Norway: Low-paid workers fall behind

Most workers in Norway have had a substantial increase in their real wages in the past 15 years. However, a new report shows that low-paid workers – mostly found in the private service sector – have not had any rise in real wages in the last seven years and that wage inequality is growing.

Background

Norway and the other Nordic countries have the lowest level of wage inequality in the OECD area. Collective agreements and strong social partners at national level have been crucial in ensuring that this ‘Nordic equality’ continues.

Although income inequality has widened in most OECD countries during the past three decades, this inequality is not equally distributed: it is rising in both the top and bottom deciles of the wage distribution. A new report from the Centre for Wage Formation in Oslo examines whether this trend is occurring in Norway and presents findings on the country’s low paid workers (PDF). The report is funded by the Norwegian Confederation of Trade Unions (LO).

Unlike many other countries in recent years, Norway has enjoyed steady economic growth, with real wages increasing by 42% in the last 15 years. However, its traditionally egalitarian wage structure might be under pressure.

About the study

Two sources of data are used in the report:

  • a tripartite committee on technical calculation on wage development (Teknisk beregningsutvalg for inntekstoppgjørene);
  • Statistics Norway (SSB).

The analysis uses a 10-point scale based on wage distribution. Decile 1 covers the 10% of employees with the lowest wage levels and decile 10 covers the 10% with the highest wage levels. There are approximately 2.4 million employees in Norway – 0.8 million in the public sector and 1.6 million in the private sector. Thus, the lowest decile in the private sector covers 160,000 individuals.

In 2012, the average hourly wage in the private sector was NOK 243 (€27 as at 19 January 2017), while the median was NOK 212 (€23). The threshold for inclusion in the lowest decile was NOK 151 (€17). Therefore, a person earning an hourly rate of NOK 151 will earn more than the 10% of Norway’s other employees below them on the pay scale. The pay threshold for the top decile is NOK 368 (€41); workers paid this amount receive less than the 10% of Norway’s other employees above them on the pay scale. Thus, the lower threshold was 41% of the higher threshold. Using the median hourly wage as the unit, the lower threshold amounted to 71% of the higher.

Changes

In 1997, decile 1 received 6.4% of Norway’s total wages and, in 2015, 5.2%. Decile 10 received 18.1% in 1997 and 19.8% in 2015. The same tendency was found in other deciles:

  • wages for decile 2 fell from 7.4 to 6.8% of total wages);
  • wages for decile 9 (from 12.5 to 13.2% of total wages).

The same pattern is found in the other deciles but to a limited degree. Thus, the development in Norway is in line with the findings from the OECD: that inequality is increasing at the bottom and at the top of the scale.

The report finds that most of the changes occurred after 2005. The changes appear small when focusing on percentages, but when looking at amounts, the report shows that the average wage in Norway increased by NOK 153,000 (€17,000) between 2006 and 2015. In decile 1, the increase was NOK 53,000 (€6,000) while in decile 10 it was NOK 326,000 (€36,000) – six times the increase.

In the private sector, the lowest decile received NOK 31,200 (€3,448) between 2008 and 2015 – a 14.1% increase. In the same period, inflation was 13.6%. Thus, the lowest paid workers in Norway have had hardly any increase in real wages in the last seven years.

Information on low-paid workers

Who then are the low-paid workers? Are young workers ‘passing through’ the lowest decile on their way to better employment or are they locked into ongoing low pay. Data on on labour migration into Norway since 2004 indicates that nationality is also important for one's position in the income scale: are migrants stuck in the low-paid end of Norwegian working life?

In 2014, the average Norwegian worker was 41.8 years-old. Young people are, not surprisingly, overrepresented among the low-paid workers; the profile of low-paid workers is getting younger. From 2000 to 2012, the average age of workers in the lowest decile decreased by 2.7 years and the median age decreased from 28 years of age to 25. These numbers include only workers aged 20 or older, to avoid including pupils in high school or other system of education.

The number of private-sector employees increased from 1.3 million in 2000 to 1.6 million in 2012. Thus, even if the number of Norwegian-born employees in the lowest decile is stable, their relative proportion decreases from 97% in 2000 to 89% in 2012. The number of foreigners almost triples in the same period – from 7,000 to 20,000. The increase is particularly noticeable for workers from the EU10​ (that is, those Member States that joined the EU in 2004) – from 2,500 in 2006 to 12,000 in 2012. Foreign workers are clearly overrepresented among the lowest-paid workers.

Combining age and nationality highlights an important change: in the lowest decile, the average Norwegian becomes younger and the average foreigner becomes older.

Role of gender

Women are underrepresented in the private sector (with their numbers stable at about 36–37% over the relevant period), but overrepresented in the lowest decile. However, a similar pattern as that for the labour market in general is found: female wages are below male wages (at a stable 86%). The proportion of female workers in the lowest decile has, however, decreased, from 62% in 2000 to 53% in 2012. Again, migration is important; as mostly male workers migrate to Norway, the proportion of (Norwegian) female workers decreases in the lowest decile.

Part-time work

Approximately 20% of all employees in the private sector work part-time, while the percentage of employees working part-time in the lowest decile varies between 50% and 55%. Part-time workers are clearly overrepresented among the lowest-paid workers, and there were no major changes to this between 2000 and 2012.

Industrial sector

Looking at this phenomenon from the context of sector is important – because patterns in it are significant and because certain sectors deviate from the traditional Norwegian system of wage-setting by collective agreement.

There is no statutory minimum wage in Norway. Due to increased migration, the first legally induced extension of a collective agreement took place in 2007. By 2015, seven sectors had extension mechanisms in place, which prohibited deviation from that sector’s minimum rate. However, as the report presents data only up until 2012, it is only extensions in the construction, shipbuilding and agriculture sectors that might have affected the wage distribution.

Low-paid workers in Norway mainly work in the service sector; the proportion of such workers increased from 80% in 2000 to 90% in 2012. Most low-paid workers (62%) are found in the sales, service and care sectors; in these occupations low-paid workers make up 30% of all workers.

Retail is the most important sector in this regard, employing approximately one-third of all low-paid workers. The highest proportion of low-paid workers are found in ‘foods and beverage service activities’, with 47% of the employees belonging to the lowest decile. One-third of the employees in personal services are low-paid, as are one-quarter of those working in hotels.

There has been only one extension mechanism in sectors that are overrepresented among the lowest paid workers; in late 2011 there was an extension mechanism which included cleaning, but this was too late to have any impact on the period covered by the report.

Posted workers have become an important part of the labour market. However, only data on posted workers from Norwegian agencies are available. In the relevant period, the number of these workers fluctuated between 55,000 (in 2008) and 44,000 (in 2010). In 2012 the number was 50,000, with approximately 12,000 or almost 25% found in the lowest decile. Most of the posted workers were young: 40% were aged under 30 and 20% between 20 and 24. The average age for workers older than 20 was 30.2 years, with the median age 26.

Among the youngest group (20–24 years), some 50% belonged to the lowest decile (or 5,000 workers). This is in line with the general figures; in 2010, some 48% of all workers in the lowest decile were younger than 25.

Approximately half of all workers in the lowest decile in 2012 were between 20 and 24 years of age.

The report pictures the average worker as young, not a trade union member, working part-time in sales, food and beverage or in a temporary agency position – while still in education or other training activities. These workers are less likely to stay in the lowest decile. Thus, it might be more important to focus on the older lowest-paid workers.

There were 45,600 workers aged 30 or older in the lowest decile in 2012. Some 53% were female – clearly overrepresented when compared with the number of women in the private sector generally. Two-thirds of the workers were born in Norway, 4,300 in the EU10 and 10,000 in ‘all other countries’. The same conclusion might be drawn: foreign-born workers are clearly overrepresented in the lowest decile.

Again, most older low-paid workers are to be found in the food and beverage sector (30% of all low-paid workers aged 30 or above), 22% in personal service, 17% in hotels, with 14% working for employment agencies.

Collective agreements

The report presents findings on collective agreements from 2004. During this period, collective agreement coverage in the private sector was stable at around 50%. However, a worker in the lowest decile had a considerably higher chance of working in a non-unionised company. In 2004, some 35% of these workers were employed in a company with a collective agreement. From 2007, a significant change took place, with fewer than one-quarter of those in the lowest decile in 2012 having job in a union-organised company.

Some 57% of all workers in the private sector were covered by a collective agreement; some 63% of all workers in sales were covered, and 58% in ‘food, beverage and hotels’.

Numbers of workers receiving low pay

As has been mentioned, there is no statutory minimum wage in Norway. To put the Norwegian low-paid workers into a global perspective, the report’s authors estimated the number of these workers that would fall into the minimum wage category in France, Germany, the UK and the USA. The calculation was made by looking at the minimum wage share of the average (or median) wage in 2012.

In Norway’s lowest decile, workers receive 71% or less, of the average wage. Compared with the US standard, 0.6% of workers older than 20 in Norway’s private sector in 2012 would be classed as low-paid in the USA (0.1% if using the average wage as a comparator). Compared with the UK standard, the percentage would be 1.6% and 1.3%, respectively, with the German standard 1.7% and 1.8%, respectively, and finally the French standard, 4.6% and 3.5%, respectively.

The OECD has calculated that, before the minimum wage was introduced in Germany in 2015, 11.4% of the labour force was earning an hourly rate of €8.5 or below. Some 21,500 workers in Norway would fall into a corresponding category or 13.4% of its lowest-paid workers.

Labour market changes

To investigate the inflow and outflow from the lowest decile, it is important to include changes in the Norwegian labour market. From 2003 until 2015, the number of employees increased by 450,000, an increase of 20%. Data from 2008 indicate that this is all due to labour migration.

Foreign workers are overrepresented in the lowest decile. Another recently published report from the Centre for Wage Formation looked into the effect of migrant workers on the Norwegian labour market (PDF). It found that workers from Africa, Asia, Latin America, the EU10, Russia and the former Yugoslavia earn 85% of the hourly wage enjoyed by the rest of the labour market (Norwegian workers, those from other parts of Europe – apart from the EU10, Russia and former Yugoslavia – North America and Oceania).

Both reports point in the same direction: labour migration is a very important variable when looking at changes in Norway’s wage distribution.

Based on regression analysis, the Centre for Wage Formation report predicts that the standard worker in the lowest decile is young, Norwegian-born and works part-time, that there is no collective agreement in the company where she works, and she is probably not a member of a trade union. She works either as a shop assistant or in a private service job with no skill requirements.

Most of the lowest-paid workers are young. It is probably safe to assume that they will make their way out of the lowest decile. Thus, the report recommends focusing on the 45,600 people aged above 30 in the lowest decile. One-third of these are foreign-born, mostly in the EU10.

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