Statistics Finland data on salary and wage developments from the first half of this year reveal that inflation is eating salary gains in Finland.
We have written several blogs about salaries in Finland. You can find most of them in our Ultimate Guide to Salaries in Finland blog post. This one contributes to this discussion but focuses on this current situation when living costs are rising rapidly.
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Salary and wage increases in early 2022
According to Statistics Finland, the nominal salaries of employees working full time in Finland rose by 2 % in the second quarter of this year. This is compared to the same period last year. Earlier this year, they rose by 2.1 % compared to the same period last year.
In the public sector, nominal salaries rose by 1 %. The private sector saw a bigger increase. There, nominal salaries rose by 2.2 %. Salaries in the government sector, in turn, rose by 2 %. Both the government and public sectors saw slightly bigger rises earlier this year.
According to Statistics Finland, the lower increases in the second quarter in the public and government sectors have to do with the timing of the agreed-upon salary increases rather than with anything else.
Compared with 2010, salaries of private sector executives have increased the most. Their salaries have increased by 38 % from 2010. They attribute some of this increase to the changes they’ve made in their classification of professions. They don’t, however, indicate how big its effect might be.
So, salaries have been steadily increasing all year. Inflation, however, can prevent those increases from impacting our ability to pay our bills and buy the stuff we need.
Inflation in Europe in 2022
Finland, like the rest of the world, is suffering from significant levels of inflation. Compared with the rest of Europe, however, Finland as a country is doing better than most.
According to Eurostats, the annual inflation rate in the Euro area is expected to be 9.1 % in August. This is up from 8.9 % in July.
Of the main components contributing to inflation in the Euro area, energy has the highest annual rate in August. The inflation rate for energy is 38.3 %. Food, alcohol, and tobacco are expected to have an annual rate of inflation of 10.6 % in August. Non-energy industrial goods 5 % and services 3.8 %.
Each of these main components contributes to the overall inflation rate in the Eurozone. The weight of these components in the calculation is based on their share of household monetary consumption. For example, services account for about 41.7 % of household monetary expenditures. Energy consumption accounts for 10.9 %. Therefore, although energy prices have gone up so drastically, the overall inflation rate is below double-digits currently.
Statista places inflation in the European Union at 9.8 % in July of this year. Among the European Union countries, Estonia suffered from the fastest inflation with an inflation rate of 23.2 %.
Inflation in Finland
Statista places inflation in July at 8 %. According to Statistics Finland, in turn, the annual increase in consumer prices was 7.8 % in July.
They say that the main contributors to the inflation rate were increases in the prices of electricity, diesel, gasoline (car petrol), and home repairs.
Price decreases in childcare fees, prescription medicine, ferry trips, and sound and video recordings, in turn, helped keep inflation lower.
This is slightly lower than the Statista rate of 8 %. These are slightly different because these two calculations include slightly different expenditures. For example, the Harmonized index of consumer prices (HICP), which is in use in EU-level stats, doesn’t include homeownership costs.
Inflation eating salary gains in Finland
The continuing rise of inflation means that real income in Finland has actually gone down compared with last year. Real income is how much money an individual makes after inflation has been taken into account.
So, although salaries have continued to grow, prices rise faster. Inflation is eating salary gains in Finland. Statistics Finland says that real incomes have actually come down by 4.6 % from last year.
This is quite exceptional. From the early 2010s until the second quarter of 2021, the growth rate of salaries exceeded the inflation rate. In the second quarter of 2021, the real income of Finnish employees was on average 6.4 % higher than in 2010. We’ve come downhill since then. In the second quarter of 2022, real income levels exceeded the 2010 level only by 1.6 % on average.
The situation is the worst in the public sector. There, real salaries are now pretty much the same as they were in 2010. The last time public sector employees were in this situation was in 2017. Then, public sector salaries were frozen for 3 years in the name of competitiveness of the Finnish economy.
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