Sharing the pain equally? Wage adjustments during the crisis and recovery

This chapter documents how wages have evolved during the global financial and economic crisis and recovery in OECD countries. It contributes to a better understanding of the role of wage adjustment for the strength of the labour market recovery and the way the social costs of the crisis have been shared across the labour force. A persistent increase in unemployment in many OECD countries has exerted considerable downward pressure on real wage growth, including among low-wage workers. Significant wage moderation has already contributed to curb unit labour costs and thus promote external competitiveness in a number of countries, particularly in the euro area. In a context of low inflation, where further wage adjustments would require difficult and painful cuts in nominal wages, other policy measures are needed to address persistently high unemployment rates. In addition to the role of macroeconomic policies, this includes better assistance in developing skills necessary for displaced workers to shift to new areas of employment, and more effective product market competition. While wage adjustment costs have been shared quite evenly across workforce groups, declines in real earnings are likely to hurt the low-paid more and may require appropriately designed measures such as in-work benefits and statutory minimum wages to tackle in-work poverty.