UBS wage study: Inflation eats away at your wage growth


UBS Salary StudyInflation eats away at your salary growth

Workers in Switzerland are suffering the steepest drop in real wages in 80 years. It probably won’t be better next year either. According to UBS, real wages will then probably stagnate.

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At the end of this year’s pay round are the metal industry and the textile industry and the media sector.

20 minutes / Taddeo Cerletti

It’s about it

  • According to UBS, wages will increase in almost all sectors in 2022 and 2023.

  • However, rising prices will wipe it out again.

  • This means that employees have less money left over at the end of the month.

UBS surveyed 290 companies on the topic of wages. For 2023, they expect nominal wages to grow by an average of 2.2 percent. Nominal wages are likely to see their biggest increase in nearly 15 years, well above the 1.1 percent wage adjustment for 2022, according to UBS.

All 22 sectors surveyed are expected to see a rise in wages – both in 2022 and 2023. UBS predicts the highest wage compensation of three percent in wholesale trade, IT and telecommunications, and watches and jewelry. Wages in tourism and gastronomy are expected to grow by more than three percent. According to UBS, the main reason is the revival of industries after the coronavirus pandemic.

At the end of this year’s pay round are the metal industry and the textile industry and the media sector. However, at two percent, nominal wage growth is robust even for these three sectors, according to UBS.

Biggest drop in real wages in 80 years

UBS economists expect an inflation rate of 2.9 percent this year, leading to an average decline in real wages of 1.8 percent, the steepest decline since 1942.

According to UBS, about three-quarters of firms are responding to the demand for wage replacement in this year’s pay round, but only 20 percent are fully compensating for inflation. For 2023, UBS forecasts inflation of 2.1 percent. Real wages are therefore likely to stagnate on average next year.

The reluctance to pay wages suggests that firms expect inflation to moderate in 2023. On the other hand, a worse economic outlook prevents stronger wage growth, the bank says. Uncertainties about energy supplies are unlikely to be limited to this winter. According to UBS, a difficult situation can also be expected in the winter of 2023/2024.

Any shortage threatens the economy

While there is no shortage of gas and electricity in Switzerland, the surge in energy prices and weak European economic development are likely to weigh heavily on the local economy in the winter, leading to stagnation or even a mild recession, UBS says.

However, UBS economists do not expect a severe recession. First, households could draw on some of the savings accumulated during the coronavirus crisis to offset the current loss of purchasing power. Second, the robust Swiss labor market is giving the economy a boost.

UBS expects GDP growth of 2.1 percent in 2022 and 0.4 percent in 2023. If a shortfall occurs, the Swiss economy could shrink significantly, according to the bank.

No wage and price spiral in Switzerland

The risk for the economy is a wage and price spiral that could lead to further growth in inflation. “A wage increase of just over two percent, well below the current level of inflation, is unlikely to send workers into a partisan mood,” says Daniel Kalt, chief economist at UBS Switzerland. UBS economists expect energy prices to stabilize and supply disruptions caused by the coronavirus to ease, which should be reflected in the release of imported goods prices.

The Swiss National Bank is unlikely to raise interest rates in the second half of next year due to lower inflation and a weaker economy. But for now, the SNB is focusing on inflation, which is currently too high, and is likely to raise its key interest rate to 1.5 percent by March 2023.

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