Switzerland has had to endure seven years of lean times in terms of salaries. At least, that’s what an official statistic reveals. But maybe it’s not that simple. In any case, the forecasts are good for 2025.
Niklaus Vontobel / ch media
Switzerland must recover from a bad blow. Wages have increased less quickly than prices for three consecutive years – purchasing power has therefore fallen in 2021, 2022 and 2023. Such a fall in real wages has never been recorded in the Swiss wage index, and The statistics from the Federal Statistical Office still date back to 1942. This is therefore a historic negative record.
But wages are now rising faster than prices. According to forecasts from the Economic Research Center of the ETH Zurich (KOF), real wages will therefore increase in 2024 and 2025. Purchasing power is therefore finally increasing again, people can buy more goods and services with their salary.
But even with the expected salary increases, people will still be able to buy less next year than they did six years ago. Of course, the difference will not be very big, but in normal times, purchasing power increases every year in our country.
It will only be in 2026 that their real salaries will have returned to the 2019 level. It will then have taken seven long years for Switzerland to finally recover from the pandemic and regain at least the purchasing power of 2019. It will have endured seven lean years.
The consequences of Covid-19
In the midst of this tragedy, another low point was reached in 2021: the wage index indicates for this year that, for the first time in the history of this statistic, even nominal wages have fallen. Such a drop can only be explained by the fact that many employers have included lower salaries in their employees’ employment contracts.
But is this reality? The wage index painted such a bleak picture, far bleaker than other statistics, that some labor market experts became skeptical. Today, they assume that the index poorly represents the evolution of wagesespecially in 2021. Wages have undoubtedly increased more sharply at this time than this index reflects.
This is probably one of the many consequences of the Covid-19 pandemic. The wage index is calculated from the data appearing on the accident declaration forms. This way of proceeding does not normally pose any problem. But, as KOF economist Michael Siegenthaler says, the people injured during the pandemic were not the same as usual, for example younger people who tended to have lower incomes. According to him:
“The pandemic has probably changed the composition of injured people, which could have distorted the wage index”
If the wage malaise is not as great as the wage index suggests, how big was it? Was there really a wage crisis?
Drop in wages in 2022 et 2023
Fortunately, there is not only the Swiss wage index to monitor the evolution of wages. The KOF also observes this from figures from AVS old-age insurance. This statistic has remained free of Covid-19 distortions. It generally presents a slightly better picture than the salary index, because it also records salary increases after a change of job in more profitable sectors.
This AVS index presents a slightly more reassuring picture. Based on these figures, the seven lean years probably never happened. In reality, real wages have never fallen below the 2019 level. But the AVS index also shows a negative historical record.
There have therefore really been two years of decline in real wages: in 2022 and 2023prices have increased faster than wages. This decline also represented a loss of purchasing power such as Switzerland had not experienced since the 1940s.
And according to KOF forecasts, this setback will only be made up for in 2025. So there were not seven lean years, but four between 2021 and 2025.
One sector in particular is hopeful
Michael Siegenthaler, KOF expert, explains in particular the fact that such a negative record could have been established by the surprising return of inflation. For a long time, there were hardly any. Then, it suddenly returned after the pandemic and the war in Ukraine. The workers were not mentally prepared for this.
They thus missed the opportunity to demand salary increases large enough to compensate for inflation. Instead, they were happy when employers gave them a little more than a 2% pay increase. It was ultimately significantly more than the last ten years. For Michael Siegenthaler:
“Requiring wage growth of 3% would certainly have been necessary to compensate for inflation. But we probably have to get used to demanding so much again.”
In any case, Switzerland is now leaving the lean years behind it. The KOF forecasts a significant increase in the wage index. According to his calculations, purchasing power will increase by 0.3% in 2024 and by 0.7% in 2025. Those who change jobs, preferably in a more profitable branch, can get more. If salary increases after such changes are taken into account, there will already be a 0.8% increase in 2024 and 1% in 2025.
Some sectors are winning
The KOF has determined, based on data from 4,500 companies, which industries are likely to increase their wages and by how much. It turns out that:
- The hotel and catering industry expects the largest increase with 2.5%.
- The second largest increase is that of the manufacturing industry with 1.8%, mainly thanks to the pharmaceutical industry with strong financial capacity.
- On the other hand, construction only plans an increase of 1.3%.
- And retail trade by 1.2%.
Wage developments in Switzerland have indeed been exceptionally bad. But at the same time, if we look at the rest of the world, she was completely within the norm. This is what the International Labor Organization (ILO) wage report shows. Switzerland is not the only one to fare poorly in 2022 and 2023. In almost all the rich countries of the G20, the group of 20 largest industrialized countries, real wages have fallen, sometimes much more than in Switzerland . This is a global cost of living crisis – one that is now coming to an end.
Translated and adapted from German by Léa Krejci
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