Danish real income drops amid inflation
Average wages may have increased in Denmark in 2022 but the real incomes of people who work in the country were down.
Real incomes in Denmark fell by an overall 5.2 percent despite an average wage increase of 3.6 percent, according to new figures from the Confederation of Danish Employers (Dansk Arbejdsgiverforening, DA).
Real income, a measure of income corrected for inflation, is calculated by dividing income by price levels.
The fall in the overall real income in Denmark last year can be attributed to two main factors, according to senior economist Jeppe Juul Borre of Arbejdernes Landsbank.
“Firstly, inflation was at its highest level for 40 years,” he said.
“Secondly, wage increases were relatively steady despite a very active labour market with record high employment in the lowest level of unemployment since 2008,” he said.
Real income is a measure of what wage earners can purchase with their incomes. If real incomes increase, consumers get more for their wages than they did previously.
“In brief prices, have moved faster than wages and that has taken purchasing power away from Danes,” Borre said.
“That is painful and can affect private consumption for many Danish families,” he said.
There is a positive element to the figures, another economist said.
“Overall we should be pleased about these figures because a more explosive increase in wages could suggest a more widespread overheating of the labour market was on the way,” Sydbank senior economist Søren Kristensen stated in a comment.
“That could help the economy in the short term but would cause a longer and more comprehensive dip in the long-term,” he said.
The interplay between real incomes and inflation could create difficulties during upcoming negotiations over collective bargaining agreements between trade unions and employer organisations, Kristensen speculated.
New collective bargaining agreements will set wages for many workers in Denmark over the coming period.
“It’s hard to guess where these negotiations will land, but it’s our expectation that it [inflation, ed.] could pull wages up the 4% or maybe even more,” he said.
“The good news here is that this would not be a drastic problem, either for competitiveness or for the Danish economy as a whole,” he said.
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Real incomes in Denmark fell by an overall 5.2 percent despite an average wage increase of 3.6 percent, according to new figures from the Confederation of Danish Employers (Dansk Arbejdsgiverforening, DA).
Real income, a measure of income corrected for inflation, is calculated by dividing income by price levels.
The fall in the overall real income in Denmark last year can be attributed to two main factors, according to senior economist Jeppe Juul Borre of Arbejdernes Landsbank.
“Firstly, inflation was at its highest level for 40 years,” he said.
“Secondly, wage increases were relatively steady despite a very active labour market with record high employment in the lowest level of unemployment since 2008,” he said.
Real income is a measure of what wage earners can purchase with their incomes. If real incomes increase, consumers get more for their wages than they did previously.
“In brief prices, have moved faster than wages and that has taken purchasing power away from Danes,” Borre said.
“That is painful and can affect private consumption for many Danish families,” he said.
There is a positive element to the figures, another economist said.
“Overall we should be pleased about these figures because a more explosive increase in wages could suggest a more widespread overheating of the labour market was on the way,” Sydbank senior economist Søren Kristensen stated in a comment.
“That could help the economy in the short term but would cause a longer and more comprehensive dip in the long-term,” he said.
The interplay between real incomes and inflation could create difficulties during upcoming negotiations over collective bargaining agreements between trade unions and employer organisations, Kristensen speculated.
New collective bargaining agreements will set wages for many workers in Denmark over the coming period.
“It’s hard to guess where these negotiations will land, but it’s our expectation that it [inflation, ed.] could pull wages up the 4% or maybe even more,” he said.
“The good news here is that this would not be a drastic problem, either for competitiveness or for the Danish economy as a whole,” he said.
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