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Why Swiss workers are worse off despite rise in wages

Switzerland’s workers are facing a conundrum: their salaries are increasing - but their buying power is going down. Here's why.

Published: 9 November 2022 10:16 CET

Why Swiss workers are worse off despite rise in wages

The purchasing power of Swiss employees will decline, economists say. Image by Andrew Khoroshavin from Pixabay

Swiss companies are planning a significant wage increase in 2023. But inflation will “eat up” the gains, leading to a record-high loss of real wages instead.

That’s the finding of a new UBS wage survey released on Tuesday.

It found that while three out of four companies surveyed are making the cost-of-living adjustments, most salaries will not offset inflation.

On average, Swiss companies plan to increase nominal wages by 2.2 percent across all sectors, which is the highest raise in almost 15 years.

However, if inflation is taken into account — even though it is expected to fall from the current 3 percent to 2.1 percent — real wages will actually drop by 1.8 percent, which is the sharpest decline since 1942.

“Employees are hardly likely to celebrate wage increases of just over 2 percent. However, the restrained wage increase should help prevent a wage-price spiral, and is unlikely to further fuel inflation”, according to UBS Chief Economist Daniel Kalt.

And there is more bad news for Swiss consumers.

“Even if Switzerland avoids a major shortage of gas and electricity, the sharp increase in energy prices and weak European economic growth will weigh heavily on the Swiss economy in the winter,” UBS said.

“Moreover, the uncertainties surrounding energy supply are unlikely to be limited to this winter alone. Another difficult winter situation, and therefore a fragile Swiss economy, is expected in 2023–24″.

On the positive side, UBS economists don’t expect a “severe recession” to hit Switzerland — unlike the eurozone countries.

“Firstly, households can partially fall back on savings accumulated during the Covid-19 pandemic to compensate for the loss in purchasing power. Secondly, a robust Swiss labour market is supporting the economy” the survey found.

READ MORE: Do wages in Switzerland make up for the high cost of living?

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REVEALED : Are ‘discount’ supermarkets in Switzerland really cheaper?

Common consumer goods (except one) are typically more expensive in Switzerland than in neighbour countries — sometimes by much.

This includes food.

READ ALSO: Why Switzerland is the most expensive country in Europe

That is especially the case of largest Swiss chains, Migros and Coop, while Denner, Lidl, and Aldi say their food prices are significantly lower.

To find out whether this claim is actually true, journalists from RTS public broadcaster’s consumer programme went shopping in each of these supermarkets.

They purchased the same 30 products in each of the five supermarkets on the same day, to ensure that the price comparison is as accurate as possible.

Not what you’d expect

In each of the stores, the investigators purchased only the lowest priced items from the supermarkets’ budget lines.

It turned out that most money was spent at Denner, widely considered to be one of the lowest-priced supermarkets.

The total for the 30 items came to 181.67 francs — more than was spent at the country’s more expensive stores, Migros and Coop, where identical basket of goods cost 170.37 and 167.82 francs, respectively.

(That, in itself, is surprising as well, because Migros typically has lower prices than Coop).

As for the other two supermarkets, these purchases cost 166.59 francs at Aldi and 162.05 at Lidl.

So the difference in price between Migros and Coop versus Aldi and Lidl is minimal. But what is even more surprising is that the cost of groceries at ‘cheap’ Denner is actually highest of the lot, by between 11 and nearly 20 francs.

Migros and Coop performed quite well in the comparison survey because most of the items purchased in those stores came from their budget lines, M-Budget and Prix-Garantie, respectively, both of which were introduced to compete with Aldi and Lidl.

But how important is price? Patrick Krauskopf, a professor of anti-trust law, told RTS: “German, French, English, Spanish and American consumers pay a lot of attention to price. In Switzerland, consumers place more emphasis on quality of service. Price is almost secondary.

“Distributors have realised this and have stopped competing fiercely on price.”

Big versus small

While this particular analysis focused on supermarket chains, another survey, conducted at the end of 2023, looked at prices in small grocery shops.

Common logic has it that it is cheaper to shop in supermarkets than a local corner store, because big retailers purchase products in large quantities, which means lower prices for consumers.

However, prices in some local shops were found to be “up to 30 percent cheaper than Migros and Coop.”

The reason is that in order to cut costs, small grocers may buy their products from the most cost-effective suppliers, a tactic which includes importing some items.

Another reason for lower prices is that unlike major supermarkets, which ‘pretty up’ their stores for better presentation of products, these small retailers are ‘no-frill’ shops. This means little money is invested in décor, so there are no extra costs to pass on to consumers.

READ ALSO: Why it might be cheaper to avoid the big supermarkets in Switzerland

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