Wages increased on average by 0.3% in November 2021 according to the wage index. Over the last three months, from August to November 2021, wages have risen by 1.5% on average. Roughly half of that increase is due to extra payments such as bonuses and shift premiums, including seasonal payments. In the public sector, wage increases can mostly be contributed to increase in shift work payments. In addition to extra payments in the private sector, there were also increases in basic wages, e.g. due to company agreements and other basic wage increases, across economic activities.
In the last twelve months the wage index has risen by 7.5%. The annual increase can largely be attributed to collective agreements for large proportion of the Icelandic labour market, that came into effect in the beginning of 2021. The shortening of working hours for employees in the public sector also has an effect, but the effect of the shortening of working hours in the private sector came into effect earlier, in January 2020, and is as such outside the annual change.
Shortening of the work week accounts for nearly two percentage points
The wage index measures change in the unit price of wages based on hours paid. Changes in hours paid can such be the equivalence of wage price changes when hours paid are reduced but wages remain unchanged and the wage index rises as a consequence. The shortening of working hours in collective agreements from 2019 and 2020, leading to changes in hours paid and hence in the wage index, first affected the wage index in the end of 2019. From March 2019 until September 2021, the wage index rose by 18.4% but would have risen by 16.6% without the effect of the shortening of working hours. Hence, the total effect of the shortening of working hours on the wage index is estimated as 1.8 percentage points.
As collective agreements were implemented at different time for different sectors, a precaution is necessary when choosing the starting point of the comparison. This comparison is based on the period from March 2019 when the first agreements in the current round of agreements were implemented. Most of the wage increases during the period can be attributed to the provisions of collective agreements on nominal increases and tariff increases, as well as the shortening of working hours. From March 2019 to September 2021, wages according to the wage index:
- have increased by 17.0% in the private sector and the estimated increase without the effect of shortening of working hours is 16.0%, i.e. 1.0 percentage points lower.
- have increased by 19.4% in central government of the public sector and the estimated increase without the effect of shortening of working hours is 16.3%, i.e. 3.1 percentage points lower.
- have increased by 25.6% in local government of the public sector and the estimated increase without the effect of shortening of working hours is 22.1%, i.e. 3.5 percentage points lower.
A comparison shows that the wages in the public sector have increased more than in the private sector which can partly be explained with the shortening of working hours being greater in the public sector and reaching a larger proportion of employees. Nominal increases stipulated in collective agreements explain why the relative increase of wages in local governments has been much higher than for other sectors during the period. Nominal increase means that lower wage level increase proportionally more than higher wages levels, and of the groups compared, the wage level in the local government is generally lowest.
Notes: The figure shows the increase of the total wage index by sectors. The figures at the top of each column show the increase that is due to the shortening of working hours. The latest information on the breakdown of the wage index by sector is from September 2021 and the comparison is based on that. The proportion of the public sector in the wage index is about 30% while the private sector weighs just over 70%.
About the wage index
The wage index measures changes in hourly regular wages that are paid for agreed working hours, whether it is paid daytime work or shift premiums. Regular salaries take into account any types of premiums and bonus payments, such as fixed / immeasurable overtime, that are paid during each pay period. Accrued overtime payments are not part of regular wages or other irregular wage items, such as one-off payments or corrections, which are not calculated during each pay period.
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. As stated in the Act on the wage index no. 89/1989, changes in working hours and their composition shall not affect the index unless they are contractual changes that can be equated to wage changes.
In the collective agreements made in the years 2019 and 2020, changes were made to working hours, which included reduced working hours, but the implementations were different and the effect on the wage index is therefore different. Some collective agreements stipulated a reduction in working hours at certain times, while other agreements stipulated the employees and managers in individual workplaces had the rights to negotiate a reduction in working hours, often in parallel with the repeal of fixed coffee breaks and then replaced flexible rest breaks. The reduction in working hours due to the cancellation of coffee breaks or their concentration does not affect the wage index in the case where they only effect change in presence at the work place. It is anticipated that the shortening of the work week will affect the wage index in the coming months, although most of the shortening has already been implemented.
The results of the wage index are based on Statistics Iceland's wage data. Further information on the wage index methods can be found in the wage index metadata and in previous news about the wage index this year, the latest one on 22 September 2021.