Lower labour market shortage could partly explain low wage growth

Lower labour shortage could partly explain low wage growth

November 15, 2019

Nominal wage increases in Sweden have been unusually low in recent years, despite a strong outcome for the Swedish labour market. Several indicators point to demand for labour having exceeded supply, which according to the textbook should have led to higher wage growth.

The analysis in this economic commentary shows that Swedish companies raise salaries when they perceive it is difficult to obtain staff and that they raise salaries more the higher the shortage of labour.

A new indicator shows that the shortage of labour may be lower than other measures are showing, and that this could partly explain why wage growth has been more subdued in recent years.

However, the analysis does not fully explain why wage growth has been so low. It is therefore probable that other changes on the labour market have contributed to slowing down wage growth in recent years.

By Erik Frohm, works in the Monetary Policy Department.

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