The Basis for Wage Settlements in 2017 – Preliminary Report

Published under: Solberg's Government

Publisher Ministry of Labour and Social Affairs

Press release from the Norwegian Technical Calculation Committee for Wage Settlements.

The report outlines recent years’ developments in pay, incomes, prices, macroeconomic development and competitiveness. The Calculation Committee also presents a forecast of consumer price growth from 2016 to 2017 and briefly describes prospects for the international economy and the Norwegian economy. The report is based partly on preliminary statistics and estimates for 2016. The report will therefore be updated in March, and will include information on pay by occupation and education.

This year, the analyses of the figures have been more demanding than usual. This is due to a combination of a new data source with better coverage and a business cycle that is characterized by the oil price decrease, influencing the figures more than usually.

For employees in manufacturing in firms affiliated to the employers' association NHO, the data source for calculating wage growth now covers all establishments for all months during the year, whereas the previous statistics were based on a survey in October. Some other bargaining areas also use the new data source but base their wage statistics on wages in September like in previous years.

The Calculation Committee estimates average pay growth from 2015 to 2016 to approximately 2 per cent for manual workers and approximately 2¼ per cent for non-manual employees in manufacturing in firms affiliated to the NHO. The combined average pay growth for these two groups is estimated at 1¾ - 2 per cent, due to a decrease in the share of non-manual employees from 2015 to 2016. Annual wage growth in 2016 was estimated at 2.4 percent at the wage negotiations in 2016.

Over the last five-year period, average wage growth in the major bargaining areas have been very similar, averaging just above 3 per cent.

The national accounts show an average pay growth for all wage earners of 1.7 per cent from 2015 to 2016. Changes in the distribution of wage earners within and between industries with different pay levels contributed to lowering total pay growth by 0.4 per cent. Structural changes associated with manufacturing and the oil industry reduced total pay growth somewhat more than this.

The wage carry-over into 2017 for manufacturing (NHO) is estimated at 1 per cent. For the other major bargaining areas, the estimates vary from 0.6 per cent in firms affiliated to the employers' association Spekter (excluding health trusts), to 1.5 per cent for Central government employees.

Average real after-tax pay for all wage earners decreased by 1.2 per cent from 2015 to 2016. The decrease within the major bargaining areas was between 0.3 and 0.8 percentage points lower.

The Calculation Committee's preliminary estimate of average consumer price growth from 2016 to 2017 is approximately 2 per cent. The uncertainty in the inflation forecast for 2017 relates in particular to exchange rates and electricity prices. Last year, the Committee under-estimated inflation in 2016 by 1.1 percentage points. The main reason was an increase in electricity prices by 22 per cent, far more than expected.

A depreciation of the Norwegian krone over the last four years, coupled with lower wage growth in Norway, has contributed to improving the cost competitiveness of the Norwegian manufacturing industry. This improvement of cost competitiveness occurs after the difference in hourly wage costs between the Norwegian manufacturing industry and the manufacturing industry in trade partner countries generally increased until 2012. The improvement in the cost competitiveness over the last few years has occurred in a period of lower economic growth and rising unemployment.

There is a close relationship between the development in competitiveness and in the profitability of industry and commerce. The Norwegian model for wage settlements (Frontfagsmodellen) implies that operating surplus as a share of factor income is a central indicator of the development in profitability and of the distribution of value added. Wage costs as a share of factor income in Norwegian manufacturing industry, have historically fluctuated with the business cycle around a fairly steady level. In 2016, wage costs as a share of factor income in Norwegian manufacturing industry were 80 per cent, the same as in 2015. The average wage costs share was 82 per cent during the period 2007-2016, and 80 per cent on average during the 20-year period 1997-2016.

Average hourly wage costs in manufacturing in Norway in 2016 were an estimated 32 per cent higher than a trade-weighted average of our EU trading partners, measured in a common currency. This is 3 percentage points less than in 2015. The reduction is related to the depreciation of the Norwegian krone from 2015 to 2016 (annual average) and that wage growth was lower than for the trading partners. The higher hourly wage costs in Norwegian manufacturing industry compared with the trade partners reflects the high levels of productivity and income of the Norwegian economy, and a more equal distribution of income, but also higher wage growth than abroad until 2015.

Both the number of employed persons and the labour force changed little from 2015 to 2016. However, the employment rate decreased. According to the LFS, there was a small increase in unemployment to a level of 4.7 per cent of the labour force, the highest annual average in 20 years. Registered unemployment was unchanged from 2015 at 3.0 percent. There is substantial regional variation.

Going forward, oil prices are expected to remain at today's levels, and together with reduced costs of developing new oil and gas fields this will probably cause the drop in petroleum investments to level off in 2017. Combined with expansionary fiscal and monetary policy, a weak Norwegian krone and somewhat higher international economic growth, this will probably contribute to higher economic growth in Norway. Forecasts for GDP growth for mainland Norway in 2017 are at 1.5 per cent or above. Employment growth is expected to increase in 2017, although not enough for the employment rate to increase much. Unemployment is not expected to change substantially.

Table 1. Annual pay growth in 2015 and 2016 and wage carry-over into 2017 in major bargaining areas. Per cent

 

Pay growth
2014-2015

Pay growth
2015-2016

Wage carry-over into 2017

All employees in the manufacturing industry at firms affiliated to NHO1

2.5

1 ¾-2*

1*

 - Manual workers
at manufacturing firms affiliated to NHO1

2.5

2*

1*

- Non-manual employees at manufacturing firms affiliated to NHO1

2.5

2 ¼*

1*

Employees at firms affiliated to Virke2, retail trade

3.3

2.5*

1*

Employees in financial services

4.3

2.5

0.9

Central government employees

2.8

2.4

1.5

Local government employees

3.34

2.5

0,9

Employees at firms affiliated to Spekter3, excluding health trusts

2.7

2.4*

0.6*

Health trust employees5

2.7

 

 

  1. Confederation of Norwegian Enterprise
  2. The Enterprise Federation of Norway
  3. An employers’ association.
  4. A strike in the eduation sector in 2014 caused a delay in negotiated pay increases, leading to an increase of 0.2 percentage points in average pay growth for all local government employees in 2015.
  5. Due to delayed wage settlements for a group of employees in 2016, annual wage growth cannot be calculated exactly. Excluding the affected group, pay growth is estimated at 1.4 per cent.

* Preliminary estimates

Contact 

Contact person for further information:
Committee Chairman Ådne Cappelen, Statistics Norway
Tel. + 47 488 82 950
E-mail: adne.cappelen@ssb.no