The monthly wage index increased by 0.3% in August 2021 from the previous month. In the last 12 months the monthly wage index has risen by 7.9%.

From January 2019 to June 2021 the increase in wages according to the wage index was 16.8% in the private sector, 19.2% in the central government and 25.2% in the local government. For comparison it is necessary to consider different timing when collective agreements stipulate wage increases. In the private sector collective agreements stipulated a pay rise in April 2019, April 2020 and January 2021 as well as shortening of the working week for part of the wage earners.

In 2020, the public sector closed comparable collective agreements that stipulated two pay rises, one retroactive pay rise for 2019 and one for 2020 as the validity period of the former agreements ended in early 2019. Those wage earners also got a pay rise 1 January according to the agreements and shortening of the working week that came into effect in the year 2021.

Although changes in working hours do not normally affect the wage index, changes in working hours stipulated in collective agreements can have effect on the index if they are considered to be equivalent to wage changes. Collective agreements from the years 2019 and 2020 in the Icelandic labour market contained such clauses.

In the private sector, some collective agreements stipulated the possibility of a workplace agreement between employees and employers with a shortening of the work day up to 13 minutes per day. Other collective agreements stipulated a shortening of 9 minutes per day, from 1 January 2020. Collective agreements in the public sector stipulated a shortening of 13 minutes per day from 1 January 2021 for daytime workers and from 1 May 2021 for shift time workers, including considerable changes in structure of earnings and working hours.

The shortening of working hours according to collective agreements in 2019 and 2020 first affected the wage index in November 2019. From November 2019 to June 2021 the effect because of the shortening of the working hours is estimated to be 1.7 percentage points. For the same period, the estimation for the private sector is 0.9 percentage points, 2.7 percentage points for the central government and 3.0 percentage points for the local government.

About the wage index
The wage index is calculated and published according to law no. 89/1989. The index is a price index based on data from the Icelandic survey on wages, earnings and labour cost. The purpose of the index is to reflect changes in wages paid for fixed working hours. The index is based on earnings for contractual working hours and includes all wages paid for day time and fixed overtime hours, including additional payments and bonuses. Irregular payments and employers' social contributions and taxes are excluded.

Although changes in working hours do not normally affect the wage index this is sometimes the case with the shortening of the workweek as stipulated in recent collective agreements. As stated in the bill of the wage index act, changes in working hours based on collective agreements can affect the wage index if they are equivalent to changes in wages.

Further information is available in metadata about the wages index.