Wednesday, August 30, 2006

Swedish Real Wage Gains Weak

One reason why most people was surprised by the very strong second quarter GDP growth report for Sweden and in some cases even expressed disbelief about the accuracy of the number was that it was inconsistent with other reports showing only weak employment growth and weak real wage increases.

That could be the case, but it does not necessarily have to imply that, as it is possible for the discrepancy to be the result of a rising share of national income going to corporate profits or capital consumption or that it is the real wage/employment numbers which are too low.

Assuming however that the data is correct, we saw now again how weak real wages is increasing in Sweden. For "blue collar" workers in the private sector, nominal wages increased a mere 2.8%, whereas pay for "white collar" workers were 3.1%. Pay in the government sector increased even less at about 2.5%. If you deflate this with the 1.9% increase in the harmonized consumer price index, this means that real earnings rose just 1.2% for "white collar" workers, 0.9% for "blue collar" workers and 0.6% for government sector workers.

Compare this with Estonia, where nominal hourly wages increased a full 17%. Even after deflating for Estonia's 4.4% inflation rate, this still leaves a real wage gain of more than 12%!

Thus, using a standard which "the worker's party" should like, real wage gains, free market Estonia have been far, far more successful than social democratic Sweden.


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