The total wage index increased by 7.6% between the second quarter of 2021 and the same quarter of 2022. The increase is affected by pay raises stipulated in collective agreements, both in the form of ISK increases at the beginning of 2022 and an economic growth bonus in the spring.
The total wage index increase was higher in the public sector than in the private sector and differed between economic activities (see graph). The highest increase was 10.5% in the economic activity of accomodation and food service activities and administrative and support service activities. The lowest increase was 5.9% in information and communication.
Seasonal fluctuations in the total wage index
In comparison the wage index increased by 8.4% between the same periods (this is based on the quarterly average of the wage index) but the calculations of these indices are based on different methods. While the wage index is a price index where the working hours and composition of the underlying group are kept fixed between measurements, the total wage index is meant to show the effect of more factors on wage development. For example changes in the composition of the labour force and the proportion of overtime of hours paid. The total wage index is calculated adding all paid wages and dividing them by the sum of hours paid.
A comparison of the development of the total wage index and the wage index by quarters (see graph above) shows considerable seasonal fluctuations in the total wage index that are not discernable in the wage index. For example, there is always a decrease in the total wage index between the second and third quarters. This can be attributed to irregular holiday bonuses that are commonly paid in the second quarter and cause the total wage sum to increase without an increase in hours paid, which decreases the total hourly wage. Since these lump sum payments do not affect the third quarter, the hourly wages decrease again and thus the total wage index. Irregular payments such as holiday bonuses do not affect the wage index which is based on regular hourly wages instead of total hourly wages.
The decrease in the total wage index in the third quarter can also be attributed to seasonal changes in the composition of the labour force over the summer months when summer employees enter the labour market. These changes are reflected in figures on the age distribution of workers according to register data where a considerable difference can be seen between quarters. The proportion of workers under the age of 25 reaches its peak in the third quarter of each year. This causes a decrease in the weight of high income jobs which decreases the total hourly wage on average.
The total wage index increases quickly again between the third and fourth quarters, when the proportion of young people in the labour force decreases. In addition, irregular payments such as Christmas bonuses are commonly paid in the 4th quarter.
On the total wage index and the wage index
The total wage index is based on tax related wages from administrative data and is calculated by dividing the sum of all taxable wages with the sum of paid hours. It therefore shows the change in total wages for paid hours and thus many factors, apart from changes in fixed pay rates, can affect it, e.g. changes in the proportion of the labour force with high and low wages, a change in the proportion of overtime of hours worked or changes in irregular lump sum payments. The total wage index composes all those who recieve wages and salaries from employers with more than 10 employees with the exception of those who work in the economic activities of agriculture and fishing, activities of households as employers and activities of extra-territorial organisations and bodies.
The wage index is a price index based on data from a survey on enterprises, Statistics Iceland‘s survey on wages, earnings and labour costs. In the calculation of the index, working hours and the composition of the underlying group are kept fixed between measurerments. The wage index shows changes in the price of paid hours of work for a fixed composition of hours worked based on regular wages, whether for daytime-work or shift-work. Regular wages are composed of basic wages along with any kind of additional payments and bonuses settled in each wage period. Overtime is not included in regular wages nor are other irregular payments such as holiday bonuses that are not settled in each wage period.