The economic boom will continue in 2016-2017, and there are shortages of labour in many sectors. Divisions in the labour market are also growing, with much higher unemployment among those without the required skills and qualifications. The social partners can contribute here with measured pay settlements and minimum wages that ease entry into the labour market for groups currently excluded.
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 Swedish labour market contains a divide between those who are firmly established and those who are not. Collective agreements take little account of the less well established. To address these structural challenges, both labour market policy and the social partners need to take vulnerable groups into account.
Given the weak economic outlook, the year´s central pay settlements were in line with previous patterns. However, there are also some worrying signs in the labour market. The average period of unemployment will soon be up at the levels of the early 1990s crisis.The long time to fill vacancies despite high unemployment points to matching problems which could prevent a permanent decrease in unemployment. In addition, the long-term unemployed do not seem to be having a moderating effect on wage formation. Such are the conclusions of the latest Report on Wage Formation in Sweden from the National Institute of Economic Research (NIER), published today.
The next few years will be marked by high unemployment and low productivity growth in the business sector. Pay increases at the central and local levels are expected to average 3 percent per year in 2013—2015, and unemployment will decrease to 7 percent, though not until 2015. Economic recovery could proceed faster if more limited pay increases were backed up by a lower policy interest rate. One factor making it harder to reduce unemployment more quickly, however, is that firms face growing problems in finding personnel with the right qualifications. This is the NIER´s assessment in the Report on Wage Formation.
An unemployment rate close to the low levels of the 1980's can be achieved. For an unemployment rate of 5 percent to last, however, earnings must not increase more than 3.1 percent annually in 2012—2014.
Hourly earnings in the business sector are expected to rise by an annual average of 2.3 percent in 2010-2012. The pay increases are modest by historical standards, which will benefit employment. Unemployment is expected to remain high until 2014, however. As an effect of the economic downturn, employment has fallen more for men than for women, whereas women have left the labour force to a greater extent.
The 2010 pay negotiations will be held in a severely slumping economy. In the NIER's opinion, GDP growth and employment would be furthered by moderate but on average above-zero increases in wages and salaries during 2010—2012. Both general pay freezes and sizable pay increases in the period as a whole would adversely affect output and employment.The NIER's analysis of wage and salary differentials between men and women shows that the gender pay gap in the business sector has diminished only slightly since 1997. One principal explanation for the pay gap is the prevailing gender-based occupational segregation of the labour market. Both women and men earn more if they work in male-dominated occupations, even when consideration is given to observable factors affecting wages and salaries, such as education, age and incidence of part-time work.
Despite a strong labour market, pay increases after the 2007 round of collective bargaining have been lower than expected. The low rate of wage increases suggests that wage formation, from the standpoint of the national economy, has functioned better than before. The NIER has reduced its estimate of the equilibrium unemployment rate, from 6.2 percent to 5.7 percent.
The 2007 wage bargaining round cover some 3 million wage-earners, and almost all of them have now had their collective bargaining agreements renegotiated. The centrally negotiated wage increases were substantially higher than in 2004—2006, the previous contract period. Together with a strong labour market, this means that wages will be rising rapidly by average of 4.6 percent in 2007-2009, the period covered by the new contracts.
Economic conditions for wage formation
Wage Formation in Sweden is a summary of the annual report Lönebildningsrapporten (in Swedish), analysing the economic conditions for wage formation in Sweden.
Åsa Olli Segendorf
Head of Division, Labour market and price analysis
The National Institute of Economic Research (NIER) is a government agency operating under the Ministry of Finance. We perform analyses and forecasts of the Swedish and international economy. We also conduct economic research.