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Switzerland: Selected Issues

Author(s):
International Monetary Fund. European Dept.
Published Date:
June 2019
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Switzerland: Cross-Border Wage GAPS—Possible Drivers1

Long-standing wage differences between Switzerland and its neighbors are found to reflect strong fundamentals, and have been sustained notwithstanding increased international labor mobility. Higher Swiss productivity accounts for much of the trend gap in wages, while appreciation surges temporarily widen the gap. Inflows of foreign workers, most of whom are highly skilled, have coincided with net job creation for Swiss workers, while also boosting average wages.

1. Wage differences between Switzerland and its neighboring countries are large and persistent. The average annual wage in Switzerland stood at US$88 thousand in 2017, second only to Iceland among the OECD countries (Figure 1, panel 1). In particular, Swiss wages are considerably higher than those of its neighbors—Austria, France, Germany, Italy—at both the national and regional levels (Figure 1, panels 2 and 3). Specifically, country-average salaries in Austria, France, and Germany are about half of Swiss salaries, while average Italian salaries are a third.2 Differences between neighboring cross-border regions are in some instances even larger.3 These wage gaps are a long-standing phenomenon and tend to widen as a result of Swiss franc appreciation surges.

Figure 1.Swiss Wages in the International and Regional Context, 1991–2017

Sources: Swiss Federal Statistical Office; OECD; and IMF’s WEO and staff calculations.

1 To ensure internationally comparable data, annual wages are obtained by dividing the national-accounts-based total wage bill by the average number of employees in the total economy, which is then multiplied by the ratio of average usual weekly hours per full-time employee to average usually weekly hours for all employees.2 Regional GDP for capita is used to proxy regional annual wages. In Switzerland, regional GDP per capita is broadly equal to the median gross annual wages reported in the Swiss Earnings Structure Survey. The two exceptions are the regions of Zurich (due to its large financial sector) and Ticino (due to a high number of cross-border workers, who contribute to regional GDP but are excluded from the population figures). Regional wages are calculated for Swiss regions and Austrian (AUT), German (DEU), French (FRA), and Italian (ITA) regions that share a border with Switzerland.

2. The wage gaps have been sustained notwithstanding Switzerland’s open labor market with the European Union (EU). Following the coming into effect of a bilateral agreement on the free movement of workers and supply of services in 2002, the share of foreign nationals in Swiss employment has risen. Currently, about one-third of Swiss workers are foreign nationals, up from around 22 percent before the bilateral agreement4 This increase in the foreign share of employment coincided with rising employment of Swiss nationals and with widening cross-border wage gaps. This paper explores the possible drivers of cross-border wage gaps. It first documents some stylized facts about the Swiss economy, and empirically tests their relevance for Swiss wage dynamics in the long- and short-run. The final section then studies the factors underpinning cross-border wage gaps.

Switzerland: Employed Persons, 1991–2018Q3

(In thousands of people)

Sources: Federal Statistical Office.

A. Drivers of Swiss Wages—Stylized Facts

3. Economic theory suggests that higher wages coincide with higher labor productivity. Switzerland’s labor productivity is among the highest in the OECD countries, especially when measured as annual gross value added per worker.5 According to this measure, Swiss workers are also more productive than their counterparts in neighboring cross-border regions, which provides a possible explanation for the positive wage differentials. However, an alternative metric based on hours worked suggests Switzerland is less productive than several other OECD countries, including several of its neighbors.6 Nonetheless, from the perspective of adjacent cross-border regions, Swiss productivity remains higher than in neighboring countries.

Selected OECD: Labor Productivity, 2017

(In USD PPPs)

Sources: OECD.

Regional Incomes and Labor Productivity, 2016

(In thousands of U.S. dollars)

Sources: OECD; Swiss Federal Statistical Office; and IMF staff calculations.

4. Switzerland has created mostly high-skill, high-wage jobs. The number of new high-skill jobs (i.e., requiring at least a college degree) during 2003–17 was broadly equal to total job creation, while the number of middle- and low-skill jobs remained broadly unchanged. Around half of new jobs were filled by foreign nationals, although Swiss nationals disproportionately filled the new high-skill jobs. Nonetheless, two-thirds of new EU/EFTA workers in Switzerland were college graduates. EU nationals also tended to fill mid-skill positions vacated by Swiss nationals.7

Switzerland: Employment Growth, 2003–2017

(In thousands of jobs)

Sources: SECO.

5. Nominal wage differentials between Switzerland and its neighbors are likely influenced by the higher cost of living in Switzerland. The two largest Swiss cities— Zürich and Geneva—are consistently found to be the top two most-expensive in the world.8 Switzerland has the second-highest price level in Europe, with prices of consumer goods and services some 60 percent higher than the EU average. Prices of services—a proxy for nontradables—are significantly higher in Switzerland than in neighboring countries, as are several products that are shielded from international competition.9

Selected Europe: Wages and Price Levels, 2017

Sources: Eurostat; OECD; and IMF staff calculations.

6. Swiss firms compensate their employees for the higher cost of living. Cross-country wage differences narrow after adjusting for price differences. Measured at current purchasing power parity (PPP) exchange rates, the wage gap stood at about 30 percent in 2017 (in percent of Swiss salaries), compared to about 50 percent at market exchange rates. Moreover, the PPP-adjusted wage gap has been relatively constant over time.

Wage Gap between Switzerland and Neighboring Countries, 1991–2017

(In percent of Swiss wages)

Sources: OECD; IMF’s WEO and staff calculations.

Note: PPP-GDP weighted average for Austria, France, Germany, and Italy.

7. Appreciation of the Swiss franc since the global financial crisis has widened the cross-border nominal wage gap. On several occasions, the safe-haven Swiss franc has appreciated sharply against the euro since 2008. These successive appreciation surges expanded wage differentials. Despite some reversal since 2015, cumulative franc-euro appreciation accounts for most of the widening of the wage gap since the early 1990s. Increases in foreign wages (measured in euros) and Swiss wages (measured in Swiss francs) nearly offset each other.

Cumulative Increase in Nominal Wage Gap between Switzerland and Neighboring Countries since 1991

(In thousands of euros)

Sources: IMF staff calculations.

8. Lower Swiss tax and mandatory contribution rates relative to neighboring countries partly offset the cost to employers of higher wages. Swiss companies pay lower rates of corporate tax. In addition, employers’ mandatory tax and nontax contributions (first and second pillar pensions and health insurance) on wages are lower than those in neighboring countries.

Average Cost of Labor and Corporate Taxes, 2017

(Rates in percent; wages in thousands of euros)

Sources: OECD.

Note: Effective corporate tax rates are for multinational enterprises, as reported for 2011–2015 in the Orbis database.

9. Several supporting measures help underpin Swiss wages, notably in construction and catering. Foreign firms who post their workers to Switzerland are required to meet Swiss minimum wage and labor conditions.10 An eight-day notice period of intention to work in Switzerland is required in order to allow the Swiss authorities sufficient time to verify that domestic wage protections are being observed. Compliance also relies on on-site inspections and sanctions. In addition, implementing the 2014 referendum that aims to slow EU migration requires employers to publish vacancies for five working days exclusively for job seekers in Switzerland in occupations with above-average unemployment rates.11 Quotas on permanent residency applications from nationals from Bulgaria and Romania are also applied.

B. Are Swiss Wages in Line with Swiss Fundamentals?

10. This section identifies the long- and short-run drivers of Swiss wages using an error correction model (ECM). In the long-run, real wages are expected to be synchronized with labor productivity. In the short-run, a wage Phillips curve would imply a relationship between nominal wage growth, labor productivity growth, inflation and labor market slack. This short-term relationship is augmented with the error correction term from the long-run model, allowing nominal wages to react to deviations of real wages from their predicted long-run relationship. We also investigate the impact of foreign workers on wage growth.

11. The empirical model is specified as follows:

Δwt = β0 + β1πt-1 + β2ut + β3Δyt + β4(log(RWt-1) – α0 – αl log(yt-1)) + β5FWt + et.

In this specification, Δwt is the year-on-year change in nominal Swiss wages, measured as compensation per employee adjusted for hours worked.12 The explanatory variables are Switzerland’s previous year’s inflation, πt-1, unemployment gap, ut, (a deviation from the time-varying equilibrium unemployment rate, estimated with a Hodrick-Prescott filter), labor productivity growth, Δyt, (measured as real GDP per hour worked),13 the previous-year’s deviation of the real wage, RWt-l from its long-run relationship with labor productivity, yt-l (i.e., the error correction term), and a year-on-year change in the ratio of foreign workers to domestic workers, FWt. The analysis is based on annual data during 1990–2017.

12. Over the long run, real wages and labor productivity are found to co-move. This cointegrating relationship between real wages and labor productivity (both in levels) implies they share a common trend (see Annex II). A 1 percent increase in labor productivity is found to raise real wages by 0.7 percent. The long-run analysis suggests that real wages were below levels predicted by productivity before the global financial crisis (2003–2008), and were above their long-run predicted levels since 2012, although the deviations are relatively modest.

Real Wages and Labor Productivity, 1990–2017

(In thousands of Swiss francs)

Sources: OECD; SECO; and IMF’s WEO and staff calculations.

Error Correction Term, 1990–2017

(In thousands of Swissfrancs)

Sources: OECD; SECO; and IMF’s WEO and staff calculations.

13. The short-run behavior of nominal wages is found to conform with the wage Phillips curve. The baseline model (Table 1, column 1) explains about two-thirds of the variation in nominal wage growth during the past three decades, with the estimated coefficients on past inflation, unemployment rate gap, and labor productivity growth all significant and having the expected signs. Unemployment of Swiss workers has a somewhat-larger impact on wages than overall (Swiss plus foreign) unemployment (columns 1 and 2). Adding the error correction term to the baseline regression considerably improves the model fit, and gives the expected negative coefficient, implying that a past overshoot of wages from its dynamic long-run equilibrium dampens current year’s wage growth (column 3).

Table 1.Switzerland: Estimates of Wage Phillips Curves
(1)(2)(3)(4)(5)(6)
Lagged domestic inflation0.77***0.81***0.82***0.92***0.91***0.86***
Labor productivity growth0.26*0.25*0.31***0.36***0.38***0.31***
Unemployment rate gap-2.15***-1.31***-0.83-0.68-1.26**
Unemployment rate gap, Swiss workers-3.84***
Lagged error correction term1-0.74***-0.77***-0.78***-0.74***
Foreign workers20.40
Foreign permanent workers20.57*
Cross-border workers20.45
Constant0.260.210.14-0.23-0.250.04
Number of observations272727272727
Adjusted R-squared0.640.640.800.810.820.79
Source: IMF staff calculations.Note: Dependent variable: year-on-year growth rate of nominal average annual wages, in Swiss francs. Sample is of annual frequency from 1990 to 2017. *p<0.10; **p<0.05; ***p<0.01.

Error correction term is estimated as the residual from the long-run regression of log(RWt) on a constant and log(yt).

Year-on-year change in the ratio of foreign / foreign permanent / cross-border workers to domestic workers.

Source: IMF staff calculations.Note: Dependent variable: year-on-year growth rate of nominal average annual wages, in Swiss francs. Sample is of annual frequency from 1990 to 2017. *p<0.10; **p<0.05; ***p<0.01.

Error correction term is estimated as the residual from the long-run regression of log(RWt) on a constant and log(yt).

Year-on-year change in the ratio of foreign / foreign permanent / cross-border workers to domestic workers.

Nominal Wage Growth, 1992–2017

(In percent)

Sources: OECD; SECO; and IMF’s WEO and staff calculations.

14. Foreign workers are associated with higher Swiss wages. The effect is the clearest for permanent foreign workers, where the coefficient has a positive sign, is statistically-significant, and is of an economically-meaningful size (column 5).14 Specifically, during 2012–17, permanent foreign workers contributed a cumulative 2½ percentage points to nominal wage growth, which is as large as all other wage-boosting factors combined. This result is consistent with inflows of generally well-educated, permanent foreign workers, which would also tend to push up aggregate labor productivity and support higher long-run real wages.

Cumulative Contributions to Nominal Wage Growth

(In percent)

Sources: OECD; SECO; and IMF’s WEO and staff calculations.

Contributions to Nominal Wage Growth, 1992–2017

(In percent)

Sources: OECD; SECO; and I MF’s WEO and staff calculations.

Cumulative Contributions to Nominal Wage Growth, 1992–2017

(In percent)

Sources: OECD; SECO; and IMF’s WEO and staff calculations.

C. What Explains the Dynamics of Cross Border Wage Gaps?

15. We also use an error correction model to analyze the long- and short-run dynamics of wage differentials with neighboring countries. Gaps are calculated as differences between Swiss variables and PPP-GDP-weighted averages of Austria, France, Germany, and Italy. As with the previous Switzerland-only model, we hypothesize that over the long run, the real wage gap moves in line with differences in labor productivity. In the short-run, cross-border differences in the pace of nominal wage growth (measured in euros) may reflect differences in labor productivity growth, Swiss franc appreciation, and changes in firms’ cross-border profit gap, while allowing for corrections from the long-run equilibrium via the error correction term.

16. The empirical model is specified as follows:

ΔwgaPt = β0 + β1Δfxt + β2Δprofit_gapt + β3ΔgaPt + β4(log(RW_gapt-1) – α0 – α1log(y_gapt-1)) + et

In this specification, Swiss wages and productivity are measured in euros at a constant exchange rate, equal to the 1991–2017 average exchange rate between the Swiss franc and euro. Thus Δw_gapt is the year-on-year change in the nominal wage gap between Switzerland and neighboring countries, but holding constant the exchange rate. The impact of exchange rate movements around this average is included as a separate explanatory variable: Δfxt is the year-on-year appreciation of the Swiss franc vis-à-vis euro. This approach allows for separately identifying how the wage gap responds to an appreciation shock. As we are primarily interested in the impact of large, persistent foreign exchange rate shocks, Δfxt is an indicator variable that takes the value of the average cumulative appreciation of the Swiss franc vis-à-vis the euro during the previous three years in years when that appreciation exceeded 3 percent per annum (i.e. about a half standard deviation above the long-term average appreciation). In other years, the variable is set to zero (the text chart depicts exchange rate developments in all years, but only the episodes highlighted in red are included in the regressions). Other explanatory variables are the year-on-year change in firms’ cross-border profit gaps as a share of GDP, Δprofit_gapt, labor productivity gap growth Δy_gapt, and the previous year’s deviation of the real wage gap RW_gapt-1 from labor productivity gap y_gapt-1 (i.e. the error correction term). As before, the analysis is performed on annual data during 1990–2017.

Nominal Wage Gap between Switzerland and Neighboring Countries, 1992–2017

(In thousands of euros)

Sources: Haver; OECD; and IMF’s WEO and staff calculations.

Average Appreciation of Swiss Franc vis-à-vis Euro overthe Previous Three Years, 1990–2018

(In percent)

Sources: Haver; OECD; and IMF’s WEO and staff calculations.

17. In the long run, higher Swiss labor productivity accounts for much of the real, constant exchange rate wage differential between Switzerland and its neighboring countries. The real wage gap and labor productivity gap are cointegrated, with a 1 percent increase in the labor productivity gap raising the real wage gap by about 0.5 percent in the long run (see Annex II). Deviations from the long-run equilibrium tend to persist for several consecutive years. For example, the productivity gap widened by nearly 50 percent during 2004–2008, mostly due to subdued growth in output per hour worked in France and Italy. Yet the real wage gap increased by only 11 percent during this period, in part reflecting the subpar wage growth in Switzerland discussed in section B. This situation reversed in 2011, and the current real wage gap exceeds the level predicted by labor productivity in Switzerland and neighboring countries.

Real Wage and Productivity Gaps between Switzerland and Neighboring Countries, 1991–2017

(In thousands of euros, at constant exchange rate)

Sources: Haver; OECD; and IMF’s WEO and staff calculations.

Error Correction Term, 1991–2017

(In thousands of euros, at constant exchange rate)

18. Swiss wages adjust to large appreciation shocks. Measured at current exchange rates, and due to short-term wage stickiness,15 a Swiss franc appreciation initially widens the euro-denominated wage gap vis-à-vis neighboring countries, reducing the competitiveness of Swiss firms. Following a large exchange rate shock, wages measured at a constant exchange rate (effectively, in Swiss francs) are found to decrease in subsequent years (Table 2, columns 1 and 3), thereby helping to narrow the wage gap measured at current (and constant) exchange rates. For example, following a series of large appreciation episodes since 2011, the cross-country wage gap (measured at a constant exchange rate) narrowed by almost 18 percent during 2012–17 reflecting downward adjustment in response to appreciation episodes, as well as the error correction term. Nonetheless, despite this large corrective response, the wage gap between Switzerland and neighboring countries (measured at current exchange rates) remains 12 percent higher than in 2011.

Table 2.Switzerland: Short-term Drivers of Nominal Wage Gap
(1)(2)(3)
Labor productivity gap growth0.15***0.20***0.18***
Large CHF/EUR appreciation1- 0.22*-0.18*
Change in firms’ profit gap2-1.04***-0.98***
Lagged error correction term3-1.27***-1.47***-1.34***
Constant0.570.070.43
Number of observations262626
Adjusted R-squared0.660.750.77
Source: IMF staff calculations.Note: Dependent variable: year-on-year change in nominal wage gap between Switzerland and neighboring countries (PPP-GDP weighted average wages for Austria, France, Germany, and Italy), measured at the constant exchange rate. Sample is of annual frequency from 1990 to 2017. *p<0.10; **p<0.05; ***p<0.01.

Average year-on-year appreciation of Swiss franc vis-à-vis euro over the previous three years, in years when that appreciation exceeded 3 percent per year, or zero otherwise.

In percent of GDP.

Error correction term is estimated as a residual from the long-run regression of log(RW_gapt) on a constant and log(y_gapt).

Source: IMF staff calculations.Note: Dependent variable: year-on-year change in nominal wage gap between Switzerland and neighboring countries (PPP-GDP weighted average wages for Austria, France, Germany, and Italy), measured at the constant exchange rate. Sample is of annual frequency from 1990 to 2017. *p<0.10; **p<0.05; ***p<0.01.

Average year-on-year appreciation of Swiss franc vis-à-vis euro over the previous three years, in years when that appreciation exceeded 3 percent per year, or zero otherwise.

In percent of GDP.

Error correction term is estimated as a residual from the long-run regression of log(RW_gapt) on a constant and log(y_gapt).

Cumulative Contributions to Nominal Wage Gap Growth, 1991–2017

(In percent)

Sources: Haver; OECD; and IMF’s WEO and staff calculations.

Cumulative Contributions to Nominal Wage Gap Growth, 1991–2017

(In percent)

Sources: Haver; OECD;and IMF’s WEO and staff calculations.

19. Swiss firms tend to absorb higher labor costs in part through lower profit margins. Real wages in Switzerland increased faster than productivity since 2012, reducing corporate profit margins.16 This profit squeeze vis-à-vis neighboring countries contributed positively to the growth in the nominal wage gap: 1 percentage point of GDP decline in profit gaps increased the wage gap by about 1 percent (Table 2, columns 1 and 3). During 2012–2017, compression of Swiss firms’ profits relative to those of firms abroad was associated with a widening of the cross-border wage gap by 0.8 percentage points.

Switzerland: Labor Shares and Firms’ Profits, 1990–2018

(In percent of GDP)

Sources: Haver; and IMF’s staff calculations.

D. Conclusions

20. Wage differences between Switzerland and its neighbors are found to be consistent with Switzerland’s strong fundamentals. The level of Swiss wages is aligned with workers’ productivity over time, and wages respond to cyclical conditions in the Swiss economy, including unemployment rates as well as deviations from the long-run wage-productivity relationship. Moreover, an increasing share of foreign workers, most of whom are well educated, is associated with rising wages in Switzerland. Looking at the cross-border wage gap, results suggest that the higher productivity of Swiss workers accounts for much of the sustained positive wage gap. However, large appreciation shocks, which initially expand the wage gap beyond levels consistent with fundamentals, are gradually unwound through slower growth in Swiss wages (measured in Swiss francs), some compression of profits among Swiss firms, and by raising productivity.

Annex I. Cross Border and Posted Workers

1. The number of cross-border workers more than doubled since 2002 to about 312 thousand people in 2018, or about 20 percent of foreign workers (Annex I Figure 1, panel 2). Switzerland has the highest number of cross-border commuters within the European Economic Area, with 6 percent of workers commuting daily from other countries (European Commission 2018).

Figure 1.Foreign Workers in Switzerland, 2002–2018

Sources: Federal Statistical Office; SECO; and IMF’s WEO and staff calculations.

1 Red markers highlight the regions with the highest number of cross-border workers. Number of cross-border workers in thousands in parenthesis.

2. Cross-border workers are concentrated in northwestern Switzerland near Basel, around Lake Geneva, and in Ticino (in both absolute terms and in percent of regional population). These regions also host the largest number of permanent foreign workers (Annex I Figure 1, panel 3) In the Italian-speaking Ticino, foreign nationals and cross-border workers account for nearly half of the region’s employment. Most cross-border commuters are French resident (55 percent of all cross-border workers), followed by Italians (23 percent), and Germans (19 percent). The number of French and Italian cross-border commuters doubled since 2002 (Annex I Figure 1, panel 4). The large number of French cross-border workers reflects the significant wage differentials between the neighboring French and Swiss regions (panel 3). In 2016, average regional GDP per capita in Auvergne-Rhône-Alpes, Bourgogne-Franche-Comté, and Grand Est regions stood at only US$32 thousand compared to the average regional GDP per capita of US$78 thousand in Lake Geneva Region, Espace Mittelland, and Northwestern Switzerland.

3. In addition to permanent and cross-border foreign workers, Switzerland also receives a large number of posted workers. Under the 1999 agreement, EU firms have the right to offer their services in Switzerland, and to temporarily post workers to supply those services. Posted workers can be sent by their EU employers to Switzerland for up to 90 working days per calendar year. These workers have regular employment relationships in their usual country of work and maintain their employment relationship during the period of posting, with minimum working and pay conditions subject to the Swiss Posted Workers Act. About 140 thousand workers from the EU were posted to Switzerland in 2018, mostly to work in the construction sector. In addition, short-stay workers (up to 90 days) were also present, of which 27 thousand were declared as self-employed and some 86 thousand were employed by Swiss employers.

Annex II. Cointegration Tests

1. We use Engle-Granger two-step test for cointegration to establish long-run equilibrium relationships between (i) real wages and labor productivity, and (ii) as real wage gap and labor productivity gap. We first apply the Augmented Dickey-Fuller test to establish that each time series contains a unit root. We then use the Engle and Granger (1987) two-step procedure to test if the paired variables have a stationary long-run equilibrium relationship, i.e. they are cointegrated. The results are presented in Annex Table II.1. Swiss real wages and labor productivity are found to be cointegrated, as are the cross-border wage and labor productivity gaps.

Table 1.Switzerland: Engle-Granger Cointegration Tests
t-statistic
Cointegration between Swiss real wages and labor productivity1-3.22*
Cointegration between real wage gap and labor productivity gap2-2.42*
Source: IMF staff calculations. Note: *p<0.10; **p<0.05; ***p<0.01.

The test examines the residual from the long-run regression of the natural logarithm of Swiss real wage on a constant and natural logarithm of labor productivity.

The test examines the residual from the long-run regression of the natural logarithm of real wage gap on a constant and natural logarithm of labor productivity gap.

Source: IMF staff calculations. Note: *p<0.10; **p<0.05; ***p<0.01.

The test examines the residual from the long-run regression of the natural logarithm of Swiss real wage on a constant and natural logarithm of labor productivity.

The test examines the residual from the long-run regression of the natural logarithm of real wage gap on a constant and natural logarithm of labor productivity gap.

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1Prepared by Sylwia Nowak. This work has benefited from discussions with and comments from the Swiss authorities, including the Federal Finance Administration, State Secretariat for Economic Affairs and the Swiss National Bank.
2Gaps are somewhat narrower at skill levels used in elementary occupations.
3Notably between Switzerland’s Lake Geneva region and Bourgogne-Franche-Comté in France.
4This includes a sizable number of cross-border workers, as well as posted workers (see Annex I).
5Labor productivity is the ratio of a volume-measure of output and a volume-measure of labor input. Real GDP is used to measure gross value added. Labor input can be measured by total number of hours worked or total employment (head count).
6The divergence between alternative productivity measures may reflect difficulties quantifying labor productivity in knowledge-intensive business services sectors, such as information and communications technology, banking and insurance, research and development, and consulting (Kaiser and Siegenthaler 2015). Investment in intellectual property and a significant presence of multinationals with a high intellectual-property content in generating value added further complicates the assessment (OECD 2018).
7EU workers also helped to meet demand for less-skilled jobs. For example, EU nationals made moderate employment gains in terms of service and sales occupations, filling vacancies created by Swiss workers avoiding or leaving these professions (SECO 2018).
9According to Credit Suisse, 2018. Transfers from consumers and taxpayers to producers of several agricultural goods arising from policy measures equal about CHF 3.5 billion per year, and create a gap between domestic market prices and border prices (OECD 2017a). In addition, pharmaceuticals are subject to separate authorization procedures and restrictions on sales.
10A minimum wage of CHF 20 per hour applies in Cantons Jura and Neuchâtel, while no minimum wage exists in the rest of the country. However, minimum compensation clauses are included in voluntary collective labor agreements (General Labor Contracts), which are negotiated on a sector-by-sector basis. These require compensation ranging from CHF 2,200 to 4,200 per month for unskilled workers and CHF 2,800 to 5,300 per month for skilled employees.
11Swiss nationals and foreigners registered in Switzerland benefit equally from this measure. A new referendum proposal to moderate immigration is pending with the Federal Council.
12That is, the national accounts-based total wage bill is divided by the average number of employees in the economy, multiplied by the ratio of the average weekly hours per full-time employee to the average weekly hours for all employees.
13The regression is based on GDP per hour worked, rather than annual GDP per worker, because data on the latter are not available for the entire sample period.
14Cross-border workers or foreign workers in general also raised wages, but the impacts are not statistically significant (Table 1, columns 4 and 6).
15Wages for the subsequent year tend to be agreed in the fall of the previous year.
16Many firms reduced their profit margins following the removal of the Swiss franc floor against the euro in early 2015 (Swiss National Bank 2015). As a result, the share of national income paid to workers increased to historically high levels, in contrast to downward trends observed in other advanced economies (IMF 2017). In fact, firms’ profits have been declining steadily for much longer: between 2007 and 2017, firms’ profits declined by a cumulative 4.5 percentage points of GDP.

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