Wage Formation in Sweden 2015

Low as well as high pay increases present risks

The participation rate and the employment rate are high in Sweden relative to other countries, but unemployment is also high. The social partners can normally hasten a return to lower unemployment through wage formation with support from monetary policy, but monetary policy cannot be made much more expansionary in the current situation. Very low pay increases will not therefore lead to lower unemployment. Changes to minimum wages and active labour market policies could, however, permanently reduce unemployment.

The economy will strengthen in the coming years, and inflation as measured by the consumer price index with a fixed interest rate (CPIF) is expected to average 1.9 per cent in 2016-2019. Prices relevant to firms´ ability to pay higher wages will rise by an average of 1.7 per cent per year during this period. Productivity growth, meanwhile, will be weak by historical standards and is expected to average 1.5 per cent per year in the business sector 2016-2019.

Moderate wage growth will normally contribute to higher employment, but the Riksbank currently has limited scope to pursue even more expansionary monetary policy, which means that very low pay increases will not result in lower unemployment.

Since the Industrial Cooperation and Negotiation Agreement came into effect in 1997, wage formation in Sweden has made a positive contribution to economic developments. At the same time, wage formation has cemented a compressed wage structure with relatively high minimum wages. There are also signs that wage formation is not helping those in a weak position in the labour market.

The high participation rate in Sweden is positive, but rapid expansion of the labour force will normally push up unemployment in the short term. Groups with a weak attachment to the labour market have grown as a share of Sweden´s unemployed. In addition, firms´ average time-to-hire is high, which is one of many indicators suggesting that matching in the labour market has deteriorated in recent years.

Forecast Data Sets, October 2015

About the report

The report Wage Formation in Sweden 2015 presents the economic background to wage formation and the coming round of collective bargaining. The aim of the report is to assist the social partners and the National Mediation Office with high-quality analysis.

The key factor for wage formation is not wages but labour costs, which also include other costs, in particular employers´ social security contributions. The NIER expresses no opinion on how wages and salaries should develop.