The wage index increased by 0.4% in November. The increase can be partly explained by collective agreements within the public health sector and a slight increase in regular bonuses in the private sector. In addition, collective agreements in the educational sector came into effect in October and November.
Wages in the third quarter
Wages have increased around 11% between the third quarter of 2018 and 2020 whether or not measured by the wage index or the total wage Index. Although the final increase of the two measures is about the same, the development is different with the total wage index showing clear tendency of seasonality. The hourly total wages decreased in the third quarter when seasonal summer employees entered the labour force resulting in a lower proportion of high wage earners in the population. However, the total hourly wages increased in the fourth quarter when the seasonal summer employees left the workforce and irregular payments, such as annual holiday bonuses, were paid. These factors did not affect the wage index.
Third quarter 2018=100.
The increase in wages in this period can mainly be explained by collective agreements. The effect of the agreements can be detected in the data when employers implement changes in their pay-roll systems. In 2019, the private sector closed collective agreements stipulating both a pay rise and a shortening of the workweek. In 2020, the public sector closed 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. An overview of collective agreements closed in 2019-2020 can be found (only in Icelandic) in a report from the Committee on Labour Market Statistics.
Changes in labour markets emerge at different time
The increase in wages according to the wage index was parallel between labour markets from the third quarter of 2018 to the third quarter of 2020, 11.2% in the private sector and 10.9% in the public sector. However, with regard to changes in wages in the same period, the increase was 5.1% during one year in the private sector, and 2.2% in the public sector. This is due to the difference of timing of when collective agreements stipulate wage increases. The shortening of the workweek also had an impact on the increase of the wage index in the private sector, while the shortening of the work week in the public sector has not yet taken place (January 2021). During the third quarter of 2020, some wage increases according to collective agreements had not occurred, such as for teachers and a part of health care workers.
The wage index and total wage index show a similar progress in the public sector from the third quarters of 2018, 2019 and 2020. The growth of the total wage index is however slightly higher the wage index for the public sector, especially during the period 2019-2020.
Changes in the labour market due to the Covid-19 pandemic are more substantial in the private sector than in the public sector. More growth in the private sector according to the total wage index indicates a difference in the combination of jobs in the labour market, with high paying jobs weighing more and a number of low paying jobs disappearing from the labour market.
Substantial changes of the labour market, but less on changes in wages
The labour market went through substantial changes in 2020, caused by the Covid-19 pandemic. According the labour force survey in Iceland, the share of the population with employment was 77% during the third quarter of 2020, which is the lowest measured proportion since 2011. The number of working hours had decreased, unemployment increased and around 34% of those employed worked partially or fully from their homes. These changes do not directly affect the wage index, but can have an effect on the total wage index. It is important to keep in mind that the estimation of both the wage index and the total wage index is based on hourly wages of those who are employed (or being paid their notice), and therefore does not necessarily reflect the full story of personal income.
Timely indication on personal income can be found in experimental statistics on taxable payments. The results reveal that the total sums of taxable payments increased by around 11% between the third quarter of 2018 and 2019, unadjusted to inflation, but it also shows that wages have partially decreased, from 81% of the total sums to 75%. Meanwhile, unemployment benefits and other payments have partially increased. Taxable payments are all taxable wages, unemployment benefits and other payments, such as parental leave payments, pensions and benefits.
The sum of wages has decreased most in the economic activities of accommodation and food service activities (I), transporting and storage (H), administrative and support service activities (N), reflecting a total of 15% of all the sum of wages in the third quarter of 2018.
From lowest to highest wage sum 3rd quarter 2018.
About the wage index, total wage index and the total sums
Statistics Iceland publishes various measurement on wages and changes in wages, to give a broader perspective on the subject.
| Wage Index | Total Wage index | Taxable payments | |
| What is measured? | Regular hourly wages | Total hourly wages | All taxable payments |
| Do other payments than basic salary affect the measure? | Yes - partly | Yes | Yes |
| - changes in regular payments such as shift payments and bonuses. | Yes | Yes | Yes |
| - changes in overtime payments | No | Yes | Yes |
| - changes in irregular payments | No | Yes | Yes |
| Do changes in working time arrengement affect the measure? | Yes - partly | Yes - partly | Yes - partly |
| - shorter workday according to collective agreements | Yes | Yes | No |
| - changes from full-time to part-time or vice versa | No | No | Yes |
| - changes in overtime hours | No | Yes | Yes |
| Do changes in the labourforce affect the measure? | No | Yes - partly | Yes |
| - changes in the propotion of low/high wage earners | No | Yes | Yes |
| - changes in the the number of employees | No | No | Yes |
The total wage index and total sums are based on public administrative law on the act of withholding fees (no 45/1987). The data for the total wage index include all enterprises with 10 or more employees per annum. The data of the total sums include all enterprises that pay a wage for one employee or more, excluding those who are self-employed and pay themselves a calculated remuneration. The total wage index and the total sums both measure all taxable wages including overtime wages, bonuses and irregular wages. Hours paid in the total wage index are formulated with statistical methods, using various sources and data from Statistics Iceland. The results are preliminary.
The wage index is based on data from a monthly data survey on enterprises, which includes enterprises with 10 or more employees. The data is collected directly from the payroll software of the enterprises. The index measures changes in regular wages per hour paid. Included are all payments that are calculated each month, such as regular bonuses along with regular wages, divided by working hours. Occasional overtime work is not included.
The reasons for attempting to keep the combination fixed between measures in the calculations of the wage index is to follow the law requirement to measure changes in wages for fixed working hours. The focus has been on treating the wage index as a price index. The changes in wages are therefor based on matched sample models, which is a common model for quality adjustments of price indices. Job agreements, which are the base for matched sample models, are defined by the same employer, employee, job and economic activity for the period, which is two adjoining months. If an employee receives a higher wage due to changing his job, the increase will not be measured in the index, since her job agreement has been terminated. In addition, the first and the last three months of the work agreement are excluded for everyone. In the last few years, Statistics Iceland has conducted a quality analysis on the wage index, the result showed, amongst other things, that half of all work agreements had terminated within 3 years. See further results on the analysis on the wage index.