The monthly wage index increased by 3.7% in January 2021 from the previous months. The increase can largely be attributed to collective agreements for a large proportion of the Icelandic labour market. The agreements stipulated a general wage increase from 1 January 2021 by 15,750 ISK for monthly wages for full time employment and a monthly wage tariff increase of 24,000 ISK.

In the last twelve months the monthly wage index has risen by 10.3%. In 2019, the private sector closed collective agreements stipulating a pay rise in April 2020 and January 2021 as well as shortening of the working week. In 2020, the public sector closed comparable collective agreements that stipulated two pay rises, one retroactive pay rise for 2019 and one for 2020 as the validity period of the former agreements ended in early 2019. Those wage earners also got a pay rise 1 January according to the agreements, thus a part of the labour force has three stipulated wage increases in the past twelve months.

Changes of Wage Index from January 2020 to January 2021
  From previous month, % From previous year, %
January 0.7 4.9
February 0.1 4.8
March 0.3 4.9
April 3.3 6.8
May 0.3 6.4
June 0.2 6.7
July -0.1 6.3
August 0.2 6.4
September 0.8 6.7
October 0.7 7.1
November 0.4 7.3
December 0.2 7.2
January 3.7 10.3
Notes: The wage index is calculated and published according to law No 89/1989. The wage index is based on regular hour's salaries each month.

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 wage changes. Collective agreements from the years 2019 and 2020 in the Icelandic labour market contained such agreements on 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. Collective agreements in the public sector stipulated a shortening of 13 minutes per day from 1 January 2021 for daytime workers. Shortening in working hours for shift time workers in the public sector will come into effect 1 May 2021.

The shortening of the working week according to collective agreements in 2019 and 2020 first affected the wage index in November 2019. The estimated effect of the shortening of the working week to November 2020 is about 0.8 percentage points. Final estimation between November 2019 and January 2021 will be published 23 April 2021 but preliminary estimation indicates that the effect of the shortening of the working week between December 2020 and January 2021 on the wage index is about 0.4 percentage points. However, not all parties have implemented the shortening of the working week so the effect is anticipated to continue to affect the wage index for coming years.

Changes in wages
Statistics Iceland publishes other measurement on wages and changes in wages to give a broader perspective on the subject. For example, total wage index reflects, unlike the wage index, all wage components and changes in the composition of the labour force or working hours. Sum of taxable wages gives timely information on individuals’ income related to work and is affected when employment and working hours increases or decreases, as has been the case since Covid-19 pandemic started. Changes in employment and working hours generally do not affect the wage index since it measures hourly wages of those who are employed. Between November 2019 and November 2020 the sum of taxable wages decreased by 1.6% in current prices while the wage increase was 7.3% according to the wage index.

The wage index is a price index based on earnings for contractual working hours and includes all wages paid for daytime and fixed overtime hours, including shift payments and regular bonuses. Irregular payments and employers' social contributions and taxes are excluded. See further information in metadata about the wage index.