OECD Employment Outlook 2018

OECD

• Publisher: OECD
• Year: 2018
• Topic: Social Sciences
• eBook ISBN:
  9789264304727
• Subtopic: Sociology
• Index: Social Sciences

Chapter 1. Still out of pocket: Recent labour market performance and wage developments

This chapter examines the evolution of labour market performance since the onset of the global financial crisis. OECD labour markets are back to pre-crisis levels in terms of job quantity, with only few notable exceptions, while a more mixed picture emerges as regards job quality and inclusiveness. In spite of this, nominal wage growth remains remarkably lower than it was before the crisis for comparable levels of unemployment, and the shift of the relationship between unemployment and wage growth has continued during the recovery. The chapter investigates the factors accounting for the persistent wage growth slowdown. While low inflation expectations and productivity growth deceleration remain the main drivers of observed patterns, the dynamics of low-pay jobs and the wages associated to them have also been key factors accounting for the overall decline in wage growth.

The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law.

Key findings

The recovery from the global financial crisis and the subsequent European debt crisis that affected a number of euro area countries is largely complete. At 2.6 % per year in 2017 and 2.5% projected for 2019, OECD economic growth, while not at a record high, appears stable and even the euro area is experiencing the strongest growth of real gross domestic product (GDP) of the past ten years (OECD, 2018[1]). Employment rates are, on average, above pre-crisis levels, with the strongest improvements occurring among under-represented groups. Yet wage growth appears to be lagging behind employment growth, with some signs of acceleration appearing in some countries only towards the end of 2017 or the first quarter of 2018 (OECD, 2018[2]). This soft wage growth suggests that the recovery remains fragile.

This chapter provides an overview of labour market developments since the onset of the global financial crisis with a special emphasis on the possible reasons for unexpectedly low wage growth. The main findings of this chapter are:

• OECD labour markets are back to pre-crisis levels in terms of job quantity, with only a few notable exceptions. Yet, a more mixed picture emerges as regards job quality and inclusiveness, the other two main pillars of the OECD Jobs Strategy together with job quantity. Improvements have occurred over the past decade in many countries as regards the gender gap in labour income, the labour market prospects of disadvantaged groups, and the incidence of job strain – excessive job demands combined with insufficient resources. However, labour market insecurity – the risk of unemployment and its economic cost for workers – is not yet back to pre-crisis levels and poverty has grown amongst the working-age population.
• Wage growth also remains remarkably lower than it was before the crisis. The OECD average of hourly wage growth rates was between 1.5 and 2 percentage points lower during the Great Recession than it was before for comparable levels of unemployment, and this shift in the relationship between unemployment and wage growth (the so-called Phillips curve) has continued during the recovery. It is visible even in countries where wage growth seems to be finally picking up a number of years into the recovery, such as the United States.
• All in all, in OECD countries, nominal hourly wage growth dropped from 4.8% in the pre-crisis period to 2.1% in recent years on average. Real wage growth decreased by 1 percentage point over the same period.
• The low-inflation environment and the productivity slowdown have both contributed to the marked deceleration in wage growth. On average, hourly labour productivity growth slowed from 2.3% prior to the crisis to 1.2% in the recent period, while inflation decreased from 2.6% to 0.8%, likely lowering inflation expectations.
• The dynamics of low-pay jobs and the wages they pay have also been key factors accounting for the overall decline in wage growth. In particular, there has been a significant worsening in the average earnings from part-time jobs relative to that of full-time jobs, which is associated with the rise of involuntary part-time employment in a number of countries.
• Comparatively poor working conditions among workers regaining employment after an unemployment spell, combined with a large number of transitions from unemployment to employment in some countries, pushed up the number of lower-paid workers, thereby lowering average wage growth.

Introduction

This chapter provides an overview of labour market developments since the onset of the global financial crisis. After presenting the evolution of the key indicators of labour market performance, developed in the context of the OECD Jobs Strategy in OECD (2017[3]; 2018[4]), special attention is given to wage growth, which appears to be the missing element of the current recovery. Indeed, while unemployment has been on a declining path for a number of years in most OECD countries (OECD, 2016[5]), wage growth remains remarkably lower than it was before the Great Recession for comparable levels of unemployment. This recent downward shift of the wage-unemployment relationship in a number of countries has raised an increasing interest and concern in the academia and policy fora – see for example (IMF, 2017[6]; Bulligan and Viviano, 2017[7]; OECD, 2016[5]; ECB, 2016[8]; Shambaugh et al., 2017[9]). Beyond the factors typically pointed out in the literature, such as the productivity slowdown and fall of inflation expectations, low-pay jobs are considered here as an important channel accounting for the disappointing wage growth deceleration.

The remainder of the chapter is divided as follows: Section 1.1 briefly examines the evolution of labour market performance, using a number of standardised indicators; Section 1.2 investigates the statistical factors accounting for the persistent wage growth slowdown; and Section 1.3 presents concluding remarks.

Recent developments in key indicators of labour market performance

Labour market conditions continue to improve. In 2017, the OECD average employment rate was almost 2 percentage points above its pre-crisis level, (Figure 1.1, Panel A).1 Similarly, unemployment rates continue their slow descent, although in a few countries remain somewhat above their pre-crisis levels because employment has not increased enough to fully offset rising trends in participation rates (Figure 1.1 Panel B). Yet, in 2016, broad labour underutilisation – adding up inactive and unemployed people as well as involuntary part-timers – was still, at 28.1%, 1.5 percentage points above 2006 levels (Figure 1.1, Panel C).

The recent performance of OECD countries as r...

Table of contents

• Title page
• Legal and rights
• Foreword
• Editorial: Wageless growth: Is this time different?
• Acronyms and abbreviations
• Executive summary
• Chapter 1. Still out of pocket: Recent labour market performance and wage developments
• Chapter 2. Labour share developments over the past two decades: The role of technological progress, globalisation and “winner-takes-most” dynamics
• Chapter 3. The role of collective bargaining systems for good labour market performance
• Chapter 4. Back to work: Lessons from nine country case studies of policies to assist displaced workers
• Chapter 5. Unemployment-benefit coverage: Recent trends and their drivers
• Chapter 6. Starting close, growing apart: Why the gender gap in labour income widens over the working life
• Annex A. Statistical annex
• About the OECD