Rising real wages despite a sluggish economy
A new analysis by the Swiss Employers' Association concludes that an increase in purchasing power is likely in the 2024 wage round. This is despite the fact that the economic situation is fragile and companies' assessments of the business situation are tending to deteriorate slightly. The decline in inflation is providing relief.
Growth in the Swiss economy has been weakening since the beginning of 2024. This economic development is said to be primarily due to weakening foreign demand and, in particular, to struggling sales markets in Europe. Incoming orders from Germany developed very negatively, which was particularly felt by the export-oriented economy. As a result, the export-oriented economy has developed almost consistently more negatively than the service-oriented domestic economy in the year to date. Since the beginning of 2023, local companies have tended to take a more pessimistic view of the future business situation. Overall, however, the business situation remains positive. The Swiss Economic Institute (KOF) also expects both domestic and export-oriented sectors to brighten up in the second half of the year. These and other findings and their impact on wages are presented by the Swiss Employers' Association in a new wage document for Switzerland on the basis of evidence.
High inflation phase overcome
In the last three years, real wages in Switzerland have fallen, while productivity has continued to develop positively. These exceptional years were characterized by the pandemic and the war in Ukraine, whereby the increased input costs put companies' margins under severe pressure and the cost increases could not be fully offset by nominal wage increases. As a result, the wage and productivity development curves are said to have increasingly diverged.
Switzerland was affected by a significant increase in inflation compared to previous years, most of which was imported, and which severely restricted companies' scope for wage increases. However, companies helped to dampen and in some cases even fully compensate for the loss of purchasing power by increasing nominal wages, in some cases substantially. They did not skimp on this: the wage share, i.e. the share of employee compensation in gross domestic product (GDP), has risen noticeably in recent years and amounted to 59.6% at the end of the first quarter of 2024. This was after previously hovering around 56% for several years.
Real wage increase likely
Since then, inflation is said to have fallen significantly and is expected to continue to fall, which is why the two growth paths of real wage development and productivity are converging more strongly again. Following the mixed economic development in the first half of 2024, the economy is also likely to brighten up somewhat in the second half of the year. Together with falling inflation, the signs are therefore good that purchasing power will increase not only in the current year but also in the coming year.
Source: www.arbeitgeber.ch
