Why You’re Not Getting a Raise

By Cesca AntonelliCesca Antonelli and Christopher CannonChristopher Cannon

No matter where you are in the world, you’re probably not getting much of a raise—and chances are, that’s not changing any time soon.

Even though the job market is picking up in the U.S., Britain, Japan and a host of other countries, the growth in pay is disappointing global economists, government officials and families alike. In Germany—home to strong unions, record-low unemployment and booming exports—annual wage growth since 2013 has only averaged 2.1 percent.

Annual Wage Growth

Pay increases have been skimpy even as the global economy recovered.

Australia

6%

4%

2%

0%

12/31/06

3/31/17

Germany

6%

4%

2%

0%

12/31/06

3/31/17

Japan

6%

4%

2%

0%

–2%

–4%

–6%

–8%

12/31/06

6/30/17

U.K.

6%

4%

2%

0%

–2%

–4%

–6%

–8%

12/31/06

3/31/17

U.S.

6%

4%

2%

0%

3/30/07

6/30/17

Australia

Germany

6%

4%

2%

0%

–2%

–4%

–6%

–8%

12/31/06

3/31/17

12/31/06

3/31/17

Japan

U.K.

12/31/06

6/30/17

12/31/06

3/31/17

U.S.

6%

4%

2%

0%

–2%

–4%

–6%

–8%

3/30/07

6/30/17

Australia

Germany

Japan

6%

4%

2%

0%

–2%

–4%

–6%

–8%

12/31/06

3/31/17

12/31/06

3/31/17

12/31/06

6/30/17

U.K.

U.S.

6%

4%

2%

0%

–2%

–4%

–6%

–8%

12/31/06

3/31/17

3/30/07

6/30/17

Australia

Germany

Japan

U.K.

U.S.

6%

4%

2%

0%

–2%

–4%

–6%

–8%

12/31/06

3/31/17

12/31/06

3/31/17

12/31/06

6/30/17

12/31/06

3/31/17

3/30/07

6/30/17

The wage-growth gap has a nagging knock-on effect in the amount of disposable income just about everywhere, curbing consumer purchasing power and making people feel pinched more than they otherwise would. The gains in real personal disposable income have been maddeningly slow in places like the U.S., and some countries like Italy have even lost ground.

Cash in Your Pocket Around the World

Real personal disposable income index (100 = 2005 average), ordered by index averages.

100

110

120

130

140

90

Q1 2007

Q1 2017

ISR

SWE

CAN

AUS

NZL

KOR

FIN

ZAF

CHE

JPN

LUX

NOR

HRV

DEU

IRL

DNK

USA

FRA

GBR

NLD

BEL

ESP

ITA

100

110

120

130

140

90

’07

’08

’09

’10

’11

’12

’13

’14

’15

’16

ISR

SWE

CAN

AUS

NZL

KOR

FIN

ZAF

CHE

JPN

LUX

NOR

HRV

DEU

IRL

DNK

USA

FRA

GBR

NLD

BEL

ESP

ITA

100

110

120

130

140

90

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

Israel

Sweden

Canada

Australia

New Zealand

South Korea

Finland

South Africa

Switzerland

Japan

Luxembourg

Norway

Croatia

Germany

Ireland

Denmark

U.S.

France

U.K.

Netherlands

Belgium

Spain

Italy

100

110

120

130

140

90

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

’17

q1

q2

q3

q4

Israel

Sweden

Canada

Australia

New Zealand

South Korea

Finland

South Africa

Switzerland

Japan

Luxembourg

Norway

Croatia

Germany

Ireland

Denmark

U.S.

France

U.K.

Netherlands

Belgium

Spain

Italy

A lot has been written about why compensation isn’t picking up. Economists typically expect that a tight labor market will eventually mean that companies will have to start paying people more. But as more workers have come back into the labor force, that hasn't happened.

Even in Japan, where wages had been edging higher since mid-2014, pay is still now rising quite slowly—despite unemployment being near a two-year low. Total cash earnings for the Japanese rose 0.7 percent in May, and that was the biggest increase since July 2016.

And in China, where industrial profits are soaring and wage gains routinely topped 10 percent since the 1990s, increases are getting skimpier by the day. The strong currency and those steeper paychecks are seen as cutting into Chinese competitiveness.

China Average Wage of Employed Persons

Total remuneration paid to employees, year-over-year change

20%

15%

10%

5%

’07

’09

’11

’13

’15

’17

20%

15%

10%

5%

’07

’08

’09

’10

’11

’12

’13

’14

’15

’16

’17

20%

15%

10%

5%

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

In the U.S., one explanation for the slow wage growth can be found in a broader measure of unemployment, the U-6 rate. That rate—which includes people who are not actively looking for work but would want a job—is still above where it was in the last cycle. The U-6 is at 8.6 percent, which compares to a low of 7.9 percent in the previous expansion. Prior to that, the U-6 joblessness rate reached 6.8 percent in October 2000. Another measure, the employment-to-population ratio has been a better predictor of wages so far this cycle, and that indicator is still below where it was in the last recovery.

U-6 Unemployment Rate

20%

15%

10%

5%

12/29/06

6/30/17

U.S. Employment to Population Ratio

64

63

62

61

60

59

58

57

12/31/06

6/30/17

U-6 Unemployment Rate

20%

15%

10%

5%

12/29/06

6/30/17

U.S. Employment to Population Ratio

64

63

62

61

60

59

58

57

12/31/06

6/30/17

U-6 Unemployment Rate

U.S. Employment to Population Ratio

20%

64

63

62

15%

61

60

10%

59

58

5%

57

12/29/06

6/30/17

12/31/06

6/30/17

The forecasts for the next five years don't look particularly inspiring. Many places will see wage growth taper off.

Wage Forecasts

Year-over-year growth

Japan

4%

3%

2%

1%

0%

2017

2021

Italy

4%

3%

2%

1%

0%

2017

2021

Germany

4%

3%

2%

1%

0%

2017

2021

U.S.

4%

3%

2%

1%

0%

2017

2021

Spain

4%

3%

2%

1%

0%

2017

2021

France

4%

3%

2%

1%

0%

2017

2021

U.K.

4%

3%

2%

1%

0%

2017

2021

Japan

Italy

Germany

4%

3%

2%

1%

0%

2017

2021

2017

2021

2017

2021

U.S.

Spain

France

4%

3%

2%

1%

0%

2017

2021

2017

2021

2017

2021

U.K.

4%

3%

2%

1%

0%

2017

2021

Japan

Italy

U.S.

Germany

4%

3%

2%

1%

0%

2017

2021

2017

2021

2017

2021

2017

2021

Spain

France

U.K.

4%

3%

2%

1%

0%

2017

2021

2017

2021

2017

2021

The dramatic conclusion may be that as much as economists want to believe that true wage growth is just around the corner, it’s really not. And we all better get used to our paychecks pretty much staying where they are.