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2016-03-09 05:51:53
It's one of the biggest economic challenges at the moment: with the recession
behind us, employment is improving, yet wages remain stubbornly low.
In America, median wages have been stagnant for more than 40 years. In Japan
and Germany, it's been 20 years without a pay rise.
And it's a global problem - wage growth has been weak around the world for
nearly a decade.
Four experts talk to the BBC World Service Inquiry programme about why wages
are so low.
John Van Reenen: The global picture
John Van Reenen is director of the Centre for Economic Performance at the
London School of Economics.
"Over the last seven or eight years, wage growth has been very disappointing
all over the world. After the Second World War, times were really good.
"Ever since the global financial crisis wage growth, which was doing pretty
well over the past 50-60 years - something like 2% a year - fell a lot in
richer countries and also fell or stagnated in poorer countries.
"In Britain in particular, wages fell very dramatically - there was a [more
than] 10% fall of real wages in the six years after 2008.
"That fall is really unprecedented. We have to go back to the 1920s before you
see falls of real wages of anything like that order of magnitude.
"The countries which have been doing better - both before the crisis and
afterwards - have been emerging economies.
"China, in particular, has done extraordinarily well. The growth of China since
1980 has led to enormous increases of people's real wages, and even after the
crisis, that has continued albeit at a much slower pace than it was before.
"Other countries, including India for example, have also done relatively well."
Christian Dustmann: Reunification's expensive legacy
Christian Dustmann is professor of economics at University College London.
"I remember when the Berlin Wall was falling. While there was a feeling of
great happiness at the time, I think the economic consequences for all Germans
were vastly underestimated.
"Germany after 1989 was in a very difficult situation. It had to economically
integrate East Germany, which was hidden behind the Iron Curtain for more than
four decades and which, in terms of productivity, was about 60% of the level of
West Germany.
"At the same time the possibility of people in East Germany to move freely
around in the new unified Germany meant that wages had to adjust. So the gap
between productivity and wages had to be more or less subsidised by the
taxpayer. So the economic burden of that slowed Germany down for at least a
decade.
"After the early 1990s, when most of the eastern European countries opened up
to become market-based economies, German industry had the possibility to
dislocate production into these countries where wages were much lower.
"The papers in the early 2000s were full of articles where yet another company
was threatening to move production into eastern Europe, unless worker
representatives would accommodate wage restraint and more flexible solutions
regarding the workforce.
"So wages, in particular at the lower end of the distribution, actually started
to decrease. At the median, wage growth was basically stagnant.
"Wage negotiations were decentralised from the level of the industry [and]
region down to the level of the firm. That we believe has been partly
responsible for the possibility of German industry to become more competitive.
"I believe the flexible response of the employers and unions played an
important part to keep production in many of the core manufacturing sectors in
the country, which allowed Germany to be more or less in full employment at the
moment, compared to many of its European competitors, where a large part of
manufacturing has actually been moving away.
"So wages may have suffered, but the jobs are still in the country, and I think
that is far more important."
Machiko Osawa: The end of lifetime employment
Machiko Osawa is professor of economics and director of the Research Institute
for Women and Careers at Japan Women's University.
"The three pillars of Japanese employment are lifetime employment,
seniority-based wage and also enterprise-based unions. These pillars are very
important.
Image copyright Getty Images
Image caption Japanese salarymen's famously challenging working conditions were
rewarded with job stability
"The system began to change in the late 1990s. Globalisation was in progress
and Japanese companies [began] looking for short-term profits.
"In order to increase profits, you need to reduce labour costs: replacing
full-time by non-regular workers.
"So the corporation hires a temporary agency worker but he or she doesn't work
for this company, so their employment is relatively insecure. The wage growth
is very little, even though you work long years.
"This is a controversial issue. But because it is very difficult for Japanese
workers to move to another company, they have to take whatever they are given
by the company. So, as a result, Japanese workers do not have a strong
bargaining position.
"Job security for regular workers has declined [a] little bit, and the wage
growth of regular workers has also suffered.
"This is an international phenomenon because of globalisation and increased
competition. I think it reduces full-time employment and increases [the number
of] non-regular workers everywhere."
Jason Furman: Squeezed middle
Jason Furman is chairman of President Obama's Council of Economic Advisors.
"[When] I walk into the Oval Office to tell the president the latest employment
data, the question I get from him the most often is 'what's going on with wage
growth?' That's an issue he wrestles with, throughout what he's doing in public
policy, but really at a personal level.
"You go into a factory today, and you don't see many people. You see a lot of
machines. The number of robots is increasing dramatically year after year. It's
most concentrated in sectors like automobile production, but it's spreading
throughout the economy.
"If you look over the last 25 years in the US and across the industrial
countries, that's what you've seen. Innovations have complemented and enhanced
the skills of skilled professionals, replaced jobs from people in the middle,
but they haven't replaced the person working in the hospital tending to the
patient.
"So, you've seen jobs at either end of the skill distribution growing, those in
the middle dropping. And that's been going on for over a quarter of a century
now.
"In the US, we produce about $16tn ( 11tn) a year. The benefits of that are
divided. A substantial portion of it, about $10tn ( 7tn), is paid out to
workers in wages and benefits, but then companies get profits.
"What we have seen is that portion of how much we make each year that goes to
workers in the form of wages has gone down. The proportion going to businesses
in the form of profits has gone up and that's just another way in which you
just don't get wage increases commensurate with the type of economic growth.
"We've looked at data in the US for the last 100 years and found that when the
share of workers in trade unions goes down, the share of income going to the
bottom 90% of Americans also goes down and with trade union density at less
than 10% right now, it shouldn't be a surprise that the share of income going
to the bottom 90% of households, is at a near century-long low."
"There has also been a real change in the institutional dynamics that help
shape the distribution of income; the decline of labour unions, the fall in the
minimum wage adjusted for inflation, the increased concentration in a lot of
industries, the increased number of super-successful companies.
"All of that has contributed to a tilting of income away from labour towards
capital and towards managers and people that work for successful companies. And
so tackling all of that is also an important part of dealing with inequality in
wage growth."