, , , , , , , , , , , , ,

Could readers of RealityChek be luckier? I read through weighty tomes like the new International Labor Organization (ILO) report on global wage and income inequality so that you don’t have to!

This report’s findings need to be taken with a sizable grain of salt, mainly because it includes lots of data from developing countries whose statistics-gathering agencies just aren’t yet state of the art. And then there’s the problem of statistics from China, which are “notoriously unreliable” – as they say in polite (economics) society. Nonetheless, the ILO study contains findings that shed lots of light on many of the employment and wage trends being robustly debated in the United States. Here in my view are the most important and/or interesting.

First, wage stagnation is anything but a U.S.-only phenomenon. It’s happening nearly everywhere. Wages aren’t falling in inflation-adjusted terms worldwide (or in America). But their rate of increase recently keeps slowing from levels that are hardly impressive – from 2.2 percent in 2012 to two percent even in 2013. Just before the financial crisis, real wages around the world were growing by three percent annually.

These wages grew faster in the developing world than in the high income countries – which is to be expected, partly because they’ve begun from such a low base. But the third world didn’t escape the slowdown trend either, as its total real wage growth fell from 6.7 percent in 2012 to 5.9 percent in 2013. And if you strip out China, third world and overall after-inflation wage growth rates get cut – the latter in half.

Second, the differing wage trends in rich and poor countries continue to bear out a prediction made by the most important advance in trade theory made in the 20th century. It’s called the Stolper-Samuelson theory, after its developers (and yes, the Samuelson is the same MIT economist who wrote the best-selling economics textbook of all time), and one of its main claims is that if trade increases between rich and poor countries, their wages will start to converge. In fact, the ILO report finds that inflation-adjusted wages in developed countries were nearly flat in both 2012 and 2013.

Third, both inside and outside the United States, workers’ real wages are rising slower than their productivity. There’s nothing intrinsically wrong with a gap between the two. But when it persists and grows over long stretches, then it’s fair to assume that workers are no longer being adequately compensated for their performance. And if you think that the whole purpose of a national economy is to create the greatest possible prosperity for the greatest number of its citizens, that’s quite a problem.

For the high-income countries, the gap during the 1999-2013 period was greatest for Germany and Japan as well as the United States – no matter which of the two main measures of inflation you use. Moreover, the ILO findings measure labor productivity versus total compensation, not just wages, so benefits are included as well. Where has pay been growing faster than productivity? The United Kingdom, Australia, France, and maybe Italy and Canada. (The performance of those two countries depends on the inflation measure.)

The only disappointing aspect of the ILO report to me was the absence of any data on productivity and wage trends in developing countries, especially China. No doubt data quality – and simple availability – was the main reason, although China publishes both.

I’d like to see this data because of all the evidence I’ve seen that rising wages in China result at least in part from rising productivity – not because, as many American manufacturing cheerleaders claim, China is rapidly losing competitiveness because pay is completely out of control. But it seems we’ll all need to wait. For now, though, the ILO report makes depressingly clear that the American worker has had lots of company in his and her recent misery.