19.03.2018

Austria: stagnant real wages and rising productivity

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  • Hourly nominal wages and salaries rose by 2.3 % in 2017.
  • However, wages and salaries have remained flat since 2016, when adjusted for inflation.
  • Hourly labor productivity, on the other hand, has picked up with average growth close to 5 %.
  • Nevertheless, since the financial crisis Austrian real hourly wage growth has been among the fastest in Europe.

Press release (4977 Characters)Plain text

IIn 2017, the growth in hourly wages and salaries has accelerated. Austrian businesses have paid 2.4 % higher hourly wages and salaries in 2017, compared to growth of 0.9 % in 2016. Wage growth is, however, less dynamic as it might seem. The fourth quarter of 2017 shows weaker growth than the two preceding quarters. Moreover, looking further back in time, makes clear that nominal wage growth is still below growth rates seen in the 2013-2015 period (average of 3 %).
Last week, Statistics Austria has released wages and salaries figures of its labor cost index. Throughout the year, and particularly since the second quarter, the service sector shows a more pronounced wage dynamic than industry and construction. Nominal hourly wages in the service sector increased by 3.1 % (y/y) compared to 1.3 % in industry and construction. Among service sector industries only the finance and insurance industry shows stagnant hourly wage growth.
In real terms, adjusted for changes in consumer prices, the hourly compensation of workers has remained flat since 2016. Figure 1 (see pdf) shows an index of hourly wages and salaries adjusted for changes in the price level. The index has been set to reflect 100 at the pre-crisis peak of the business cycle, in 2008. Real hourly wages and salaries are 9 % above the level of 2008. Wage growth outpaced inflation particularly in the years 2014 and 2015. Moreover, it is evident that real wage growth was more pronounced in the service sector rather than in industry and construction. While services of the business economy pay 12 % higher real hourly wages compared to 2008, real hourly wages in industry and construction are only 5.3 % higher than in 2008.
In the long-run, real wage growth is thought to follow the growth in labor productivity, GDP per hour worked. For the aggregate economy, hourly labor productivity has increased surprisingly steadily since 2008. An average hour worked produces 7 % higher output in Q4 2017 than in 2008. Looking solely at the industrial sector, hourly labor productivity has even increased by 15 %. Wages in the industrial sector, however, have only increased by 5.2 %. The difference between real wage growth and labor productivity in industry was most pronounced in recent quarters – see Figure 2 (see pdf).

The idea that wage growth falls behind productivity growth is known as decoupling. It is not unusual that decoupling occurs along the business cycle. During recessions real wage growth outstrips productivity growth as firms hold on to workers. During boom periods productivity, then, tends to grow faster than real wages.
A European perspective shows that real wage growth in Austria should not be interpreted as disappointing. Figure 3 (see pdf) shows the development of hourly real wages in Austria, Germany, France, Spain and Italy. Compared to the level of real wages in 2008, Austria and Germany experienced the fastest gains, despite stagnant real wages in Austria since 2016. The slowest growth in real hourly wages can be observed in Italy. They only increased by 2 % over a nine-year period in Italy and 3 % in Spain. Real hourly wage growth in France of 8 % is close to the German-Austrian rate.
Overall, it can be concluded that real wage growth should not be seen as disappointing since the financial crisis of 2008, particularly in a European perspective. Until recently, the development was broadly in line with productivity growth. The recent pick-up in labor productivity, particularly in the industrial sector, however, should give some flexibility for wages to increased within a tight labor market.

 


Authors
Martin Ertl     Franz Zobl
Chief Economist    Economist
UNIQA Capital Markets GmbH   UNIQA Capital Markets GmbH

Disclaimer
This publication is neither a marketing document nor a financial analysis. It merely contains information on general economic data. Despite thorough research and the use of reliable data sources, we cannot be held responsible for the completeness, correctness, currentness or accuracy of the data provided in this publication.
Our analyses are based on public Information, which we consider to be reliable. However, we cannot provide a guarantee that the information is complete or accurate. We reserve the right to change our stated opinion at any time and without prior notice. The provided information in the present publication is not to be understood or used as a recommendation to purchase or sell a financial instrument or alternatively as an invitation to propose an offer. This publication should only be used for information purposes. It cannot replace a bespoke advisory service to an investor based on his / her individual circumstances such as risk appetite, knowledge and experience with financial instruments, investment targets and financial status. The present publication contains short-term market forecasts. Past performance is not a reliable indication for future performance.


 

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