The Netherlands is generally viewed as a bright spot in a continent plagued by low productivity and high unemployment. Thanks to a decade of effective social and economic policies, the Dutch economy has indeed recovered from the job losses it suffered in the 1970s and early 1980s. But domestic rates of growth shed little light on how the country is performing in comparison to others today.

To see just where the Netherlands stands in the global economy, we conducted a study comparing Dutch output, employment, and productivity to world benchmarks and investigating the underlying reasons for differences in performance.¹ We then tried to determine what the Dutch government, unions, and individual companies could do to close the gaps. As in earlier McKinsey Global Institute studies, we looked at the performance of both the national economy and key industries: in this case, food processing, housing construction, personal financial services, public transportation, retail, and computer software.

Our principal findings are:

• Contrary to popular belief, the Netherlands' performance still trails that of other major economies by a wide margin. In terms of gross domestic product per capita, the Dutch economy ranks eighth out of 16 Western European countries. Dutch GDP matches...