Figure 2.6. Streamlining regulations could boost digital technology adoption and productivity

Effect on productivity after three years (through digital adoption) of reducing regulatory barriers to reallocation

Insolvency procedures have been eased recently as a new insolvency law has come into effect January 2021. Already in the wake of the COVID-19 crisis, the government established the temporary Insolvency Mediation Foundation to promote temporary out-of-court mediation as an alternative to formal insolvency proceedings. The new law aims to facilitate restructuring, rather than formal in-court bankruptcy procedures, allowing for restructuring deals to become legally binding even in the absence of unanimity among creditors, which is a welcome step.

The Netherlands is among the countries with the lowest barriers to competition and investment in the OECD, according to the OECD product-market regulation (PMR) indicator (Figure 2.7). As a result of the COVID-19 crisis, starting a business has been facilitated further as services shifted to be available fully online. The government has also introduced changes to the Digital Government Act to improve and develop digital identity systems for businesses. Efforts to boost access to e-government services for entrepreneurs should be fully integrated with the already trusted citizen IDs, which is also available for foreign citizens.

Figure 2.7. Administrative burden on start-ups was high before the COVID-19 crisis

Product market regulation indices (PMR), 2018

Digital platforms increasingly link users to service providers on a task-by-task basis in sectors such as personal transport, accommodation, food services, retail trade, finance, entertainment and personal services. Service providers can be either firms or self-employed workers (OECD, 2019[2]). OECD evidence suggests that a strong platform presence can boost productivity, especially in service sectors and for small- and medium enterprises (Pisu and von Rüden, 2021[24]; Bailin Rivares et al., 2019[25]). However, digital markets bring new challenges for regulatory frameworks that were designed for traditional markets, such as the assessment of rising market concentration. Markups, an indirect indicator for market power, are low in the Netherlands (van Heuvelen, Bettendorf and Meijerink, 2019[26]). However, the COVID-19 crisis may have accelerated market concentration trends as online platforms have benefitted from the wider use of digital services during the pandemic, while many local competitors were affected by shutdowns. The productivity gains notwithstanding, there are concerns that acquisitions of smaller competitors cement the dominant market position of leading firms (European Commission, 2019[27]; HM Treasury, 2019[28]).

To address some of the challenges from growing digital markets, the government has proposed a reform of antitrust enforcement in digital markets in line with international expert advice (Authority for Consumers and Markets, Belgian Competition Authority and Conseil de la Concurrence Grand Duché de Luxembourg, 2019[29]; Ministry of Economic Affairs and Climate Policy, 2019[30]; 2019[12]). The proposals include ex-ante measures to prevent anti-competitive behaviour of dominant companies, new provisions of platform access, enforced data sharing and adapting the threshold of merger controls to ensure that they capture certain types of anticompetitive digital mergers. Companies intending relevant mergers and acquisitions would need to notify the European Commission, including those where the target may not yet have a high turnover but where its acquisition could potentially lead to significant market power. Reforms could include stronger merger control, as e.g. specific merger rules for companies defined as having market power as proposed in the United Kingdom (Box 2.1), but potential reforms should be performed at the EU level, since most prominent gatekeeper platforms are active across the entire EU. The support of the Dutch government in the EU regarding the regulation of big platforms with gatekeeper functions, as currently proposed in the EU Digital Markets Act is welcome.

Digitalisation also raises tax challenges related to base erosion and profit shifting (BEPS) (OECD, 2018[31]). In the past, the Netherlands was considered an important jurisdiction for multinational corporations engaging in aggressive tax planning, creating intellectual property licensing schemes to funnel untaxed profits to non-EU tax havens. Since then, the Netherlands has been a strong supporter of the BEPS project and has introduced a number of measures to counter the use of the Netherlands as a conduit jurisdiction (Chapter 1).

Box 2.1. Main recommendations of the Digital Competition Expert Panel in the United Kingdom

The UK Chancellor established the Digital Competition Expert Panel in September 2018 to provide recommendations on changes to competition policy in digital markets. The panel, chaired by Jason Furman, provides the following recommendations:

Establishment of a “digital markets unit” (DMU)

The DMU would be an independent body with a mandate to support greater competition, innovation and consumer choice in digital markets.

Updating merger control

The panel recommended to update the merger control framework to provide more opportunities to intervene in mergers and acquisitions, including the following:

Designating companies with significant market power as having “strategic market status” and requiring them to notify “all intended acquisitions” to the competition authority.
‘Balance of harm’ evaluations should be part of the overall economic impact assessment of mergers and acquisitions, taking into account the magnitude as well as likelihood of impacts.

Encourage greater use of interim measures for antitrust enforcement

The expert panel further suggested the Competition and Markets Authority (CMA) to update the antitrust enforcement regime, allowing greater use of interim measures to prevent harm to competition during a pending antitrust investigation.

Source: OECD (2020[32]), OECD Economic Survey of the United Kingdom.

Small firms have been slow to adopt most advanced technologies

Small and medium-sized firms (SMEs) account for large shares of employment and value added in the Netherlands, as in all OECD countries (Box 2.2). Smaller companies have adopted digital technologies to a lesser extent than larger firms (Figure 2.9). The difference in adoption rates between fast-adopting larger companies and slower small firms is more marked within newer technologies. While the share of large firms using big data analytics increased by 14.5 percentage points between 2016 and 2020, the share of smaller firms increased only by 7 percentage point. To some extent, the lower digital uptake among smaller firms may reflect fixed costs, economies of scale and complementary factors, such as skills. However, a limited awareness and understanding of digital technologies is likely also a major barrier to digital take-up among smaller firms (Pisu and von Rüden, 2021[24]). This is also illustrated by the large adoption gap between large and small firms in cloud computing, a technology facilitating access to a range of computing services at low cost. However, it is worth noting that young firms, for example in the Fintech sector, use digital technologies in sophisticated ways (see below).

Box 2.2. Small and medium enterprises (SMEs) in the Netherlands

In the Netherlands, SMEs, defined as companies with less than 250 employees, account for two thirds of total business economy employment (3.6 million people) and contribute to 62% of value added (Figure 2.8). SMEs account for a particularly large share of employment in a range of manufacturing sectors, such as manufacturing of textiles and wearing apparel, of wood and paper and of basic metal and metal products and in some services sectors including advertising and accommodation and food services. Job creation by start-ups is highest in administrative and support services (23% of all new jobs), followed by high-wage and high productivity sectors like professional, scientific and technical activities as well as ICT services (together 18% of all new jobs). In contrast, start-ups in the manufacturing sector created only 6% of new jobs.

Figure 2.8. A large share of employment and value added come from small and medium firms

Shares in total business economy, 2018 or latest year

In general, the Netherlands provides a favourable environment for SMEs but challenges remain:

The cost for starting a business remains comparatively high.
Access to equity finance remains difficult for small and young firms.
About a quarter of SMEs experience difficulties in finding qualified people and more than half of enterprises advertising ICT positions struggle hiring experts (data refers to 2016).

Source: OECD (2019[33]), "The Netherlands", in OECD SME and Entrepreneurship Outlook 2019, OECD Publishing, Paris.

Figure 2.9. Adoption of digital technologies is increasing but small firms lag behind

Businesses using selected digital technologies (% of firms), by size class

Digital technology diffusion from early mover firms on the productivity frontier to other firms is a key mechanism to boost average firm productivity (van Heuvelen, Bettendorf and Meijerink, 2018[34]). However, this technology diffusion has not been sufficient to offset weaker labour productivity growth of low productivity firms, and despite improvements in the service sector, a significant gap between the highest-productivity firms and the others remains, even though the group of firms with high productivity is not constant over time (Figure 2.10). Differences in productivity between firms has also been found to be an important factor behind rising income inequalities in some countries (Pisu and von Rüden, 2021[24]) even though inequality has been stable in the Netherlands since the mid-1990s. New OECD research shows that stepping up adoption of digital technologies and investments in software and skills could translate into significant productivity gains in the Netherlands (Box 2.3). There are sectoral differences, with firms in the service sector and younger firms seeing a notable impact on productivity growth from digital skill use at work. Moreover, productivity benefits from software investment are strong for low productivity firms. This confirms prior country- and sector-level evidence that complementary factors such as software and skills, which are part of a firm’s intangible capital, can explain productivity differences across firms (Mohnen, Polder and van Leeuwen, 2018[35]; Haskel and Westlake, 2017[36]; Crouzet and Eberly, 2018[37]).

Figure 2.10. The productivity gap has widened in the Netherlands

Labour productivity levels of 10% most productive firms, median firms and 10% least productive firms, by sector

Increasing adoption of software and data-driven innovation among SMEs could help closing the productivity gap between small and large firms. In recent years, the Dutch government has made some progress in this regard, amongst others initiating public-private partnerships to support digitalisation of SMEs (Ministry of Economic Affairs and Climate Policy, 2019[38]). It includes the Smart Industry Field Labs programme, Big Data field labs, and the Accelerating the Digitalisation of SMEs programme. The government also set a special focus on AI, owing to its benefits and potential for increased productivity and societal challenges. The Dutch AI Coalition formed in 2019 includes 400 participating companies, research institutes, government institutions and higher education and universities and substantial funding is being dedicated to it (Ministry of Economic Affairs and Climate Policy, 2021[39]). Despite these efforts, public support for the digitalisation of SMEs under the above-mentioned programmes represents only around 0.8% of public expenditure on innovation by the responsible Ministry of Economic Affairs and Climate Policy. Increasing support to SMEs, through targeted public-private programmes to facilitate the adoption digital tools and to provide business advisory services and testing facilities, could increase awareness and help small firms overcome barriers to the adoption of digital technologies.

Box 2.3. The effects of digitalisation and intangibles on productivity in the Netherlands

The impact of digital adoption, skills and software investment on firm-level productivity has been assessed using a panel of Dutch enterprises (Borowiecki et al., 2021 forthcoming). The analysis provides robust evidence on productivity effects using variation across firms in digital adoption, digital skills and software investment in an instrumental variable regression framework. Results show that investment in ICT hardware and the adoption of fast internet both have a positive, sizeable and statistically significant impact on firm-level productivity growth (Figure 2.11). Furthermore, digital skills, such as software specialist skills and ICT specialist skills, lead to sizeable productivity benefits.

Figure 2.11. Digital adoption and intangibles lead to higher labour productivity growth

Annual effect on firm-level productivity growth from an increase in digital and intangible measures

The study shows that productivity effects from software investment and digital skills vary by firm size, age and sector:

Firms in the service sector benefit more from software specialist skills and ICT specialist skills than firms in the manufacturing sector.
Younger firms benefit more from software specialist skills and ICT specialist skills than incumbent firms.
Smaller and medium-sized firms benefit more from investments in ICT hardware and software specialist skills than large firms.
Software investment supports the productivity catch-up of laggard firms.

Easing small and young firms’ access to finance

Many SMEs in the Netherlands signal a lack of equity finance as a barrier to growth (European Investment Bank, 2019[40]). As bank lending to finance innovative start-ups, young firms and SMEs with growth ambitions often involves high risks, expanding equity financing could support growth (OECD, 2016[41]). In 2020, only one percent of Dutch SMEs used equity finance (Figure 2.12). High admission costs and limited liquidity generally associated with main listing venues, lack of awareness of equity financing alternatives by entrepreneurs, as well as their unwillingness to relinquish control on their company, are some of the potential reasons for the low take up of equity financing (Nassr and Wehinger, 2016[42]). Young companies, especially those that are likely to be more innovative and/or rely on intangible capital, could benefit from better access to equity finance (Demmou, Franco and Stefanescu, 2020[43]).

Making better use of intangible assets may help small and young firms access bank funding. Intangible assets such as intellectual property (IP) and software are not easily used as a collateral to access debt finance because they often do not have a market value, are not easily separable from the firm and often cannot be transferred without a loss. In order to support the digital take-up and ease credit for SMEs, several OECD countries have established new programmes to support IP-backed loan and IP valuations (Box 2.4). In addition, and as highlighted in the last Economic Survey (OECD, 2016[41]), creating a credit register for companies could improve SMEs access to loans. Similarly, a collateral registry could be created. Estimating the creditworthiness of small firms is particularly difficult and costly, and the related uncertainty drives up interest rates and tightens lending conditions. A credit and collateral register for companies would lower these costs by disseminating needed information to all lenders.

Figure 2.12. Few Dutch small and medium enterprises make use of equity finance

Use by enterprises with 1-249 employees, average over 2018, 2019 and 2020

The COVID-19 crisis has disproportionately affected smaller firms, and made their access to finance even more difficult (OECD, 2020[44]). In response, the government has extended credit guarantees, its Growth Facility scheme for start-ups, and raised the budget for the SEED Capital scheme that provides funding for high-tech start-ups. Crisis support measures should be phased out once the recovery is well established, to allow reallocation to go ahead and to contain fiscal costs. To reduce the debt burden of SMEs and increase access to capital, governments could consider convertible loans. For example, the United Kingdom government introduced a new GBP 500 million Future Fund that provides convertible loans to eligible start-ups as long as the cash is matched by private investors. If the government loan is not repaid within three years, it is automatically converted into an equity stake at 20% discount to the valuation set in the next funding round.

The reliance on venture capital is lower than in most peer countries (Figure 2.13). Venture funds at the national level remain small, limiting their ability to support growing firms (OECD, 2016[41]). Against this background, the government announced several programmes, such as the Growth Co-Investment Programme, the Future Fund and the Dutch Venture Initiative II. The government’s Growth Facility providing a 50% guarantee on investors’ risk capital was set to close in 2020, but was prolonged until 2023 in response to the COVID-19 crisis. These efforts have strengthened the supply of venture capital for the early stage of a start-up, but venture capital funds for a company’s expansion remain low compared to peer-countries.

Box 2.4. Intellectual property (IP)-backed loans and IP valuation schemes for SMEs across the OECD

Several countries have implemented programmes supporting intangible-intensive SMEs to get access to bank loans. Below are some selected examples from OECD countries.

France – The French public investment bank Bpifrance provides uncollateralised loans and bank loan guarantees to SMEs to support their digitalisation. Support is available for investment in intangibles, including intellectual property and software.
Germany - State of Bavaria – The Bavaria Digital initiative provides digital SMEs with loans on favourable terms for a total amount of up to EUR 1 million. In order to reach more SMEs, the application process was streamlined to reduce the administrative burden and part of the application cost is covered by a grant from the State of Bavaria.
Japan – The Japan Patent Office and the country’s Financial Service Agency assess the value of intellectual property of SMEs. They finance and conduct IP evaluation reports of SMEs, which inform the lending decisions of banks.
Korea – The Korea Development Bank’s Techno Banking initiative provides loans to SMEs for purchasing, commercialising and collateralising IP. The Bank also established a collection fund for distressed intellectual property for the disposal of intangible assets. In addition, the public Korea Credit Guarantee Fund provides credit guarantee schemes, some of them supporting intangibles as collateral. As in Japan, the Korean Intellectual Property Office estimates the value of SMEs’ IP to facilitate loans by the Korea Development Bank and the Korea Credit Guarantee Fund.

Source: OECD (2019[45]), Financing SMEs and Entrepreneurs 2019: An OECD Scoreboard.

Figure 2.13. Reliance on venture capital is relatively low

Venture capital investments, 2019 or latest year

New digital financing solutions offered by financial technology (FinTech) start-ups may help bridge the funding gap for innovative firms (Box 2.5). FinTech companies expand people’s access to existing financial services and markets and create new ones, for example within peer-to-peer lending and venture capital, and can thus improve market efficiency and financial inclusion (UNSGSA FinTech Working Group and CCAF, 2019[46]). FinTech credit is still relatively small in the Netherlands with credit volumes in 2017 accounting for one percent of bank loan volume to SMEs, compared to 27% in the United States and 7% in the United Kingdom (Bank for International Settlements and Financial Stability Board, 2017[47]). However, following the exit of the United Kingdom from the EU, some FinTech firms seeking to shift their operations from London to the EU may choose the Netherlands.

The regulatory burden in the financial sector is generally high and not always flexible enough to allow new business models and technical solutions. At the same time, financial innovation can give rise to new financial stability, consumer and investor protection challenges. Some flexibility to regulation and dialogue between the regulator and companies in the context of sandbox initiatives can help FinTech companies to test new business models in a flexible and safe setting, while allowing the regulator to better understand emerging risks and companies’ specific needs (Box 2.5). The Dutch Authority for Financial Markets and the Dutch Central Bank established in 2016 the regulatory sandbox “Innovation Hub”. It can provide temporary regulatory waivers for young firms to facilitate market entry on a case-by-case basis. However, uptake has been limited. The central bank, which acts as the regulatory authority, has no mandate to reduce unnecessary restrictions to competition, which dampens entry in the FinTech market. A mandate to promote competition as part of the regulatory sandbox, as is for example the case in the United Kingdom, could help spur market entry. An impact assessment by the UK’s Financial Conduct Authority (2019[48]) shows that the number of start-ups in the Fintech sector has increased, although the evidence provided does not allow to directly linking the increase to the regulatory sandbox.

Box 2.5. Regulatory sandboxes for digital technologies in the financial sector

Several countries introduced regulatory sandboxes to ease the regulatory burden for FinTech start-ups. Below are some selected examples from OECD and non-OECD countries, drawing from the 2018 OECD Digitalisation and Finance report.

Australia – The Australian Securities and Investment Commission exempts FinTech start-ups from the need to obtain a license for up to two years. In order to be eligible, businesses must have a professional indemnity insurance, join an approved external dispute resolution service, and meet best standards for advice and responsible lending obligations for credit.
Canada – The Ontario Securities Commission (OSC) established the OSC Launchpad in Canada that provides regulatory advice and informal guidance for early-stage Fintech start-ups.
Singapore – The Monetary Authority of Singapore provides regulatory waivers for FinTech businesses, including a temporary relaxation of compliance rules as well as exemptions from licensing fees and minimum asset requirements.
United Kingdom – The UK Financial Conduct Authority’s (FCA) FinTech sandbox offers temporary waivers to regulatory and compliance requirements and provides regulatory advice for FinTech start-ups. The FCA was given the power to promote competition in financial markets by issuing new licenses with lower regulatory requirements and it uses this mandate to encourage innovative new entrants into the market.

Source: OECD (2018[49]), Financial Markets, Insurance and Private Pensions: Digitalisation and Finance.

Fine-tuning innovation and R&D policies to foster digitalisation

Digitalisation is altering the way research and development (R&D) is conducted. While investments in R&D remain low, investment in ICT and software has been on the rise as Dutch firms increasingly carry out R&D activity around digital products and services. ICT firms are responsible for a growing share of R&D activity (CBS, 2017[50]) and manufacturing and business service enterprises increasingly integrate software-driven solutions into their innovation activities (Branstetter, Drev and Kwon, 2019[51]). Investment in software and data increased considerably between 2000 and 2018 (Figure 2.14, Panel A), peaking at above 3% of GDP in 2015 due to a 22 billion R&D purchase by a Dutch multinational enterprise (CBS, 2018[52]). Overall, investment in ICT and software as a share of GDP is higher than in most OECD countries (Figure 2.14, Panel B). Recognising the importance of software as a driver to innovation, the government has extended R&D grants and tax incentives to support software development over the past decade.

Figure 2.14. Investment in ICT and software is high, but R&D investment remains low

Large firms receive a larger share of direct R&D funding than in most other OECD countries (Figure 2.15). Smaller firms benefit to a higher extent from generous R&D tax incentives, which coupled with a simplified lump sum R&D tax credit since 2016, have helped increase R&D activity among smaller firms (Dialogic, 2019[15]). Increasing the share of R&D grants that goes to SMEs via public-private partnerships could boost overall R&D in line with national targets. The government has concluded a Knowledge and Innovation Covenant 2020-23 with public and private partners. Public organisations contribute EUR 3 billion per year for collaborative research and innovation, matched by private funds of EUR 2 billion. The joint funding contributes to develop key technologies linked to 25 missions on four societal challenges (climate transition and sustainability; agriculture, water, food; health and care; safety), and to the country’s top strategic sectors, notably creative industries, energy, agriculture, water, horticulture, chemicals, high-tech, life sciences, logistics and ICT. In addition, Dutch authorities launched a EUR 20 billion National Growth Fund, which started operating in 2021, to boost productivity through investments in education, infrastructure, and R&D and innovation.

The patent box (Innovation Box) allows companies to reduce their corporate tax on profits from intellectual property from 25% to 9% (2021). In the past, the Innovation Box to a large extent benefitted larger firms, spending on the scheme increased from EUR 605 million in 2011 to EUR 1.6 billion in 2018. In recent years, the government has made significant changes to the patent box by limiting the scheme even more to R&D activities carried out in the Netherlands by adopting the BEPS nexus approach, lowering requirements to participation by SMEs, and gradually increasing the rate of the Innovation box to 9%. The scheme is expected to cost EUR 700 million in 2021. Careful monitoring of the impacts of the reformed patent box should be carried out to make sure benefits are proportional to the scheme’s cost.

Figure 2.15. Small firms receive less direct R&D funding, but R&D tax incentives are generous

R&D policy spending (% of business R&D expenditure) by policy type, 2018 or latest

Boosting skills to realise digital complementarities

Skills and digital technologies are complementary (Borowiecki et al., 2021). Several types of skills matter in a digitalised economy: (i) advanced technical skills for digital specialists, (ii) generic digital skills for other workers, and (iii) complementary skills to work in a digitalised environment, including general cognitive skills, social or interpersonal skills as well as managerial and organisational skills (Brynjolfsson, Rock and Syverson, 2021[53]; OECD, 2019[8]; Grundke et al., 2018[54]; Andrews, Nicoletti and Timiliotis, 2018[7]).

In general, skills are high in the Netherlands, including digital user skills such as problem solving in technology-rich environments. Still, some do not have the skills necessary to prosper in an increasingly digital labour market. Furthermore, a share of Dutch children fail to build necessary skills in subjects such as mathematics and reading. Shortages of ICT specialists is a further constraint to make the most out of digitalisation (OECD, 2019[55]).

The COVID-19 outbreak accelerated the digital uptake of enterprises and, with it, the demand for specialised ICT skills, which were already in short supply before the crisis. In general, demand for high-skilled workers is expected to outpace supply going forward, despite high tertiary attainment (OECD, 2018[56]). Vocational and tertiary education thus needs to scale up (OECD, 2018[56]).

Digitalisation and automation can boost living standards, but together with the COVID-19 crisis may also exacerbate income inequalities. Digitalisation offers new opportunities for high-skilled workers. At the same time, it accentuates long-standing trends of automation that displace many low- and middle-skilled jobs and increase labour market polarisation. It will therefore have a profound impact on jobs and inequality. The COVID-19 crisis has created additional challenges for labour market outcomes and education opportunities. It fell hardest on low-skilled workers and young adults with irregular working contracts (Chapter 1), calling for a massive training effort (OECD, 2020[57]). School closures particularly hit vocational training, as work-based learning was more difficult, if not impossible (OECD, 2020[58]).

Lifelong learning remains the most effective tool to increase occupational and social mobility. Online educational platforms and the combined use of computers, software, and educational practice can help increase the quality and availability of education and training, and in several countries, the pandemic has led to an increased interest in online learning (OECD, 2020[59]). However, curricula have been slow to adapt. The provision of modern and up-to-date education that equips students with the right mix of skills for an increasingly digital work environment is crucial.

COVID and automation pose a massive training challenge

Labour market polarisation is one important driver of increasing income inequality in many countries, and it has increased inequality of hourly wages also in the Netherlands. However, equivalised disposable income inequality has been relatively stable in the Netherlands since the mid-1990s, because of compositional effects, notably changing composition of households as two-earner couples has become more common. Polarisation along educational lines happened already before the COVID-19 crisis, and low-educated individuals increasingly struggle to gain employment (Salverda et al., 2013[60]; Goos, Manning and Salomons, 2014[61]). The Covid-19 crisis has hit hard sectors that were already vulnerable to automation, thus exacerbating job polarisation (Chapter 1).

Digitalisation has kept the demand for high-skilled workers stable, while the low-skilled segment of the labour market has expanded on the back of rising flexible non-standard employment and a growing platform economy (SEO, 2018[62]) (Figure 2.16). In the middle-skilled range of the labour market, progress in automation has led to the displacement of many manufacturing jobs as robots can easily replace routine tasks (van den Berge and ter Weel, 2015[63]). As a result, 40% of jobs in the Netherlands are at risk of automation or may undergo significant changes due to automation (Nedelkoska and Quintini, 2018[64]). Young adults with a primary or secondary degree that are now more likely to be employed in low-skilled occupations in service sectors are most affected (OECD, 2020[57]). In addition, the economic fallout from the pandemic is falling hardest on young adults with non-regular jobs ( (CBS, 2020[65]), Chapter 1).

Trends towards automation and the impacts of the COVID-19 crisis call for a massive training effort. An efficient lifelong learning system could reduce the costs of training low- and middle-skilled workers, improve job mobility and make the digital transition more equitable (OECD, 2019[66]; 2019[67]). Participation in lifelong learning is relatively high in the Netherlands, as is workers’ participation in on-the-job training (OECD, 2017[68]). Despite the high uptake of lifelong learning, workers at the highest risk of displacement, notably low-skilled and middle-skilled, train the least in the Netherlands and elsewhere (OECD, 2019[66]; Pleijers and Hartgers, 2016[69]).

The new Personal Learning and Development Budget (STAP) is an innovative approach to fund individual life-long learning activities for any adult, independent of their employment status, thereby complementing individual learning accounts. The envisaged 2022 budget of EUR 200 million is likely too low to cover currently un-met upskilling needs, but the initiative is open to co-financing by employers and easy to scale up and target to specific needs if initial experiences are positive. In order to produce the desired outcomes, the system needs to be accompanied by a strong quality assurance system (Chapter 1).

Figure 2.16. The Dutch labour market shows signs of polarisation

Percentage point change in share of total employment between 2000 and 2019

Spending on active labour market policies is above the OECD average, but spending on training for the unemployed is low compared to most OECD peers and likely insufficient to meet the re-training needs from the COVID-19 crisis (Figure 2.17). Recently, the government has stepped up spending on public employment services (PES), which as a share of GDP receive more funding than the OECD average. Targeting PES and training for the unemployed, focusing on low-skilled workers and workers hit by the COVID-19 crisis, could support job mobility. Not only will this be crucial as a response to the COVID‑19 crisis, but also for coping with challenges arising from automation and digital advances in the longer term.

Individuals with good proficiency in foundational skills (reading, mathematics and science) obtain new skills more easily over their lifetime and can perform more diverse and complex tasks in a digital environment. This is necessary to thrive in digital-intensive workplaces (OECD, 2019[2]). The education system in the Netherlands achieves good results in this regard. Pupils scored higher than the OECD average in mathematics and science, despite a recent decline, according to the OECD Programme for International Student Assessment (PISA). The share of young adults not in employment, education or training is among the lowest in the OECD (OECD, 2019[70]).

Figure 2.17. Labour market policy spending is relatively high, while spending on training is relatively low

Labour market policy spending per unemployed (% of GDP per capita) by policy type, 2018 or latest

Despite the good average performance in mathematics and sciences, certain groups have more limited opportunities to develop and fully use their skills. One out of ten adults has a low command of essential skills to read and calculate (OECD, 2018[71]). The overall performance of 15-year-olds in the PISA Survey has declined recently, driven by a 10 percentage point increase in the share of low achievers in secondary education from 2009 to 2018. Students’ performance remains strongly dependent on their socio-economic background and their school choice. The high share of students with a migration background among the low achievers is worrisome (OECD, 2019[70]). Children of more educated parents and those of less educated parents and with migration background are increasingly being educated in different schools. In addition, students from vulnerable groups have less access to help after school hours, such as homework support. These trends risk narrowing education opportunities (Education Council, 2019[72]) and reducing labour market outcomes for disadvantaged students (OECD/European Union, 2018[73]).

The government has taken several measures to address growing inequality, including bridging classes for disadvantaged students. An additional EUR 87 million was earmarked in a reform favouring disadvantaged schools with a high share of foreign-born students between 2016 and 2019. Funding for this purpose was further extended with EUR 20 million from 2020 onwards (Education Council, 2019[72]). The additional funding has improved the allocation of material resources to schools with children from disadvantaged socio-economic background between 2015 and 2018, as measured by the OECD PISA index of material resource allocation by schools’ socio-economic profile (OECD, 2019[74]). In Germany, similar reforms that target disadvantaged students suggest that additional structural reforms are necessary to improve equity in educational outcomes. The German Support Strategy for Low Achieving Students from 2010 has provided additional funding for personalised training and language classes for disadvantaged students (Kultusministerkonferenz, 2017[75]). Although it helped reducing drop-out rates in secondary education, overall inequality in the German education system remained high as measured by the PISA index of economic, social and cultural status (OECD, 2019[74]). Measures to increase participation in early childhood education and care would be particularly beneficial to pupils from less advantaged social backgrounds. Systems for application and assignment of places to over-subscribed primary schools can also potentially contribute better to a mix of social backgrounds than it does today (Chapter 1).

The Dutch Education Council (2019[72]) recently suggested structural reforms to secondary education to stem the overall decline in PISA outcomes. A priority would be to increase transition pathways between different tracks of secondary education, including pre-vocational secondary education (voorbereidend middelbaar beroepsonderwijs or VMBO), general secondary education (hoger algemeen voortgezet onderwijs or HAVO) and secondary education that gives access to tertiary education (voorbereidend wetenschappelijk onderwijs VWO). Strengthening collaboration between different school types in secondary education within a region could help better identifying students with high potentials and ease transitions between different tracks. Furthermore, a stronger focus on general education in the vocational track could improve foundational skills of students.

As in other countries, the COVID-19 crisis has exacerbated existing inequalities of the education system. Students from poorer households have had less access to fast internet connections and laptops needed to fully engage in online classes. Students in basic vocational training had the biggest problems adapting to e-learning during the COVID-19 outbreak, which risks reducing their labour market prospects (Ministry of Education, Culture and Science, 2020[76]). Ensuring better access to ICT equipment, also for home use, to pupils in disadvantaged schools and vocational education and training institutions as part of the school funding reform could help reducing the growing digital gap between students with immigrant background and native students.

Digital user skills are high but some students lag behind

Adults aged 16-65 years have on average high levels of digital skills. Young adults aged 25-35 stand out with high digital skills while older generations have lower scores in the Netherlands and elsewhere (Figure 2.18). Nonetheless, certain groups in the Netherlands have more limited ICT user skills. In particular, the digital problem-solving skills of young graduates from vocational education and training institutions are lower compared to graduates from general and tertiary education. While still significantly above the OECD average, this divide is worrisome and calls for concerted efforts to raise digital skills in schools, businesses and training.

Priority should be given to the development of curricula to equip all students with digital skills beyond the simple use of computers to more ICT specialist skills. Currently, the curriculum for Dutch schools does not include attainment targets for digital skills, creating a risk that students in disadvantaged schools do not attain the necessary levels of digital skills. In response, the National Institute for Curriculum Development has developed proposals for a new curriculum that includes attainment targets for digital literacy in collaboration with teachers’ unions and parents (Curriculum.nu, 2017[77]). It covers basic ICT skills, media literacy and coding skills. The government has taken up the reform proposals but progress has stalled recently (Ministry of Education, Culture and Science, 2019[78]).

Addressing the digital skill challenge will depend on teachers’ digital competences. Before the COVID-19 outbreak, the Netherlands was lagging behind other OECD countries regarding teachers’ preparedness to teach with digital tools. Thus, only 52% of students were in schools where the principals reported that teachers have the necessary technical and pedagogical skills to integrate digital devices in the classroom, lower than the OECD average of 65% (OECD, 2019[8]).

Figure 2.18. Adults' skills for the digital economy are high

Problem solving in technology-rich environments by age, individuals in employment

A major obstacle to the increase in digital skills is the acute shortage of teachers, which is projected to reach 10 000 teachers by 2025 (Ministry of Education, Culture and Science, 2018[79]). Shortages are more acute in cities, where the majority of disadvantaged pupils live. A declining attractiveness of the teacher profession exacerbate teacher shortages. Low salaries stand out as a factor behind the low supply of teachers, especially in urban areas where housing costs have increased significantly in recent years. A primary teacher’s salary is equivalent to 71% of the average earnings of tertiary-educated workers, below the OECD average of 78% (OECD, 2019[70]). In response, the government granted additional EUR 237 million funding for schools to increase teachers’ salaries for 2018 and 2019 as part of the “work pressure agreement”. This additional funding was increased to EUR 430 million in 2020-21. The greater funding is welcome but room remains for more targeted resource allocation for disadvantaged schools, notably for ICT equipment and teachers’ digital skills. Examples of such targeted programmes include the Digital Pact for Schools in Germany (Kultusministerkonferenz, 2019[80]) and ProgeTiger in Estonia (OECD, 2019[81]).

In vocational education, teachers with IT experience from the business sector are hired on a part-time basis, while they can continue working for private companies during the remaining part of their working time. Dutch educational institutions are cooperating within a standard-setting platform, the Edustandaard, and through joint procurement increasingly implement open standard software, so that services from a variety of suppliers can be easily integrated in their digital infrastructure (Association of Universities, Association of Universities of Applied Sciences and SURF, 2018[82]).

New education technologies (EdTech) can help increase the quality and availability of education and training provided that a number of conditions are met - high quality infrastructure, teachers’ preparedness and the integration of new education technologies in innovative teaching practices are key. However, there is a risk that digital learning reproduces or reinforces inequalities observed in standard forms of learning. COVID-19 has boosted the use of distance learning, and the Netherlands had noticeable initiatives in this regard also before the crisis. In primary and secondary education, the Cooperative for Primary and Secondary Education (SIVON) is a voluntary cooperation of school boards committed to join forces when introducing new technologies and working with suppliers and start-ups in the field of EdTech. Joint purchases via SIVON can give schools access to high-quality digital infrastructure and EdTech software at lower prices and more favourable conditions than individual schools would get (Ministry of Education, Culture and Science, 2019[78]).

There is room to improve ICT training among smaller firms

Skills at work are essential to translate technology adoption into improved productivity (OECD, 2019[67]). A new OECD empirical analysis undertaken for this survey (Borowiecki et al., 2021[83]) reveals that higher shares of ICT professionals and workers using computers for work purposes lead to significant productivity gains for Dutch enterprises. Productivity benefits also arise from in-house ICT training.

Small and medium-sized firms provide on average less ICT training than larger firms (Figure 2.19). In order to help SMEs develop ICT training, the Ministry of Social Affairs and Employment stated its intention to provide EUR 48 million a year from 2020 for SMEs to stimulate further training and development, and EUR 1.2 million for five years for larger firms operating in agriculture, hospitality and the recreation sector (SLIM regulation). In addition, the Ministry of Economic Affairs and Climate Policy established the EUR 7.5 million ‘MKB!dee’ challenge to promote ideas that lead to increased investment in training among SMEs, notably around digitalisation (Ministry of Economic Affairs and Climate Policy, 2019[84]).

Figure 2.19. Small firms provide less ICT training than larger ones

Percentage of businesses providing ICT training to their employees by size class, 2020 or latest year

Firms face shortages of ICT specialists

Recent shortages of ICT specialists are substantial and higher than in most other EU countries (Figure 2.20). High demand for ICT specialists in the past few years remained strong during the COVID‑19 crisis (CBS, 2020[85]). Furthermore, shortages of ICT specialists are projected to grow substantially going forward (OECD, 2020[57]), calling for a concentrated effort in schools, businesses and policy to increase the supply. Part of the COVID-19 crisis package is aimed at learning and developing skills, with a budget of EUR 37.5 million available to co-finance reskilling people to work within ICT, technology and energy.

Attracting high-skilled immigrants could ease skill shortages. The Netherlands has a favourable tax regime to attract high-skilled immigrants from the European Union and further abroad. It grants a 30% allowance from their payroll tax, the so-called “30% facility”. Workers can benefit up to five years from the tax allowance. These policies have contributed to the attractiveness of the country for skilled immigrants. According to the OECD Artificial Intelligence Observatory, the Netherlands is in particular a strong net beneficiary of professionals with Artificial Intelligence skills (OECD.AI, 2021[86]).

Figure 2.20. Shortages of ICT specialists are pressing

Share of enterprises with hard-to-fill vacancies for jobs requiring ICT specialist skills

Despite the high tertiary attainment rate of 49.4%, demand for high-skilled workers is expected to grow by 2.4 million until 2025, while supply is expected to grow by only 1 million (OECD, 2018[23]). One reason is that few Dutch students pursue degrees in sciences, technology, engineering and mathematics (STEM). In addition, the share of graduates in ICT is among the lowest in the OECD (Figure 2.21). In response, universities have drawn up sectoral plans for STEM and the government has committed EUR 70 million to strengthen universities’ offer and capacity in this domain (Ministry of Economic Affairs and Climate Policy, 2019[12]; Ministry of Education, Culture and Science, 2020[87]). Funding to address shortages is welcome, but attitudes to STEM studies will also need to change, calling for a long-term strategy to improve the image of, interest in, and knowledge of science. Supply of university study places for ICT students also needs to increase, and teaching methods should adapt to allow more students per teaching personnel (d’Hondt, Mauw and van Petegem, 2020[88]). Such efforts should involve schools and the private sector and include measures to improve curricula, teacher competences, career guidance and advice (Caprile et al., 2015[89]).

Raising the number of ICT graduates from upper secondary education would help ease skill shortages. Part-time higher education pathways could help easing the transition between secondary and tertiary education. For instance, universities of applied science have developed short-cycle higher education associate degrees in close coordination with vocational education institutions in order to increase students’ employment prospects. These programmes match training priorities with skill-needs on the labour market. Associate degrees are shorter than usual higher education degrees and have a strong emphasis on professional and technical skills. Their uptake has been increasing continuously in recent years. Expanding part-time higher education pathways could help raise entry rates of vocational education students into higher education, as was done in Germany with the 2018 Vocational Training Pact. Furthermore, stronger involvement of businesses in the design of engineering and technical programmes can help make vocational programmes more responsive to changing demands for digital skills. Current initiatives include, amongst others, cooperation between vocational and higher education institutions and the private sector in ten selected, highly competitive industries to support student training. These experiences should be carefully monitored and, if suitable, scaled up at a later stage modernising vocational training to equip graduates with the right skills for the digital economy.

Figure 2.21. The Netherlands is experiencing a shortage of ICT graduates

Share of all tertiary graduates by field, 2018 or latest year

Reducing gender imbalances in ICT and STEM studies will be key to increase the low number of students in these subjects. The share of female students among entrants into tertiary-level ICT programmes is low at 14%, and considerably lower than the OECD average of 19%. It reflects in part educational choices (OECD, 2019[70]). Early outreach to elementary and high school female students and more female teachers as role models are strategies to address the gender gap in ICT. The OECD (2018[90]) report on the digital gender divide recommends the establishment of targets for women in STEM fields, grant schemes aimed at enhancing the enrolment of women in STEM education, prizes enhancing the visibility of women in STEM and in high-technology sectors, and awareness campaigns tackling stereotypes. In Germany, for instance, enterprises, universities, and research centres successfully increase female students’ interest in technical professions and activities, including ICT, by organising an open day for girls aged 10 and older every year (Federal Ministry for Family Affairs, Senior Citizens, Women and Youth and Federal Ministry of Education and Research, 2019[91]). The United States have implemented a number of initiatives targeted at girls and young women at the federal and state levels including mentoring, lecturing, events and camps. Federal initiatives include the Department of Energy STEM Mentoring Program, the Department of State’s Women in Science STEAM Camps, facilitated in public-private partnerships, and the NASA G.I.R.L.S. (Giving Initiative and Relevance to Learning Science) initiative. Moreover, and as mentioned above, ensuring a fast implementation of a nation-wide digital curriculum is a priority to ensure schools focus their resources on computational thinking and skills of all students.

MAIN FINDINGS	RECOMMENDATIONS (Key recommendations are bolded)
Supporting an inclusive and efficient digitalisation
Small and medium enterprises account for a relatively large share of employment and value added. A lack of awareness and the fixed cost nature of investment in digital technologies weigh on the digitalisation process.	Increase direct support to SMEs to facilitate the adoption of digital tools, including business advisory services and testing facilities.
A large share of businesses are either unaware of, or passive towards, IT security issues, notably SMEs.	Encourage enterprises to implement existing digital security standards.
An increased incidence of teleworking brings new challenges for worker welfare, and the tax system puts remote workers at a disadvantage.	Implement best practices for teleworking. Align tax treatment of home office-related expenses to those of other job-related expenses.
Access to finance is a barrier to growth for many start-ups and SMEs. The regulatory burden in the financial sector is generally high and not always flexible enough to allow new business models and technical solutions.	Create credit and collateral registries for companies to ease SME’s access to bank loans. Include promoting competition in the mandate of the regulatory sandbox to boost alternative financing targeted to SMEs.
Some viable start-ups may exit the crisis with high debt burdens holding back their growth prospects.	Consider introducing a scheme extending loans that can be converted into an equity stake to eligible start-ups.
R&D expenditure is low, especially among SMEs.	Extend R&D grants to new practices of open and collaborative research. Carefully evaluate costs and benefits of the Innovation Box.
Boosting skills and supporting job mobility
COVID-19 and automation increase the need for re-skilling and up-skilling.	Increase training subsidies to jobseekers and workers with high up-skilling and re-skilling needs.
A considerable share of students lack digital skills, especially those in vocational training.	Give digital skills more prominence in the national curriculum. Target funding for teachers’ digital training under the ‘work pressure agreement’ to teachers in disadvantaged Vocational Education and Training schools.
The Netherlands faces a clear shortage of ICT professionals.	Expand part-time higher education pathways for ICT professionals. Involve the private sector more in the design of curricula for ICT programmes in Vocational Education and Training institutions and in universities of applied sciences.
Most ICT students are men, reflecting early educational choices.	Increase girls’ interest in ICT studies from the early stages of compulsory schooling by curriculum design, outreach activities and showcasing role models.

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