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ILO: Falling Global Wages Could Lead to Lower Prices

Though it may seem that the cost of everything is simply climbing, the International Labour Organization said wage growth is the lowest it’s been in four years.

Since 2012, according to the ILO’s Global Wage Report 2016/17, wage growth around the world has fallen from 2.5% to 1.7% in 2015, its lowest level in four years. Excluding China, where wage growth was faster than in other places, global wage growth fell from 1.6% to 0.9%.

“In much of the period following the 2008/09 financial crisis, wage growth was propelled by relatively strong wage growth in developing countries and regions,” the ILO noted. “More recently however, this trend has slowed or reversed.”

While emerging and developing G20 countries saw real wage growth decline by more than 62 percent in three years to 2.5% in 2015, developed G20 countries saw their highest rate of wage growth in 10 years, reaching 1.7% in 2015. Last year, wages grew to 2.2% in the U.S. and 1.9% in the European Union.

“Faster wage growth in the U.S. and Germany explain an important part of these trends. It is as yet unclear whether such an encouraging development will be sustained into the future, as developed countries are faced with growing economic, social and political uncertainty,” ILO deputy director-general for policy Deborah Greenfield, said.

Wage growth stayed robust in Asia at 4 percent in Asia and the Pacific, which makes it not at all surprising that a recent Mercer report pegged Asia as the region where wages will increase the most in 2017. In Latin America, real wages fell by 1.3%, which could be positive for those looking more to the Americas for sourcing in the coming year with TPP looking like a no-go.

“In an economic context in which lower demand leads to lower prices (or deflation), falling wages could be the source of great concern, as it could add further pressure to deflation,” Greenfield said.