Wage Increases and Labour Shortages in Sweden – How companies manage labour shortages

Nominal wage increases in Sweden have been unusually low in recent years, despite a strong outcome for the Swedish labour market. Several indicators point to demand for labour having exceeded supply, which according to the textbook should have led to higher wage growth. In this Commentary I show how survey- based indicators can have exaggerated the demand for labour in recent years, and thus exaggerated wage pressures. The analysis shows that Swedish companies raise salaries when they perceive it is difficult to obtain staff and that they raise salaries more the higher the shortage of labour. A new supplementary indicator shows that the shortage of labour may be lower than other measures are showing, and that this could partly explain why wage growth has been more subdued in recent years. However, the analysis does not fully explain why wage growth has been so low. It is therefore probable that other changes on the labour market have contributed to slowing down wage growth in recent years.

How companies manage labour shortages

Companies that have a shortage of labour do not necessarily increase wages to recruit.

Figure 2 shows how the companies respond to the question about managing labour shortages. Seen across the whole period 2007-2018, the normal situation is that the shortage means it takes longer to recruit than before and that the companies need to lower their requirements regarding experience, education or social competence. It is also common that the recruitments are broken off completely. Other measures are also used. This could be that the company uses external recruiters, recruits to a different region, uses subcontractors or a staffing agency. Raising salaries comes in fifth place, seen across the entire time period. But it has become more common to raise salaries during the period 2016-2018 than it was in 2013-2015. It has also become somewhat more common for companies to lower their competence requirements or offer other benefits, while it has become less common for companies to break off the recruitment or take other measures.

Chosen excerpts by Job Market Monitor. Read the whole story at  Lower labour shortage could partly explain low wage growth