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Kristen Sobeck
ILO
WAGES AND LABOUR PRODUCTIVITY
ACROSS DEVELOPED ECONOMIES 1999 -
2013
Source: ILO Global Wage Report 2014/15.
LABOUR PRODUCTIVITY HAS OUTSTRIPPED WAGE GROWTH
Source: ILO Global Wage Report 2014/15.
Presents macroeconomic implications for aggregate demand and economic growth.
Decoupling has occurred in a context of increasing inequality, and a decline in the bargaining power of workers.
Speaks to the distribution of wealth in society and the consequences and the policy implications.
WHY IS THIS IMPORTANT?
LABOUR PRODUCTIVITY HAS OUTSTRIPPED WAGE AND COMPENSATION GROWTH
Source: ILO Global Wage Report 2014/15.
Wages (earnings) = direct wages and salaries for time worked (in cash and in-kind)
+ remuneration for time not worked (holidays, vacations)
+ bonuses and gratuities
PLUS
Social insurance contributions payable by employers which include contributions to social security schemes; actual social contributions to other employment-related social insurance schemes; and imputed social contributions to other employment-related social insurance schemes.
EQUALS
Compensation of employees
MEASUREMENT DEBATE: WAGES VERSUS COMPENSATION
The Consumer Price Index (CPI) measures changes in the prices of goods and services that households consume. They are intended to capture price inflation perceived by households and changes in the cost of living. Wages and compensation deflated by the CPI reflect
changes in the purchasing power of workers’ wages.
GDP deflator measures changes in the prices of goods produced in the domestic economy (not just those consumed by households). Since labour productivity is calculated from real GDP (which
is deflated by the GDP deflator), using the GDP deflator to deflate wages and compensation eliminates variability in deflators as a factor which may drive the final results.
MEASUREMENT DEBATE: CPI VERSUS GDP DEFLATOR
THE DEFLATOR CHANGES THE RELATIONSHIP
90
10
011
012
0
2000 2005 2010 2015year
wage_index wage_index_GDPrebasecomp_indexCPI comp_indexGDPlp_index wageshare_index
Australia
LP
Wage & Compensation/ GDP deflator
Wage & Compensation/ CPI
THE CONCEPT (WAGES VS. COMPENSATION) CHANGES THE
RELATIONSHIP10
010
511
011
512
012
5
2000 2005 2010 2015year
wage_index wage_index_GDPrebasecomp_indexCPI comp_indexGDPlp_index wageshare_index
United KingdomCompensation/ CPI & GDP deflator
Wage/ CPI & GDP deflator
LP
THE RELATIONSHIP DEPENDS ON BOTH CONCEPTS
LP
95
10
010
511
011
5
2000 2005 2010 2015year
wage_index wage_index_GDPrebasecomp_indexCPI comp_indexGDPlp_index wageshare_index
Canada
LP
Compensation/ CPI
Wage /CPI & GDP deflator
ANDCompensation/GDP deflator
MEASUREMENT IS IRRELEVANT90
10
011
012
013
0
2000 2005 2010 2015year
wage_index wage_index_GDPrebasecomp_indexCPI comp_indexGDPlp_index wageshare_index
United States
LP
Wage & Compensation/ CPI & GDP deflator
MEASUREMENT CAN MATTER
Deflator Concept Both (concept & deflator) Neither0
2
4
6
8
10
12
8
4
10
11
Nu
mb
er
of
develo
ped
econ
om
ies
IN COUNTRIES WHERE A TREND CAN BE IDENTIFIED, LABOUR PRODUCTIVITY
GREW FASTER THAN WAGES OR COMPENSATION
Both (concept & deflator) Neither0
2
4
6
8
10
12
2
5
7
6
Wages or compensation grew more than labour productivity Labour productivity grew more than wages or compensation
Nu
mb
er
of
develo
ped
cou
ntr
ies
Since wages are diff erent from compensation, the link between wages and labour productivity could diff er from trends in the labour income share.
Labour income share - unadjusted= Compensation of employees
GVA/GDP
In most countries, the relationship between wages (defl ated by the GDP defl ator) and labour productivity is a reasonable proxy for trends in the labour income share.
In the few countries where trends in wages (defl ated by the GDP defl ator) and labour productivity are inconsistent with the labour income share, the discrepancies are explained by a combination of diff erences in: data coverage, series breaks, estimates for missing data, provisional data, and improvements in data over time.
ARE TRENDS IN WAGES AND LABOUR PRODUCTIVITY CONSISTENT WITH THE
LABOUR INCOME SHARE?
In about half of developed economies, the relationship between wages, compensation and labour productivity depends on the concept and deflator used.
In the other half, measurement doesn’t matter, or only matters for one combination among the concept-deflator combinations.
Although wages are diff erent from compensation by definition, the relationship between wages and labour productivity is a reasonable proxy for trends in the labour income share in developed economies.
CONCLUSIONS
