Labor markets are performing strongly across OECD countries, with real wages rising significantly in many places as inflation rates fall and labor market tightness persists. However, despite a notable increase in real wage growth in many countries, others have experienced negative growth.
Real wages are increasing in many OECD countries, according to the Employment Outlook 2024 report following a significant drop in inflation rates. Inflation across the OECD surged to over 10.7% in October 2022 but by May 2024, it had almost halved to 5.9%. Despite this significant reduction, inflation remains above the 2% target set by central banks in 31 OECD countries. Notably, Turkey is experiencing particularly high inflation, around 16%. In other countries, such as Colombia, Israel, Mexico, Chile, and New Zealand, inflation rates still exceed 4%.
Fig.1. Inflation rates, May 2024
Source: OECD Employment Outlook 2024
As inflation has dropped and nominal wages have increased in many countries, real wages have risen significantly across OECD nations. In fact, 29 out of 35 countries have experienced positive real wage growth, with an average increase of 3.5%.
“Strong labor markets, with strong jobs growth, have been central to the economic resilience of OECD countries over the past several years. In the period since the pandemic, OECD employment has increased to a record high, despite the challenges posed by inflation and slow productivity growth” said OECD Secretary-General Mathias Cormann commenting on the outcomes of the report.
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Costa Rica tops the list of the rise in real wages with an impressive 16.4% growth and is followed by Latvia, Lithuania, Poland, and Hungary, with growth rates of 11.7%, 10.6%, 10.6%, and 10%, respectively. However, in countries such as Belgium, Canada, France, Japan, New Zealand, and Sweden, real wage growth was still slightly negative at the end of 2024. In these nations, real wages decreased by less than 1% over the year apart from Japan.
Fig.2. Real hourly wages, %, Q1 2024
Source: OECD Employment Outlook 2024
The report also highlights that real minimum wages are now above 2019 levels in almost all the OECD countries. This is partly because minimum wages have kept pace with inflation with countries implementing either automatic adjustments or discretionary increases. In early 2023, many countries introduced significant nominal increases in minimum wages, pushing its average real value to about 8% above the 2019 level.
Another key factor driving real wage growth in many countries is labor market tightness, according to the report. Even though the pressure is easing, labor markets remain tight in many places. Data shows that the vacancy-to-unemployed ratios had fallen from their peaks in all the countries where they had surged after the COVID-19 crisis. The imbalances between demand and supply are widespread across various industries. While low-pay industries used to be the main drivers of these imbalances, the latest data suggests that this is no longer the case. Sectors with high increases in vacancy rates relative to the country average are now spread across different industries, not just the low-paid sectors.
See also: What to expect from the job market in 2024? | Experts’ Opinions
Overall, tight labor markets may impact employers in different ways. Tightness pushes employers to offer better job packages, which could include more stable jobs or additional benefits. Persistent labor shortages may also drive firms to invest in technology and automation, leading to improved productivity and higher wages. On the other hand, however, labor shortages can also lower production quality, hinder innovation, and slow the adoption of advanced technologies, especially if high-skill workers are affected.
Fig.3. Job vacancies per unemployed person
Source: OECD Employment Outlook 2024
