The ongoing contract movement is currently leading to conflict in parts of the public sector. At the same time, unions and employers in industry are preparing for next year’s collective bargaining. During the fall, new requirements must be formulated and by the end of March next year at the latest, the industry’s parties must have agreed on the wage increase rate – the wage mark – which will be the governing Swedish labor market in the coming years.
The negotiations will take place against the background of a very turbulent period. Primarily, it is about the inflationary shock that, in the wake of problems with global supply chains and rapidly rising energy and food prices, emerged in the aftermath of the corona pandemic and as a consequence of Russia’s full-scale invasion of Ukraine.
To land correctly in the analysis around and the discussion about the next pay mark, it is therefore crucial to learn the right lessons from the challenging times that we now seem to be on our way out of .
One lesson is that a reduced demand in the economy, contrary to the historical pattern, does not necessarily lead to impaired profitability and a shrinking profit share. What we have seen since inflation took off in the second half of 2021 is the reverse: the gradual deterioration of demand in the economy caused by the rapid rise in inflation has taken hold hand with increased profitability for Swedish business.
Already at the beginning of the rise in inflation, profitability was at a very high level, but has since increased further. Despite the fact that the demand for the goods and services of business decreased during the previous year, the profit share was the highest in modern times. The most qualified assessments tell us that these record levels, despite continued weak demand, will persist for the next few years.
Photo: Thomas Karlsson
What explains the crime against the historical pattern?
A decisive reason is that business has been very successful in passing on its supply-driven cost increases to us consumers. The companies have therefore proven to have greater pricing power than most of us could imagine; they have been able to raise their prices without losing too much sales. If everyone does the same thing, no single company will be punished. A “follow John†behavior was established.
This change not only speaks against the belief in perfectly functioning markets, where individual companies cannot determine the price of their products. It also shows that the decisive explanation behind the inflation shock of recent years is the business world’s successful effort to raise an already high level of profitability to an even higher level ¥er.
With stronger competitive pressure, the rise in inflation would have been considerably more moderate and the real wages of employees would not have fallen as much as they have. GDP growth had benefited.
The reduced real wages indicate that the employees’ share of the economic pie is at a record low level – not only in business life as a whole, but also in important industries such as industry and trade . This risks destabilizing a well-functioning salary structure, because the depth of membership will make legitimate demands for quick compensation.
Photo: Bjørn Larsson Rosvall/TT
But here applies the long-term thinking. The trade unions in the industry should show in the next collective bargaining, in wage demands and negotiated mark, that the employees’ share of the cake will increase in a not insignificant way the next few years. However, not everything can be brought home in one go.
A second lesson from the inflation shock of recent years is that politics and the economic-political establishment’s perception of the causes of inflation has been far too one-sided. The mindset of recent decades has been completely characterized by the fact that it is the demand in the economy that drives inflation.
What we have experienced is the opposite: a supply-driven inflation, whose main engine is the changed pricing behavior of business.
Particular focus has been on the fact that an increased demand for goods and services increases employment and strengthens the bargaining position of employees. Irresponsible trade unions then take the opportunity and negotiate wage increases that push up inflation and force the Riksbank to cool the economy by raising the key interest rate.
No one can claim that it is such a logic that we have seen in recent years. What we have experienced is the opposite: a supply-driven inflation, the main engine of which is the changed pricing behavior of business, which despite reduced demand has resulted in record high profitability and a record low wage share in the economy. It is not the employees who are the culprit in the drama, but the companies.
This obvious insight should not only lead to greater humility before possible causes behind inflation, but also to the development of indicators such as ongoing – and so now as real time as possible – can be used to follow the company’s pricing. Today we turn the wage statistics inside out, and often it sounds as if the economy will completely collapse if wages increase by another few tenths. But we know nothing about the factors that in any given year pushed up inflation from 2 to 12 percent.
A good competition in the Swedish economy benefits productivity and growth, but it is also an important piece of the puzzle in the upcoming wage negotiations between unions and employers in industry.
Well-functioning markets benefit employees. Weak competition has, in the wake of the supply shocks of recent years, led to a profitability that is far above the level required to ensure business life ¥ngterm competitiveness. This benefits neither the Swedish economy nor Swedish employees.
Read more articles from DN Debatt.
