How are wages actually decided upon?

The median salary in Switzerland is CHF 6,788 a ­month. That means half of all employees earn more than this figure, the ­other half less. These were the findings of an analysis for 2022 conducted by the Swiss Confederation. CEOs like Sergio Ermotti finished right at the top. The UBS boss earned CHF 14.4 million during his nine months in the job.

How are salaries determined? That's a question for which there's no set formula. After all, as the name suggests, the labour market is a market. That means prices are determined by supply and demand. However, ­standards as well as legal and social partnership rules also play a role.

Hourly rates and personal skills

Productivity is a key factor for companies. In other words, how much revenue they generate in an hour. Large companies tend to have an advantage here because they can organise processes more efficiently, says Daniel Kopp, an economist who works at the Swiss Economic Institute, a part of the ETH Zurich. However, some small companies, such as law firms, also have high hourly rates. They pay better than skilled trade businesses, whose customers are less willing to pay a lot.

On the employee's side, a key factor is the skills you can offer: if you specialise in something that only a ­few people can do or you work in a field that is in high demand, your pay is generally higher. "In a recession, people tend to earn less than during an economic boom," Kopp explains. The current shortage of skilled labour is strengthening the position of employees. Ultimately, if employers have difficulty hiring, they usually pay more.

Minimum levels for low pay

Legal requirements often apply to very low wages. While there is no national minimum wage in Switzerland­, some cantons and cities­, including Geneva, ­Ticino and the city of Zurich, set minimum wage limits. They are generally between CHF 19 and CHF 24 an hour.

Strong trade unions can also push wages up because they negotiate collective labour agreements with the relevant employers' associations. Such agreements lay down not only the minimum pay for various jobs, but also working conditions. However, they only apply to the companies covered by them, unless Federal Government declares them universally valid.

"The expansion of collective labour agreements is probably one of the reasons why low wages haven't fallen in Switzerland," Kopp says. Even so, the wage gap is widening in Switzerland as elsewhere - mainly because higher wages are rising.

Transparency for fairness

"Companies have room to manoeuvre," Kopp explains. He says it also depends on the salary model selected. Do companies want larger or ­smaller gaps between wages? Do they primarily want to keep labour costs low or to pay staff better to motivate ­the workforce?

Some companies offer additional perks, such as good social benefits, the option to work from home or contributions towards public transport passes. However, they rarely make up for wage disparities. "Companies that pay better are often providing improved employment conditions too," Kopp says.

But what is a fair wage? Most people believe in equal pay for equal work. However, there is less consensus over where the lower limits should lie and how big the differences between salary levels ought to be.

Kopp sees this as a political issue. However, the answer has an impact on wages because they are always set in a social context ­and subject to social approval. Wage transparency is also changing the labour market. "Low earners in particular are often poorly informed, which means they sometimes remain at companies paying poorly for longer."

Balancing out wage inequalities­

Women sometimes still earn less than men. Some of the differences can be explained by factors such as ­education/training or the sector. But the Federal Government says this doesn't explain everything. Companies are trying to counteract inequality by conducting an increasing number of equal-pay analyses. "International studies show this can reduce the pay gap, but ­men's salaries are often adjusted to those of women and the overall payroll falls," Kopp says.