Tuesday, February 19, 2013

Real Wages in Sweden 1960-2013

The documentary “Lönesänkarna” argued that Swedish wages have stagnated because capital is taking a bigger share of the pie. The first graph shows the development of wages per capita and profits per capita. As you see both have been growing at roughly the same rate, with capital fluctuating more and showing a slight tendency of having  faster growth. This shows what I already showed in a slightly different way. 

The second graph uses the distribution of wages, seperating high-income and low-income wage earners. P-10 is the wage of a full-time worker who earns more than 10% of all full times workers and less than 90% of full time workers, and thus measures the wage of low-income employees. P-90 similarly measures the wage of the 90th percentile, a high income employee. 

As you see, aggregate wages have followed GDP, once we adjust for taxes, depreciation and other things. 

However just as I argued previously the wages of low-income workers have grown far less than GDP has, while the wage of high-income workers has grown more than GDP. The wage of high-income workers has growth faster than total capital earnings.  

When comparing only the wage/capital side of income growth, you do not capture the important source of modern growing income inequality, I.e. the difference among employees. The wages of employees include wages that go to people in finance or consulting or law who earn millions, sometimes combining wages with capital gains. Here are growth rate per year 1980-2011, using five year averages (so the mid point is 1982-2009).

GDP per capita at factor prices: 1.4%
Wages per capita at factor prices: 1.4%
Profits per capita at factor prices: 1.4%
Median wage: 1.2%
Wage P-10: 1.0%
Wage P-90: 1.6%

Lönesänkarna painted the 1970s and 1980s as a great period for workers, and argues that today workers are doing worse because of market-liberal economic policies. This is not an accurate description. The 1970s and 1980s was a terrible period in terms of wage growth, with inflation eating most of it up. Swedish real wages essentially stood still during the long period 1973-1995. I got data on real wages 1960-2013 from Medlingsinstituet. 

Real wage growth was 4.3% between 1960-1970.
Real wage growth was only 0.9% between 1970-1990.
Real wage growth was 1.6% between 1990-2013. 

Countrary to the image given by the program, the peak-socialist period of the 1970s and 1980s was a terrible period in terms of wage growth. During the more market liberal period labor has done far better in Sweden. 


Method is here: In the first 2 graphs, I once more SCB Nationalräkenskaperna for data 1980-2011. I use GDP at factor prices and remove capital depreciation. The part of national income going to wages “löner och sociala avgifter” will be compared with capital “driftsöverskott och sammansatt förvärvsinkomst”. In order to smooth out volatility, I use 5-year moving average.  

SCB has another series measuring wages, ”Arbetsinkomst för samtliga helårs och heltidsanställda personer 20-64 år”. This is used in combination with the national account data in graph 2. These wages are deflated using KPI and grows a little faster than wages in national accounts, I have adjusted it to the GDP-deflator to get a better fit.


  1. Interesting debate. I´d like to add a few things. I can´t really recall what the documentary said about this, but I think we all can agree that the 1970s and the 1980s were terrible in many regards when it comes to economy (though unemployment was low and public services actually could provide for the swedes). To me, the 1960s is a more relevant comparison. The wage share was increasing, unemployment was low and investment, productivity and growth were a lot higher than it is today. This implicates a much wider discussion on the recent economic history however.

  2. Seems as if this whole thing is part of a major push coming form the Unions:

  3. Of course the liberal economy can keep in inflation down when they have 8% unemployment. I just think the borgarbracks could be honest with that and not put people in FAS3. And inflation is of course also a way to keep the wages down. Therefore, in my opinion it is better to lower the work day as that would open up for more people to share labour and they who work will last longer and can do fun stuff at their spare time.

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