Wage growth in 2015 from the CZ-ISCO skills structure perspective

The buoyant growth in economic activity in 2015 was reflected in the situation in the labour market, which recovered significantly further by comparison with the previous year. Increasing demand for labour fostered an upswing in wage growth, which, however, still fell short of the levels expected by the CNB forecast in Inflation Report I/2016. This box analyses the structure of wage growth in 2014 and 2015 in terms of the CZ-ISCO skills structure.1The aim of the box is to identify to what extent growth in average wages was affected by structural factors. The calculations are based on AEIS data from corporations with 250 employees or more.

Growth in the average wage in the period under review was due most of all to the category of manual workers (see Chart 1). The wage growth in this category was influenced by two factors. Given the lower wages of manual workers, the increase in the minimum wage in January 2015 had an above-average effect in this category.2 The second factor was strong demand for labour in this category (accounting for around 60% of the vacancies recorded by the Labour Office), which resulted in strong annual growth in wages of new recruits. In addition to manual workers, professionals and technicians contributed significantly to the growth in the average wage in 2015.

Chart 1 (BOX)  Contributions to average wage growth
Manual workers and professionals and technicians were the biggest contributors to wage growth
(percentage points; source: AEIS, CNB calculations)

More detailed information about wage growth can be obtained from the average wage distribution. A comparison of the wage distributions in 2014 and 2015 does not reveal any major changes in structure, with the exception of the lowest income groups, where the increase in the minimum wage had the strongest effect (see Chart 2). Annual growth in the average wage was approximately equal across the other income groups. Nevertheless, a weak structural impact on average wage growth was identified, stemming from differences in employment growth across the CZ-ISCO categories, which reduced wage growth by around 0.2 percentage point in 2015.3

Chart 2 (BOX)  Change in wage distribution 2014–2015 
The individual data indicate an effect of the increase in the minimum wage together with equal wage growth across higher income groups
(vertical axis – change in number of employees, horizontal axis – average wage; source: AEIS, CNB calculations)

comparison with hourly labour productivity can also be used to assess wage growth4 (see Chart 3). Except for very short episodes, these two variables are correlated in the longer run. Real wage growth started to lag behind hourly labour productivity in early 2014, but from the second half of 2015 this was offset by faster growth in wages than productivity. The slowdown in hourly labour productivity was due mainly to a sizeable increase in hours worked in industry, which was not accompanied by a similar change in gross value added.5 This comparison reveals that the growth in real wages given by the combination of low nominal wage growth and low inflation has recently been broadly in line with labour productivity growth.

Chart 3 (BOX)  Real wage and hourly labour productivity growth
Real wage growth has long been correlated with hourly labour productivity growth; the current faster growth in wages than productivity is offsetting the lag observed between the start of 2014 and mid-2015
(annual percentage changes; source: CZSO, CNB calculations)

Overall, average nominal wage growth was not strongly affected by distribution effects relating to strong growth in employment, but rather reflected the low-inflation environment. Nominal wages therefore cannot be expected to pick up significantly this year if the low-inflation environment persists.

1 This box abstracts from developments in the category of skilled agriculture and forestry workers due to the very low share of these workers in the Czech economy.
2 The minimum wage was increased from CZK 8,500 to CZK 9,200 in January 2015. 
3 The estimate of this effect is based on an alternative assumption of equal growth in employment in all CZ-ISCO categories.
4 The assessment uses annual growth in the average wage in the business sector adjusted for seasonal effects and tax optimisation.
5 Data on economic activity in 2015 are largely affected by higher investment connected with the drawdown of EU funds.