MNI: Swedish Wage Growth To Slow After This Year - NIER

Swedish wage growth should peak this year and then slow irrespective of whether ongoing pay negotiations result in a one- or a three-year deal, economists at the National Institute for Economic Research told MNI.

Manufacturing sector negotiations are scheduled to finish by the end of the first quarter, setting a benchmark for an economy where 70% of workers are represented in collective bargaining schemes. Unions are asking for a 4.4% one-year wage increase, while employers have offered 2% for the 12-month period together with an additional one-off payment of SEK3,000.

Often, the employers press for seek three-year deals, said NIER’s Linn Hansen.

"But, given the uncertainty about the future economic outcome and that the social partners typically are forward looking, it is difficult to predict," she said in an interview.

The unions’ pay demand is high by the standards of the past two decades, she noted, adding that that the eventual deal "typically ends up at 75-80% of the demand ... that would imply 3.5%.”

RIKSBANK FORECAST

Such a figure would be close to the 3.7% wage growth forecast for 2023 by Sweden’s central bank, the Riksbank, in its November Monetary Policy Report.

While the collective agreement should set a floor for wage growth in the broader economy, the Riksbank will also monitor other data, including the quit rate, as it assesses changes in total pay, she said.

“Firms typically want to be able to foresee their labour costs for further investment plans,” she said, “We forecast that the total wage rate will be higher in 2023 and then grow somewhat slower in the upcoming years," Hansen said.

The Riksbank forecast that inflation on its target CPIF measure would be 5.7% in 2023 and 9.3% on CPI, but Hansen does not believe unions will push to make up for lost real earnings.

"Both social partners have expressed that they will not request full compensation for the real wage loss since it would further fuel inflation,” she said.

RISING UNEMPLOYMENT

Another factor with a bearing on wage negotiations are the profit-sharing schemes offered by some companies to employees, Hansen noted.

“In Sweden the profit share has been relatively high, but unevenly distributed among sectors. While the profit share is relatively high in the industrial sector, other service sectors have a lower profit share. The agreement is in the industrial sector," she said.

A rising unemployment rate, which NIER expects to increase to 8.1%, in 2023 from 7.5%, should also act as a subduing influence on both inflation and in wage talks. These levels are above NIER’s estimate of equilibrium unemployment, the rate that would prevail if the economy operated at exactly full capacity and which it pegged at 7.2% in 2022 and 7.3% in 2023, noted Hansen's colleague Elias Osvald. (See MNI INTERVIEW:Swedish Hiring Data May Reflect Worker Shortages)