Risk of continued wage pressure in Norway

Wage formation in Norway is governed by the “frontfag” pay talk model. The model was formalised following the Aukrust Committee’s report in 1966 and builds on a historical practice where industries most exposed to competition negotiate first, establishing the norm for collective bargaining in other sectors. The purpose is to ensure that the Norwegian manufacturing sector remains competitive with a wage standard that does not exceed industrial profitability – while also ensuring that wage-earners receive their fair share of value creation. This Norwegian model for wage formation has been an important component in the interplay between fiscal policy, monetary policy and labour market partners. It has been the subject of discussion and evaluation by many government-appointed committees, but has remained strong despite all the debate. 

Several indicators are used to assess what the negotiation framework should be. One of these indicators is the wage share in the manufacturing sector – the share of the sector’s factor income that goes to wages. The goal of the “frontfag” model is for this share to remain relatively stable over time. When the wage share falls, it means wage-earners’ slice of the pie is shrinking. This could create persistent pressure to recover lost ground in later negotiations.

And this is precisely the challenge: the wage share in the manufacturing sector has fallen from 87% in 2019 to around 73% in 2024 – well below the average of the past 20 years and the lowest level ever measured, see chart A. High inflation has led to substantial wage increases in recent years. Nevertheless, wage-earners’ share of value creation has fallen.  The explanation lies in the unusually good earnings in industry. The sharp NOK depreciation has significantly boosted exporters’ profitability in recent years, see chart B. 

If the wage share is to return to the average of the past 20 years within a reasonable period of time, either the NOK must strengthen significantly and reduce profits that way, or coming years’ wage growth must be clearly higher than what Norges Bank assumes in its forecasts. Norges Bank expects wage growth to decrease to 4.1% in 2026 and 3.6% in 2027. If industry earnings stay in line with pre-pandemic levels, the wage share will remain at today's historically low level if the NOK continues to be weak as we believe it will. This opens the possibility that wage-earners may demand higher wage increases than Norges Bank anticipates. 

Higher-than-expected wage growth will keep cost pressures up in other sectors as well, since wage increases agreed in the manufacturing sector set the tone for other pay talks. For sheltered sectors, higher wages will largely need to be passed on to prices to maintain margins.  When wage growth is strong, it also becomes easier to pass costs on to consumers because they can “afford” to pay the higher prices. The low wage share in the manufacturing sector thus presents an upside risk not only to wage growth but also to price growth. It may thus take longer than Norges Bank currently assumes before inflation reaches 2%. If so, this will also contribute to higher interest rates in the coming years than widely expected.

This article first appeared in the Nordea Economic Outlook: Steady path, published on 3 September 2025. Read more from the latest Nordea Economic Outlook.