Many of the world’s leading economies are experiencing falling real wages despite low levels of unemployment.
Real wage growth measures the increase in wages when inflation is taken into consideration.
So, with surging inflation and the global worsening of the cost of living crisis, it comes as little shock employees are struggling to secure pay rises that match price increases.
A combination of soaring energy, food and transportation costs are the main driving factors, as well as China’s most recent Covid-19 lockdown that’s adding to the global supply chain woes.
How are the world's leading economies faring in 2022?
Food firms Compass Group and Tesco PLC (LSE:TSCO) were the largest worldwide employers of UK-listed companies in 2020, according to Statista, with 595,000 and 294,000 employees respectively. J Sainsbury PLC was in fifth place, with 112,000.
In its results for the year to the end of February, Tesco reported profit growth of 58%, while Compass reported a 55% hike in profits in 2021 – showing these companies posted handsome increases in profits even as consumers were beginning to feel the pinch
So, let’s take a look at how workers in some of the largest economies are coping so far in 2022.
UK
Real wages sank by 1.2% in the first three months of 2022 – their biggest decline in nine years.
With inflation between 5.5% and 7% from January to March, employers were simply unable to raise wages by as much despite their desire to help workers survive during times of economic downturn.
Unemployment, however, dropped to 3.7%, which was the lowest level recorded in the UK since 1974.
The unemployment target rate has traditionally been between 4% and 5%, so the UK is performing well in that respect.
Job vacancies, meanwhile, continued to climb – hitting a fresh record high in the first quarter of the year.
Despite falling real wages, UK employers were slashing the number of unemployed, while millions of vacant jobs have still been up for grabs.
US
Like in the UK, America was experiencing a mixed bag of economic figures that pointed to lower wages but more people in the workforce.
The first quarter real wage figures had not been released by mid-May but real average hourly earnings eased 0.1% between March and April, the US Bureau of Labour Statistics (BLS) said, while they fell 2.6% year-on-year to April.
For the fourth quarter of 2021, however, real wages plummeted 4.3% on an annual rate, which meant they’d dropped 1.2% in the two years to December 2021.
Real wages would have been expected to rise by more than 2% over this period, so real wages were 3.3% below their pre-pandemic trend, the BLS added.
The unemployment rate remained at 3.6% in April, with the number of unemployed staying unchanged at 5.9mln, which is a low and positive figure historically.
These figures were very similar to pre-pandemic ones, of 3.5% and 5.7mln in February 2020.
Germany
Back to Europe, and now onto the largest economy on the continent.
Real earnings, including bonuses and special payments, declined by 0.1% in 2021, according to the Federal Statistical Office (Destatis).
But in Q4 2021, Germany’s real wages slumped some 3%.
Current forecasts predict them to fall once again in 2022, by a potentially larger amount, with inflation set to reach new heights this year.
Its adjusted unemployment rate declined to 2.9% in March 2022, mirroring much of Europe and North America.
France
France has been the European Union’s (EU) standout economic recovery from the pandemic and its wage and unemployment data have reinforced that.
Its cap on energy prices has kept inflation to a minimum, leading to a milder contraction in real wages of 1.4% compared to most EU nations.
That, however, was still one of the biggest falls the country experienced over the past decade.
In the first quarter, unemployment was practically stable at 7.3%, with just 18,000 fewer people in work over the three months (2.2mln in total).
Rest of Europe
In Italy, real wages in the fourth quarter (Q4) of 2021 dropped roughly 3%, while they fell by over 4% in both Spain and the Netherlands.
Many European governments, including those in Germany, France, Spain and Italy have been aiming to cushion the blow of soaring prices by cutting fuel prices and reducing energy bills for poorer homes, the Financial Times reported.
Several nations also have increased or intend to hike minimum wages, including Germany which vowed to raise them by nearly 30% to €12 per hour in October.