Öberg: Economic conditions for wage formation
Summery
On Thursday, First Deputy Governor Svante Öberg gave a speech at the National Mediation Office on the importance of good economic conditions for wage formation. Since the mid-1990s, wage formation has improved, compared with the 1970s and 1980s. In particular, Mr Öberg highlighted three important changes that have been decisive: the fiscal policy framework, a monetary policy with inflation targeting, and the improvement of wage formation itself as a result of the Industrial Agreement and other initiatives.
The two most recent wage bargaining rounds took place under widely differing circumstances. The year 2007 saw the peak of an economic boom and the year’s wage bargaining rounds led to excessively high wages from an economic perspective. In contrast, 2010’s agreements were restrained, as they were concluded during the financial crisis, and thus contributed towards mitigating the effects of the crisis.
Mr Öberg assessed the economic conditions ahead of the autumn’s wage bargaining rounds as good, and considered that wage formation will probably continue to work well in the years ahead. However, according to Mr Öberg, there is a risk that the rapid improvement of the labour market may push up wage increases above the expectations of the Riksbank’s latest forecast. Another risk is that the temporarily high rate of CPI inflation may influence wage expectations.
A situation in which wages are increasing faster than expected may lead to higher inflation, unemployment and interest rates. A somewhat lower rate of increase than that forecast by the Riksbank may, instead, lead to lower inflation, unemployment and interest rates. This would be preferable from the wider perspective of welfare.
Mr Öberg emphasised that the Riksbank is not a party in the collective bargaining process; it is the social partners that conclude the agreements. But monetary policy aims to maintain a low and stable level of inflation. This job is made easier if wage formation works well. “My assessment is that wage formation will continue to work well in the years ahead. There is thus reason to look ahead to the approaching wage bargaining rounds with confidence,” concluded Mr Öberg.
Read the speech in full in the PDF below.
