It’s not what central banks wanted to hear.
“Real wage growth might remain subdued even with continued improvements in national labor markets.”
For policy makers desperately trying to bring inflation in line with goals set long before the crisis, those words from the Organization for Economic Cooperation and Development may sound like a testimony of failure after years of unconventional stimulus.
While trend employment and labor-force participation rates in many advanced economies are higher than in the decade preceding the financial meltdown and growth is going strong, wages haven’t yet picked up much at all.
You may blame productivity growth and economic slack left behind by the worst recession since World War II, and the OECD does.
“Productivity growth is subdued, labor market slack is more extensive than suggested by conventional unemployment rates and the influence of a given level of slack on real wage growth is weaker than prior to the crisis,” the Paris-based institution argues.
But it also says that for the typical worker, higher productivity may not be sufficient to raise real wages. It points to these developments that may have damped the responsiveness of wages:
- weaker bargaining power as a result of fast technological change
- automation of certain tasks
- rising global production integration
- offshoring of low-skill, labor-intensive tasks
Fodder for thought for the European Central Bank and the Federal Reserve, where officials are preparing to set the future course of monetary policy -- that comes with a recommendation.
“Additional policy support for demand and long-term supply is needed to eliminate fully existing labor market slack and strengthen productivity growth, thereby bringing about the durable strengthening of real wages needed to sustain consumption growth,” the OECD says.