The Basis for Wage Settlements in 2018 Preliminary Report

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 2017 to 2018 and briefly describes prospects for the international economy and the Norwegian economy. The report is based partly on preliminary statistics and estimates for 2017. The report will therefore be updated in March.

The Calculation Committee's preliminary estimate of average pay growth from 2016 to 2017 is approximately 2.5 per cent for blue collar employees and approximately 2.5 per cent for white collar employees in manufacturing firms affiliated to the NHO. The combined average pay growth for these two groups is also estimated at approximately 2.5 per cent. At the wage negotiations in 2017, the NHO estimated, along with LO, annual wage growth in 2017 for these groups combined at 2.4 percent.

The wage carry-over into 2018 for manufacturing (NHO) is estimated at 1.1 per cent. For the other major bargaining areas, the preliminary estimates are between 0.6 and 1.4 per cent.

Average real after-tax pay growth from 2016 to 2017 varies from 1.0 to 2.2 per cent for wage earners with average pay levels and average pay growth in the major bargaining areas (preliminary estimates). Real pay growth before tax varies from 0.5 to 2.0 per cent. Wage earners with pay level and growth equal to the averages for all wage earners had a real before-tax pay growth of 0.5 per cent and a real after-tax pay growth of 0.9 per cent. Average pay growth for all wage earners from 2016 to 2017 was 2.3 per cent, according to preliminary national accounts.

The Calculation Committee's preliminary estimate of average consumer price growth from 2017 to 2018 is approximately 2 per cent. The uncertainty in the inflation forecast for 2018 relates in particular to exchange rates and energy prices.

Higher growth in wage costs and a stronger Norwegian krone contributed to a possible weakening in 2017 of the cost competitiveness of the Norwegian manufacturing industry, measured by relative hourly wage costs in a common currency, following an improvement over the previous three years. The higher growth in hourly wage costs of the Norwegian manufacturing industry compared to the trading partners over time is related to high growth in export prices and improved terms of trade.

There is a close relationship between the development in competitiveness and in the profitability of industry and commerce. Wage costs as a share of factor income is a central indicator of the development in profitability and of the distribution of value added. The Norwegian model for wage settlements (Frontfagsmodellen) should contribute to long term stability in the distribution of factor incomes in manufacturing. However, the wage cost share in the Norwegian manufacturing industry fluctuates considerably over the business cycle. According to preliminary national accounts, wage costs as a share of factor income in Norwegian manufacturing industry, including imputed labour costs for the self-employed, were 81 per cent in 2017, 4 percentage points lower than the year before. The average wage cost share was 85 per cent over the period 2008–2017, and 83 per cent on average 1998–2017.

Higher growth in wage costs in Norway than for the trading partners and appreciation of the Norwegian krone contributed to an estimated increase in relative hourly wage costs measured in a common currency of 1.6 per cent in 2017. Fewer working days added 0.8 percentage points to the annual growth rate of hourly wage costs in Norwegian manufacturing industry. The growth rate of hourly wage costs for the trading partners in 2017 is estimated with considerable uncertainty.

Average hourly wage costs in manufacturing in Norway in 2017 were an estimated 36 per cent higher than a trade-weighted average of our EU trading partners, measured in a common currency. This is 2 percentage points more than in 2016. 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.

In 2017, employment increased by 1.1 per cent following modest growth in the years before, whereas the employment rate was reduced. Unemployment (LFS) was reduced from the highest level in 20 years (4.7 per cent average in 2016) to 4.1 per cent in the second half of 2017. Gross registered unemployment (registered unemployed and labour market programme participants) also decreased during 2017 and the number of unemployed fell in most counties. Employment grew particularly in construction, business services and hotels and restaurants. In 2017, employment decreased in extraction of oil and gass including services, in ship building, metal and machine industry. Employment changes were smaller in other private industries.

Most forecasts show that, going forward, oil prices should remain at or around today's levels. Together with reduced costs of developing new oil and gas fields, this implies that falling petroleum investments over the last years will probably turn into an increase in 2018. Combined with continued economic expansion abroad and a weak Norwegian krone, this will contribute to the Norwegian economy growing at the same rate in 2018 as in 2017. Forecasts for GDP growth for mainland Norway in 2018 are in the interval 2-2.5 per cent for most forecasts. Employment is expected to increase by approximately the same rate in 2018 as in 2017 and unemployment is expected to decrease somewhat.

Table 1. Annual pay growth in 2016 and 2017 and wage carry-over into 2018 in major bargaining areas. Per cent

	Pay growth 2015-2016	Pay growth 2016-2017*	Wage carry-over into 2018*
All employees in the manufacturing industry at firms affiliated to NHO1	1.9	2.5	1.1
- Manual workers at manufacturing firms affiliated to NHO1	2.0	2.5	1.1
- Non-manual employees at manufacturing firms affiliated to NHO1	2.2	2.5	1.2
Employees at firms affiliated to Virke2, retail trade	2.5	34	0.8
Employees in financial services	2.5	3.8	1.0
Central government employees	2.4	2.3	0.7
Local government employees	2.5	2.5	1.4
Employees at firms affiliated to Spekter3, excluding health trusts	2.4	2.5	0.6
Health trust employees5	2.0	3.6	0,9

1. Confederation of Norwegian Enterprise
2. The Enterprise Federation of Norway
3. An employers’ association.
4. Structural changes, including new member enterprises, increased estimated wage growth.
5. Delayed wage settlements for a group of employees in 2016 decreased estimated annual wage growth 2015-2016 by 0.4 percentage points, and increased it by the same amount from 2016 to 2017. Parts of the 2016 wage settlements were paid out in 2017, further reducing estimated wage growth from 2015 to 2016, and increasing it from 2016 to 2017. Structural changes worked in the same direction.

^* Preliminary estimates

Contact 

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