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The Great Stagnation reaches everywhere

The Great Stagnation reaches everywhere

https://research.stlouisfed.org/fred2/graph/?g=2i5z

As usual for international comparisons I couldn’t find good PPP numbers for, the peaks are set the same for each country.

As everybody knows, U.S. real average hourly wages have been stagnant for approximately forty years. The influx of women into the labor force has corresponded to women moving into higher-paying occupations, thus having little net effect on real average hourly wages, as well as real average hourly wages for males. As real manufacturing wages have been recorded longer and are the best proxy for real wages in the U.S. as a whole, I’ve used real manufacturing wages here to illustrate their rise and stagnation across the First World. As the U.S. is the richest of the major economies, and has been for a long time, it is to be expected that it has had the slowest rate of real wage growth, and, consequently, longest real wage stagnation.

The major exceptions to the trend of stagnating real wages over the past decade or two I could find are Sweden and especially Finland, which have had strong real manufacturing wage increases in the past couple decades, but these are not known as major manufacturing countries, so I’ve excluded them. Mexico’s real manufacturing wages have been stagnant since 1980 and have been surprisingly stable since the start of the century, and don’t expect any miracles coming out of there. Korea’s real manufacturing wages have doubled since 1990, with the post-Great Recession recovery being much slower than the post-1997 one. Mexico is excluded here because it is not first-world, and Korea is excluded here because it is not all caught up (though it certainly mostly is).

Germany, Italy, and France all have peak real manufacturing wages in the latest period recorded, presumably due to stronger union power than in the U.S. and Canada leading employers to share their income with employees. In the case of Germany, this has coincided with exceptionally low unemployment due to Germany not taking on many unsustainable debt obligations during the 2000-2007 boom. In the cases of Italy and France, real manufacturing wage hikes have coincided with high unemployment. Japan has had falling real manufacturing wages since 2007, and also has also had decently falling unemployment. The U.S. (and, to a slightly lesser extent, Canada) have seen very strong wage stagnation since the late 1970s. The Axis Powers and France (which also had a real GDP/worker peak relative to the U.S. in the 1990s-early 2000s) have a basically similar history of rapid real wage catch-up from the 1950s to the first half of the 1980s, then slower catch-up (though no U.S./Canadian level stagnation) thereafter. Maybe that’s because they were all roughly equally strongly affected by the war, with France a little less so and Japan a little more so, and all recovered from it at the same time.

The interesting story here is the Canadian catch-up. Canada wasn’t affected much by the war, so how did it fall behind the U.S. before the late 1960s, and catch up during the late 1960s-late 1970s? Canada also disproves the leftist implication that U.S.-style real wage stagnation is unique to the U.S. It also seems that the strong European real wage hikes during the period 1973-1983 explain at least some of the rise of European unemployment and (in some countries; not Germany) uncontrolled European inflation, as unions demanded strong late 1960s-style nominal wage hikes and monetary policy makers proceeded to accommodate their demands. Maybe most 1970s-1990s Eurosclerosis can be attributed to European unions expecting the 1960s to go on forever, no matter the changing real economic conditions. Old Krugman once blamed Eurosclerosis on European institutions attempting to enforce equality in a time of universal first-world-wide economic forces (not related to trade) yielding so-called “superstar effects” and other such greater inequality. Perhaps that is the case, with unions keeping real wages high in a time of extraordinary inflation being a large part of this half-failed response to rising equilibrium free-market inequality.

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