Inflation Prices are rising fast right now and wages are threatening to lag behind – one graph tells you what to think about

Although the most common salary increase percentage this year seems to be two, the earnings of Finns are actually rising more on average, says Mika Maliranta, director of the research institute Laboren.

Gas has become more expensive, food will soon become more expensive. In general, prices are now rising faster than in more than a decade. The inflation rate in Finland was already 4.5 per cent in February.

At the same time, wage increases have been agreed at collective bargaining tables. This time the game opened Stora Enso already in October. The company entered into a three-year contract with its employees, in which wages would rise 1.9 percent a year in the first two years.

Since then, other agreements have emerged along the line of about 2 percent. So it seems that prices will rise clearly more than wages this year. The purchasing power of Finns’ wages, ie real earnings, would thus decrease.

It would be quite exceptional. In the long run, Finns’ real earnings have risen much faster than prices. Earnings have risen by as much as 50 percent since 2005.

Professor of Economics Roope Uusitalo

At the same time, prices have risen by 28 percent. Professor of Economics at the University of Helsinki Roope Uusitalon according to him, the same development has continued throughout the post-war period.

“The increase in real earnings reflects the rise in living standards. The key factors behind it are the increase in the level of education and technological development, which increases productivity, ”says Uusitalo.

Real earnings The rise in Finland has been very rapid at times since the 1950s. However, since the financial crisis in 2008, real earnings growth has slowed.

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The years following the crisis were marked by the collapse of Nokia’s mobile phone success and the restructuring of the forest industry, as demand for paper began to fall sharply.

At the end of last year, however, real earnings were already falling as inflation picked up. This has also been the case in 2011 and 2017.

Is there so this year is becoming a rude exception for the employee again? Experts say it is still too early to say. Earnings will continue to grow on average more this year than the tes increases show.

For example, if we look at an increase in earnings from the beginning of 2005, an overall increase of 50% means an average increase of 2.4% per year. Wages have not been raised so much in general collective agreements.

From Since 2001, wages have risen more every year than agreed in the general agreements. This crossing is called a slip.

“Slippages have brought a significant amount of market-based wage bargaining as employers compete for workers. Slippages largely mean an individual agreement, ”says Laboren, director of the former Wage and Salary Research Institute. Mika Maliranta says.

There are a variety of phenomena behind the general rise in real earnings. The technological developments and the rise in the level of education mentioned by Uusitalo mean in practice that some jobs will be lost and new, more productive and better paid jobs will be created.

It increases slippage.

“Every year, 10-15% of jobs are destroyed, and the same amount is created. People move from one job to another within the same industry or change industries and jobs. Especially for job changers, wages are growing very strongly on average, ”says Maliranta.

Salary slippages are not evenly distributed across sectors or individuals, or even regionally. According to Laboren Maliranta, the slippage is clearly the largest in the metropolitan area, which includes the Helsinki metropolitan area and its environs, ie a large part of Uusimaa.

“The slippages have been greatest for specialists and experts, in general, in positions where the most jobs have been created.”

In other sectors, such as industrial production, there has been little slippage. According to Maliranta, however, slips vary greatly, even in tasks where they are generally scarce.

So someone gets a good employee more, someone else doesn’t. Variation is related to the varying success of companies, but also to personal performance.

About wage earners almost 90% are still covered by collective agreements. Thus, more than ten per cent of employees agree on working conditions entirely locally. Their pay will not increase at all unless specifically agreed.

There are many ways to agree locally. In some companies, employees choose a representative from among themselves to negotiate working conditions with the employer.

In other companies, wages and working conditions are completely personal and are agreed in development discussions every year, sometimes more often.

Collective agreements advising non-covered companies on employment matters Jukka Tiihonen for example, in the competitive IT sector, wages may have been raised several times a year.

On the other hand, many locally agreed companies follow a general 2% increase line in wage increases. The sharp rise in energy prices has also led to inventive solutions such as a temporary petrol surcharge.

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“It is also the case that due to the rise in energy prices, additional fuel compensation has been paid,” says Tiihonen.

But should those who now receive only the general increase of 2%, even though prices rise faster, rise to rebellion?

According to Mika Maliranta, it is ultimately in everyone’s interest that the general salary increases are moderate.

“There are many kinds of structural changes going on in the economy, and companies’ payroll margins vary a lot. Moderate general increases are a sensible line because they do not inappropriately accelerate job destruction, ”he says.

Large overall increases could bring down companies that are on the verge of profitability, although their problems may be temporary.

“Slippages significantly complement earnings growth.”

No nor is it clear how much prices will eventually rise this year. Most economic forecasters think that the peak in inflation will be at least partly temporary. When the greatest uncertainty disappears, for example, the price of oil may fall.

Surely no one can say anything right now, because the Russian war of aggression and sanctions affect prices in many ways.

“In the long run, economic forecasters believe that inflation will stabilize at around 2%, which is what central banks are aiming for,” says Roope Uusitalo.

Inflation also treats people very differently. For example, rising energy prices are vaccinating a lot of people who drive cars, while rising food prices are vaccinating large families.

The impact of rising energy prices on housing costs depends on the type of housing, the type of heating and even the location.

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