Global Low Wage Growth: Some Evidence

I don’t think I’ll take this as proof positive that labour compensation has lagged productivity globally but Dani Rodrik sends us to an interesting paper from employmentpolicy.org (excerpts from the introduction):

In the three decades after World War II, a central feature of the American economy was a mass upward mobility in which each generation lived better than the last, and workers experienced earnings gains through much of their careers…The central drivers of mass upward mobility were real wages for most workers that grew in line with overall labor productivity…

…The alignment of wage growth and productivity growth resulted from two main factors: labor markets for most groups of workers in which demand matched supply, and the post-World War II Social Compact that emerged from the Great Depression helped to propogate [sic]wage norms throughout the economy, norms that were enforced in part through collective bargaining and professional personnel/human resource management practices.

By the 1980s, both of these factors had reversed. Labor demand increasingly shifted toward more educated workers – particularly well-educated women. At the same time, the post-war Social Compact was challenged by the inflationary 1970s and collapsed in the 1980s. Nothing has emerged to replace it.

Now, in the absence of a labor market boom like that of 1996-2000, increased labor productivity no longer translates into rising real wages for many groups of workers…

I’ll admit to some fascination with the premise. My reading suggests that what’s happened in America has really been a global phenomenon, partly driven by the increasing integration of low-cost emerging markets into the global supply chain. And I more than suspect that the same drivers of low wage growth are alive and well in Malaysia.

Having said that, I do have problems with this paper – as a policy document, the intent is obviously a one-sided advocacy of labour activism and government intervention. I’ve no problem with that approach, as far as it goes. But the problem of low wage growth itself is not examined with any scientific objectivity as the underlying factors behind the problem are assumed, not inferred. That substantially weakens the force of the argument, and undercuts the validity of the remedial measures proposed.

Or maybe I’ve been reading too many academic papers lately.

In any case, the document is well written, and contains some thoughtful arguments. Some of the measures proposed could be a useful guide to labour policy in Malaysia.

Technical Notes:

Kochan, Tom and Frank Levy, “Addressing the Problem of Stagnant Wages”, EPRN, March 2011