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Slowdown in wage growth on the way


Published: 22 October 2020


As a result of the COVID-19 pandemic, the tightness in the labour market has eased rapidly. Despite this, Statistics Netherlands reported an average negotiated wage increase of 3.0% in September. Although newly concluded collective agreements already reflect the changed situation on the labour market, the negotiated wage increase measured by Statistics Netherlands is not expected to decrease before the beginning of next year.

Rapid labour market response to COVID-19 pandemic

The labour market generally reacts with some delay to economic developments. Companies tend to adopt a wait-and-see attitude and do not immediately lay off scarce staff in the hope that the economy will recover quickly. But not this time. The COVID-19 pandemic and the resulting contact mitigation measures have resulted not only in an unprecedented contraction in the economy but also in an unparalleled fall in employment. Despite generous government support, the total number of jobs decreased by 2.7% in the second quarter compared to the first quarter. From an historic perspective, unemployment also rose rapidly, from 2.9% in March to 4.4% in September. This has led to a fast easing of labour market tensions, which will ultimately lead to lower wage growth. However, this trend has not yet emerged in the figures of Statistics Netherlands. At first sight, that might seem surprising. 

New agreements do show low wage growth

In early October, Statistics Netherlands reported that negotiated (CAO) hourly wages including special remuneration increased by 3.0% in September compared to a year earlier. This increase is as high as in the first quarter and slightly higher compared to the second quarter, when negotiated wage growth fluctuated around 2.8%. At the same time, there was a significant discrepancy between the realised wage increases in the figures of Statistics Netherlands and the average wage increase in new collective agreements according to the Dutch General Employers’ Association AWVN. The AWVN indicator showed an average wage increase of 2.1% in September. This is much lower than the average of around 3% prior to the COVID-19 crisis. 

Figure 1 wage

The discrepancy between the Statistics Netherlands and AWVN figures is not the result of some measurement error. The two series are of a different nature and tell their own stories. The figures of Statistics Netherlands reflect the negotiated wage growth compared to a year earlier. They also include all existing agreements and those were often concluded before the outbreak of the COVID-19 crisis. The AWVN series on the other hand is forward-looking and only considers the newly concluded agreements. Moreover, it calculates the average negotiated wage increase over the next 12 months. 

We observed the same discrepancy during the credit crisis of 2009. At the time, the average negotiated wage growth in the AWVN series almost immediately reversed and negotiated wage growth fell from an average of 3.5% in October 2008 to an average of 1% a year later. The Statistics Netherlands series did not show a turnaround until about six months later, and even then it took almost a year and a half before the negotiated wage growth figures of Statistics Netherlands had fallen to 1%. The Statistics Netherlands series is therefore not expected to change before the end of this year. The negotiated wage growth observed by the CBS up to and including September 2020 is expected to remain at the present level until the end of this year and fall to an average of 1% to 1.5 % next year.

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