Wage growth in the euro area remains far from normal

Finally, there is light at the end of the tunnel. Eurozone workers finally see signs of a five-year recovery in their own pockets, with wage growth of up to 2% year-on-year, the fastest pace since an aborted push in 2012.

reaction to this development should be to welcome – and immediately add "not before time".

Wage growth has been miserable for a decade, not just in the euro zone, but in the rich world. One of the worst results – long before the vote on Brexit – was the UK, where average real wages remain lower than those of ten years ago. As this week's new job report from the OECD, the Paris-based club of the richest countries, only Greece and Mexico have done worse. On the other hand, several countries in the euro area have performed relatively well, with workers in France and Germany staying at the same level as those in Canada. Their wages are all higher by more than 10% in real terms than they were ten years ago, twice as much as in the United States.

Nevertheless, being the best of a bad part is still not good. The recent wage acceleration in the euro area leaves wage packages barely in tune with inflation, which is boosted by rising oil prices.

It is therefore to be hoped that wage growth will continue and strengthen. The signs are that this may be the case: in many countries, workers are shedding the shyness that they have adopted during years of high unemployment and austerity, and are starting to seek trade agreements. significant compensation. Forecasters think that they will get what they want.

However, rumors still exist that this return to normal wage growth should prompt the European Central Bank to act more quickly to "normalize" monetary policy by raising interest rates and reducing its balance sheet [19659004] That would be a mistake. The pace of wage growth, although better than before, remains far from normal. As the OECD points out, wages are "remarkably lower than before the crisis" at comparable levels of employment.

This leaves little reason to believe that higher wage growth will exert strong price pressure. Wage inflations will not necessarily directly fuel price inflation: wages could rise more than prices if productivity growth accelerates or if income goes from capital to work. Both would represent a desirable reversal of past trends.

The causes of the slowdown in world productivity remain unclear. But some contributing factors are clear and in the process of being reversed. Businesses and the government have sharply reduced investment during the crisis. He only slowly recovered in a superficial recovery. This left a hole in the capital not renewed in most economies. The good news, though, is that companies are investing again. This should trigger a virtuous circle in which demand can feed while increasing the economy's ability in the process.

Productivity aside, there is also plenty of room to restore workers' share of income and national growth. Before the crisis, the share of national income benefits was rising in many economies. Most notoriously, Germany's policy in the early 2000s to reduce the share of income work bears much of the blame for the financial bubbles in the periphery.

Workers in the euro area have been hard hit for a long time, partly because of global economic forces and partly because of political mistakes made by the single currency area. Even if wage acceleration is maintained, it will only offset past stagnation. Trying to stop it to prevent chimerical fears of overheating savings would only add to the insult to injury.