Wage Formation in Sweden 2004
Wage Formation - Economic conditions in Sweden 2004
GDP growth has been revised upward to 3.8 percent for 2004 and 3.3 percent for 2005. The recommended annual increase in hourly earnings for the local-government sector, where wages will be renegotiated in 2005, is 3.7 percent for 2005-2007.
GDP growth has been revised upward to 3.8 percent for this year, primarily because exports have surged even more than expected. Growth will be 3.3 and 2.8 percent, respectively, in 2005 and 2006, and more subdued thereafter. In 2005 and 2006 investment and household consumption will be increasing strongly. In terms of resource utilization, the economic upswing will reach its peak in 2007.
So far, rising output has been achieved through higher productivity, but an upturn in the labour market is now under way, and the number of persons employed will increase by 85 000 between 2004 and 2007. Unemployment will gradually drop to 4.3 percent in 2006.
Labour costs in the Swedish business sector are currently at a level where profitability is on a par with that in other countries. In combination with high growth in productivity, this situation will assure solid growth in real wages in a somewhat longer-term perspective. Swedish wage formation, which since 1998 has been based on extensive co-ordination, but with a significant local element, has generally functioned well. An even higher degree of co-ordination, however, can help to bring about a lasting reduction in unemployment.
In 2004 collective-bargaining agreements were reached for the majority of employees in the business sector. Hourly earnings in that sector are expected to rise by an annual average of 3.4 percent in 2004-2006. This rate is 0.2 percentage point less than in the previous three-year period.
Lower Rate of Increase Also Desirable in Local Government
In 2005 the collective-bargaining agreements in the local-government sector will be renegotiated. For 2005-2007, hourly earnings in that sector are forecast to increase by 4.0 percent per year, 0.2 percent less than in the period covered by the previous agreement. According to the present forecast, wages will increase faster in the local-government sector than in the business sector in 2002-2006. One explanation is increased central-government subsidies to local governments.
In the NIER's opinion, however, somewhat lower wage increases are desirable from a general economic standpoint. Reducing the rate of wage increases to 3.7 percent would permit the negotiating parties in the business sector to take the next step of limiting wage increases beginning with the 2007 agreement. This would make it possible to bring employment down to a permanently lower level. The development of relative earnings would then be the same as in the main scenario.
The number of hours worked per capita is expected to decrease in coming years, resulting in lower GDP and less scope for household and government consumption than if the number of hours worked had kept pace with population growth. This development will also strain general-government finances. If the Government's and Parliament's target of a 2-percent average surplus for 2006-2010 is to be met by permanently raising taxes or cutting expenditure in 2006, such measures must be on the order of SEK 10 billion.
However, the lacklustre tendency in hours worked can be countered by increasing the labour supply and improving wage formation. Efforts in that direction would be reinforced by better integration of the foreign-born, reduced ill health, later retirement and earlier entry into the labour force through more effective studies.
Annual percentage change and percent, respectively
GDP at market prices
Current account (1)
General-government net ledning (1)
Unemployment rate (3)
Hourly earnings, business sector
Hourly earnings, general- government sector
Labour costs, business sector (NA) (2)
Productivity, business sector (2)
Repo rate (4)
Interest rate, 5-year government bonds (4)
Index for the Swedish krona (KIX) (4)
(1) As a percentage of GDP. (2) Calendar-adjusted. (3) As a percentage of the labour force. (4) Annual average. Sources: Statistics Sweden, Labour Market board, the Riksbank and NIER.
Hourly earnings in Local Government
Annual percentage changeNote. Short-term wage and salary statistics.
Sources: National Mediation Office and NIER.
Number of Hours Worked per Capita
Note. Caledar-adjusted number of hours worked.
Sources: Statistics Sweden and NIER.