Stop blaming inflation on the wage earners

Real wage increases from 2000 to 2014 were 1.4 percent annually. Meanwhile, productivity increased at an annual rate of 1.7 percent, resulting in real wage increases 0.3 percentage points smaller than productivity increases.

As an example, let’s look at the distribution year 2023, that is, the funds distributed in 2023 based on the results of 2022. The total dividends are approximately SEK 280 billion.

An example from one of these companies:

The planned dividend for 2023 is just over SEK 11,000,000,000. The company employs about 16,000 employees. If the company were to increase the salary, which is currently around SEK 30,000 per month, by 4 percent plus the “intended” mark, the social security contributions would cost the company just over SEK 300,000,000. Which still leaves 10,700,000,000 SEK left for the dividend.

productivity impact

But is it said that wages drive inflation? Many economists see the relationship between wages and inflation as a matter of course. The common argument is that if wages increase more than productivity, firms need to raise prices.

But higher wages can also affect corporate productivity. In addition, higher wages affect the purchasing power of the individual, which in turn leads to the ability of firms to sell more of their products.

It is not clear whether wages affect inflation or whether the opposite affects wages. If higher demand for goods and services leads to higher prices and thus higher profits and thus higher demand for wages, it is inflation that drives wages instead.

In a Riksbank deepening on the interaction between wage formation, monetary policy and inflation, they asserted that there is a ‘interdependence’ between wage formation and monetary policy as both are important to each other. The summarized case of research at the beginning of the 2000s found no empirical relationship that showed that wages influence inflation, with the conclusion that wages are not a good predictor of future inflation and that the place of wages in the monetary policy debate is not. justification. Subsequent research confirms this picture. In general, the importance of wages to inflation seems to be overstated in the monetary policy conversation. Instead, much talks about interaction, wherein inflation is at least as important to wages as wages are to inflation.

In general, the importance of wages to inflation seems to be overstated in the monetary policy conversation

So really, it’s more about where you want companies’ money to go and what the wage share in the economy should look like. Do we want to invest in wage earners or make profits for the owners?

In order to have a well functioning economy, I believe the choice should be simple. Dare to invest in wage earners and we will also create a positive spiral that increases purchasing power and therefore productivity.

jonas eriksson, Head of Department, Vijn Vastra Götaland Region