No Victory Lap Yet: U.S. Wage Growth Elusive

stephan-danningerBy Stephan Danninger

The U.S. labor market seems to have finally healed. The unemployment rate has been below 5 percent for some time and job growth is steady. And more Americans are coming back to the labor market—in other words, labor participation is increasing. Yet, despite a bump-up in 2015, wage growth so far this year—compared to the 2000s—is still disappointingly low (see Chart 1). This is worrying because consumer spending, which makes up the majority of U.S. economic output, cannot continue at the current pace unless wages grow.  Continue reading

Learning to Adjust: The Effects of Currency Depreciations on Inflation in Latin America

By Yan Carrière-Swallow and Bertrand Gruss

(Versions in Español and Português)

Falling global commodity prices and the normalization of monetary policy in the United States have contributed to widespread currency depreciations in Latin America. In theory, a falling currency is expected to create inflation by driving up the price of imported goods and services—triggering what economists call exchange rate pass-through.

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Japan: Time to Load a Fourth Arrow—Wage Increases

By Luc Everaert and Giovanni Ganelli

(Version in 日本語)

Everybody agrees: wages need to grow if Japan is to make a definite escape from deflation. Full- time wages have increased by a mere 0.3 percent since 1995! For example, despite its record profits, Toyota increased its base salary only by 1.1 percent last year. The average of 219 Keidanren firms managed just 0.44 percent. Clearly, an increase in base wages, colloquially referred to as “base up”, is long overdue.

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Population Pressures

Jeff HaydenBy Jeff Hayden

(Versions in عربي and Español)

Say “population growth” and many people immediately think of resources under stress. The mind jumps to 19th century scholar Thomas Malthus, who saw population outstripping the food supply, or to Paul Ehrlich, whose 1968 book The Population Bomb warned of global catastrophe from overpopulation.

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The Effects of Wage Moderation: Can Internal Devaluations Work?

By Jorg Decressin and Prakash Loungani

Devaluation is often part of the remedy for a country in financial trouble. Devaluation boosts the competitiveness of a country’s exports and curtails imports by making them more costly. Together, the higher exports and the reduced imports generate some of the financial resources needed to help the country get out of trouble.

For countries that belong to—and want to stay in—a currency union, however, devaluation is not an option. This was the situation facing several euro area economies at the onset of the global financial crisis: capital had been flowing into these countries before the crisis but much of it fled when the crisis hit.

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More Jobs That Pay Decent Wages: How To Fight Poverty In The United States

Deniz IganBy Deniz Igan 

(Version in Español)

Something unusual happened this year. For the first time in almost ten years, a book by an economist made it to Amazon’s Top 10 list. Thomas Piketty’s Capital in the Twenty-First Century captured the attention of people from all walks of life because it echoed what an increasing number of Americans have been feeling: the rich keep getting richer and poverty in America is a mainstream problem. 

The numbers illustrate the troubling reality. According to the U.S. Census Bureau, 1 in 6 Americans—almost 50 million people—are living in poverty. Recent research documents that nearly 40 percent of American adults will spend at least one year in poverty by the time they reach 60. During 1968–2000, the risk was less than 20 percent. More devastatingly, 1 in 5 children currently live in poverty and, during their childhood, roughly 1 in 3 Americans will spend at least one year living below the poverty line.

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Abenomics—Time for a Push from Higher Wages

By Dennis Botman and Zoltan Jakab 

(Version in  日本語)

Japan’s economic progress over the past year has been impressive, with strong growth, and inflation, investment, and credit growth all heading in the right direction. But that progress is largely the result of last year’s sizable fiscal and monetary stimulus—the first two arrows of “Abenomics”. Now, the economy needs to transition to more sustainable, private-sector led growth. A hike in wages could be just the push needed to propel that shift.

As the ongoing annual wage-bargaining round draws to a close, total earnings are set to increase this year for employees at some well-known car manufacturers.  But, in the past, these increases have not trickled down to higher basic wages at small and medium-sized enterprises and to non-regular workers. This is problematic as higher inflation without higher incomes can hardly be characterized as a successful reform.

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