The wage index in April 2020 was 3.3% higher than in the previous month. The increase was affected by wage increases stipulated in collective agreements for a large proportion of the Icelandic labour market. General wage increases stipulated in the agreements were 18 thousand ISK on monthly wages for full time employment and a monthly wage tariff increase by 24 thousand ISK.

It should be noted that new collective agreements were implemented in March 2020, which stipulated a retroactive wage increase from either 1 April 2019 or 1 January 2020 in addition to a pay rise from 1 April 2020. These wage increases affect the wage index in April 2020 since retroactive wage increases have effect on the index when they are implemented. In the last twelve months, the monthly wage index has risen by 6.8%.

Changes of Wage Index from April 2019 to April 2020
  From previous month, % From previous year, %
April 1.5 6.8
March 0.7 5.1
June -0.1 4.3
July 0.3 4.2
August 0.0 4.3
September 0.5 4.2
October 0.4 4.2
November 0.2 4.2
December 0.3 4.5
January 0.7 4.9
February 0.1 4.8
March 0.3 4.9
April 3.3 6.8

Notes: The wage index is calculated and published according to law No 89/1989. The wage index is based on regular hours earnings each month

In March and April 2020, some wage earners had temporary reduction in working time, were absent from work or lost employment because of COVID-19. Such changes in working hours and structural changes in the labour market do not normally affect the wage index since it is a price index and designed to measure changes in wages paid by employers for one hour of work (between two successive points in time). However, changes of regular payments for fixed hours like additional payments and bonuses settled in each wage period can affect the index. Statistic Iceland publishes other indices that reflect structural changes, e.g. the Quarterly Total Wage Index.

Although changes in working hours do not normally affect the wage index, changes in working hours stipulated in collective agreements can have effect on the index if they can be seen as equivalent to changes in wages. In recent collective agreements in the Icelandic labour market, some parties agreed on shortening working hours. Some collective agreement stipulate the possibility of a workplace agreement between wage earners and employers while other collective agreements stipulate that the shortening should take effect on a specific date. For an example, the agreement between VR - the Store and Office Workers’ Union and SA - the Confederation of Icelandic Employers agreed on a shortening of working hours by 9 minutes a day for a full time employee. Collective agreements in the public sector stipulated a shortening of 13 minutes per day from 1 January 2021.

The shortening of the workweek first affected the wage index in November 2019 while the main effect was in January 2020. However, not all parties have implemented shortening of the workweek so the effect will continue to affect the wage index for at least the coming year. The increase in the wage index between December 2019 and January 2020 was 0.7%, is estimated to be 0.1% without the effect of the shortening of the workweek. From November 2019 to April 2020, the wage index has increased by 4.8%, but is estimated to have increased by 4.1% without the effect of the shortening of the workweek.

About the wage index
The wage index is calculated and published according to law No 89/1989. The index is a price index based on data from the Icelandic survey on wages, earnings and labour cost. The purpose of the index is to reflect changes in wages paid for fixed working hours. The index is based on earnings for contractual working hours and includes all wages paid for day time and fixed overtime hours, including additional payments and bonuses. Irregular payments and employers' social contributions and taxes are excluded. Although changes in working hours do not normally affect the wage index this is sometimes the case with the shortening of the workweek as stipulated in recent collective agreements. As stated in the bill of the wage index act, collective changes in working hours can affect the wage index if they are equivalent to changes in wages. Further information in metadata about the wages index.