Almost two decades have passed since Dutch employers, unions and the government, in their struggle against unemployment, agreed on a policy to increase labour market flexibility. Over the years the share of flexible jobs in the Netherlands has gradually increased to around ten percent. According to some parties the introduction of more labour market flexibility would lead to more inequality and a division in the labour market between workers with permanent employment and an underclass of women, immigrant workers and poorly educated workers with temporary contracts.The Dutch government has always claimed that a special set of legal rules regarding labour market flexibility would prevent the development of such an underclass. In this article three questions are addressed: Who has a flexible labour contract and who is in permanent employment? What is the pattern of transition to permanent contracts? What are the consequences for wage rates for those on permanent or flexible contracts respectively? The answers to these questions are provided using panel data for the period 1986–96.The results show that labour market flexibility has been introduced into the Dutch labour market without detrimental consequences for specific groups of workers.