High costs won’t halt good times

The average hourly wage costs of an industrial worker in Norway are now more than eight times that of a worker in Poland, according to a recent government report, and that’s added to fears that the country’s economic good times will soon stop rolling. Analysts at state statistics bureau SSB, however, say they’re only “a bit less positive” about Norway’s economic development over the next few years and they’re predicting more growth ahead.

Prime Minister Jens Stoltenberg has issued new warnings that Norway’s robust economy will be hurt by ongoing problems in Europe, which serves as Norway’s largest market for everything from seafood to oil and gas. That, combined with ever-rising labour costs, can hurt exports and competitiveness, but SSB has offered some reassurance backed by its statistics.

Strong purchasing power
In its new economic analysis released on Thursday, SSB (external link) predicts that job growth will continue and that unemployment will remain low despite some weakness shown in recent months. Strong purchasing power enjoyed by Norwegian households will continue to contribute to increased consumption in the domestic market, offsetting some of the effects of economic weakness abroad.

SSB’s experts point to high real growth in pay levels, low inflation and low interest rates, so even though Norway’s biggest bank DNB announced on Friday that it intends to raise home mortgage rates to boost its own bottom line, SSB doesn’t seem to think borrowers will suffer very much. An ongoing rise in housing prices also boosts borrowers’ equity and net worth, at least on paper.

Wage costs: NOK 308 in Norway vs NOK 38 in Poland
Newspaper Aftenposten cited a report from a government-appointed commission that tracks wage settlements (Teknisk beregningsutvalg for inntektsoppgjørene, TBU), which places Norway firmly at the top of the average hourly wage costs of industrial workers in Norway’s trading partners in the European Union. Norway has topped the charts for several years, but now the labour costs in Norway are running 60 percent ahead of those in EU countries compared to 20 percent seven years ago.

The gap is extreme in some cases: While an industrial worker costs his or her employer NOK 308 (USD 56) per hour in Norway, the comparative cost of an industrial worker in Poland (adjusted for differences in sick leave, length of vacation time, employer taxes and other costs) was just NOK 38. Poland was joined at the bottom of the labour cost rankings by the Czech Republic at NOK 62 and Spain at NOK 135, while the next most-expensive industrial workers behind Norway were found in Denmark, where hourly pay costs were the equivalent of NOK 265. That was followed by Belgium at NOK 255, the Netherlands at NOK 227 and Austria at NOK 221. Sweden, the third country making up high-priced Scandinavia, was sixth, at NOK 221.

New investment expected
The industrial wage numbers can explain why some industrial firms in Norway are moving production abroad, not least to Poland, but SSB nonetheless expects other mainland investments will be made in Norway, also in the non-petroleum sector. On Thursday, for example, Norsk Hydro announced it was studying development of a new, energy-efficient aluminum technology plant at Karmøy on Norway’s west coast. The pilot plant to test next-generation electrolysis technology would have annual production capacity of about 70,000 metric tons.

That sort of project can help lead to what SSB expects will be the creation of 35,000 new jobs a year in Norway every year until 2016. Pay raises, meanwhile, are expected to keep boosting purchasing power by as much as 2.5 percent a year, and unemployment will stay at today’s level (3.6 percent, according to SSB’s calculation at present).

Views and News from Norway/Nina Berglund

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