The effect of wage raise on unemployment, consumption, labour productivity, investment and the competitive position in the Netherlands

The motivation for this thesis is the high current account surplus in the Netherlands, situated at the non-financial companies. This current account surplus indicates that Dutch non-financial companies save up more than what they invest in the Netherlands. This thesis approached the current account surplus as a demand issue and proposed to raise wages as a solution. The effects of a wage raise on unemployment, labour productivity, investments, competitive position and consumption are analyzed and quantified. A positive relationship was found between a wage raise and unemployment, consumption and labour productivity. A negative relationship was found between a wage raise and labour productivity. The relationship between a wage raise and investments was inconclusive. Based on the estimates found in this thesis a wage raise would benefit the Dutch economy. However, as cohesion effects among the researched variables are not taken into consideration, this thesis does not provide a policy recommendation regarding a wage raise in the Netherlands.