Photographer: Andrey Rudakov/Bloomberg

Global Jobs Abound But Wage Gains Stay Soft

  • Nine charts show trends common throughout club of rich nations
  • Unemployment seen falling for sixth year in developed world

While many workers of the world are rallying around the strongest labor market in at least a decade, lackluster pay growth is keeping their enthusiasm in check.

Jobless rates have been falling across the Group of Seven industrialized economies and are projected to ease further this year, albeit modestly, according to the Geneva-based International Labour Organization’s flagship worldwide employment and social outlook, released Jan. 22. Unemployment rates in emerging-market nations, meanwhile, are on the cusp of a turnaround after years of weak commodities prices.

Solid Seven

Developed countries seen entering sixth year of declining jobless rates; challenges remain

Source: International Labour Organization's unemployment forecast for 2018 (average)

“Developed countries are expected to enter their sixth consecutive year of decreasing unemployment rates,” ILO researchers wrote. “Yet many countries continue to report high rates of labor underutilization, with large shares of discouraged workers and growing incidence of involuntary part-time employment.”

Subdued wage growth underscores why heads of the world’s largest central banks have clung to go-slow approaches to monetary policy adjustments. However, the next year or two may mark a turning point for wages as global growth firms and business investment picks up.

What Our Economists Say

It is inevitable that continued hiring will eventually lead to higher wage growth. The current disconnect stems from economists and policy makers underestimating slack in the labor market, which augmented the level of full employment. While remaining slack varies slightly by country, evidence is showing that the global economic cycle is reaching a point where business investment should accelerate, productivity should start to climb and wages will rise.

-- Michael McDonough, chief economist at Bloomberg Economics

1. North America

North America is a prime example of workers with jobs that aren’t yet a ticket to sizable pay increases. The rise of involuntary part-time employment in the U.S. and Canada has also been combined with increased temporary contract work that can act as a brake on wage growth, the ILO said. 

In the world’s largest economy, the jobless rate was at an almost 17-year low in December and probably stayed there in January as employers added 180,000 workers to payrolls, according to economists’ projections ahead of Labor Department data due Friday. At the same time, as a share of the labor force, the number of employees working part-time but wanting full-time hours is declining more gradually. At about 3 percent, it’s at the same level as it was when the Great Recession started in December 2007.

Lingering Slack

Involuntary part-time workers as share of U.S. labor force show slower progress

Source: Bureau of Labor Statistics.Note: involuntary work rate near 10-year low

That partly explains why Americans’ wages are improving at a slower pace than would typically be the case with a labor market that’s added 2 million workers a year for the last seven. After factoring in even modest inflation, hourly earnings haven’t exceeded 1 percent gains on a year-over-year basis since October 2016. That’s allowing the Federal Reserve to take its time in raising interest rates even as the job market tightens and the economy strengthens.

Modest wage growth is part and parcel of Canadian monetary policy. Officials at the Bank of Canada, the first G-7 central bank to raise rates in 2018, said Jan. 17 they will be cautious about further tightening, partly because wages remain sluggish. Hourly pay gains averaged 1.7 percent last year even as unemployment dropped to an all-time low. Inflation has yet to exceed the top of the bank’s 1 percent-to-3 percent target range.

2. Europe

The leading European economies, meanwhile, have been picking up smartly and encouraging more hiring. In Germany, the jobless rate -- using an EU-harmonized measure -- stood at a 3.6 percent in November, the lowest in data going back to 1991. The number of unemployed declined 13,000 during the month, the 38th consecutive drop.

Pay gains in Europe’s largest economy, key to a pickup in inflation that European Central Bank President Mario Draghi wants to see before withdrawing monetary stimulus, still lag increases recorded from 2012-2014. Improving economic momentum has “strengthened further our confidence that inflation will converge to close to but below 2 percent,” Draghi told reporters Thursday after a Governing Council meeting.

In the U.K., the jobless rate held at a 42-year low of 4.3 percent in the three months through November, while the number of employed unexpectedly climbed to a record. So-called regular pay gains, unadjusted for changes in inflation, were up 2.4 percent in the same period, the highest in almost a year. 

But factor in changing prices, and worker pay remains subdued. The amount of slack in the labor market is central to the debate at the Bank of England. The firming of employment in November could push more proactive policy makers toward voting for another increase in interest rates. Surveys suggest firms are facing growing recruitment difficulties and BOE policy maker Michael Saunders said recently that unemployment could drop below 4 percent this year and underlying nominal earnings growth may accelerate to 3 percent or above.

Across the English Channel in France, the unemployment rate is falling at a snail’s pace and wage growth remains lackluster. Buoyant economic growth and government measures to modernize the labor market are giving rise to the prospects that job growth will pick up.

The job market in the remaining European G-7 economy -- Italy -- is also on the mend with unemployment at a five-year low. Nonetheless, the progress has been accompanied by questions about job quality that may play a role in the nation’s March 4 election. The majority of new positions since labor reform in 2014 are temporary, one likely reason for sub-1 percent wage gains. That could give the anti-establishment Five Star Movement an opening to take on a government led by the Democratic Party.

3. Japan

The 2.7 percent unemployment rate in the world’s third-largest economy is the lowest since 1993, yet worker pay gains are measly. As in other G-7 nations, weak wages are keeping inflation at bay and hindering consumer spending. As a result, the Japanese government may be considering steps to encourage companies to raise wages.

— With assistance by Alessandro Speciale, David Goodman, and Jana Randow

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