OECD Report Highlights Modest Rise in Unemployment, Steady Wage Growth

OECD report highlights a marginal uptick in unemployment rates among wealthy nations in the near term, alongside sustained growth in real wages amidst a slowdown in profit expansion. This analysis emerged from the OECD’s latest annual labor market report, published on Tuesday.

Wages Outpacing Prices, But Challenges Remain

In its comprehensive analysis, the Paris-based policy advisory body noted that wages have been increasing faster than prices over the past year. However, real wages are still below their late 2019 levels in several countries, including the United States.

Despite wage gains, the OECD noted a cooling labor market, with fewer vacancies relative to job seekers. However, it does not expect a major rise in unemployment rates. This is typical during aggressive interest rate hikes by central banks to tackle inflation.

“The labor market remains relatively robust,” said Stefano Scarpetta, the OECD’s director for employment. “The labor market is easing, but gradually.”

Despite wage growth, OECD highlights cooling job market amid interest rate hikes, predicting stable unemployment rates, WSJ Subscription Offers said.

Employment Outlook Across OECD Countries

In the United States, the OECD expects employment to rise by less than 1% in both 2024 and 2025, with the unemployment rate holding steady around 4%. This forecast aligns with the broader outlook for the OECD’s 38 member countries, which are primarily affluent nations. The OECD predicts employment growth of 0.7% this year and the next, following a 1.7% increase in 2023.

Workers experienced a decline in real wages during the surge in consumer prices that began in early 2021. The OECD reported that over the year through the first quarter of 2024, real wages rose again as inflation subsided. Among the 35 countries for which data was available, 29 recorded an increase in real wages, with exceptions including France and Japan.

On average, real wages were 3.5% higher than a year earlier, supporting consumer spending and economic growth. However, real wages were still below their 2019 levels in 16 countries, including the United States, where the shortfall was 0.8%.

Federal Reserve Holds Off Rate Cuts Amid Global Easing Trend

In a rare and notable departure from the prevailing consensus, the Federal Reserve stands apart, finding itself in a divergent position…

Prospects for Wage Recovery and Inflation

The OECD anticipates that the recovery in real wages will continue this year. Mitigating upward pressure on prices, profit growth has slowed in most countries. While profits grew much faster than wages in 2021, the OECD estimates that since early 2022, labor costs have increased more rapidly than profits in about two-thirds of the countries with available data.

According to the OECD, a squeeze on profits can allow for further wage increases without sparking a fresh rise in inflation, a significant concern for central banks since the onset of the inflation surge.

“There are no signs of a price-wage spiral,” the OECD stated.

However, the organization cautioned that wage increases could still impact inflation.

“Looking ahead, it will be important to balance allowing wages to recover some of the lost purchasing power with limiting further inflationary pressures,” the OECD said.

Impact on Lower-Wage Sectors and Women

The job market’s recovery post-COVID-19 was robust, especially for lower-wage sectors and women. OECD data reveals faster real wage growth in 17 of 33 countries in lower-pay industries from 2019 to 2023. Moreover, women experienced greater employment growth compared to men during this period.

“Wages are performing better at the lower end than in the middle or high end,” Scarpetta noted.

Transition to Low-Emission Jobs

The OECD highlighted that transitioning to low-emission jobs could impact regions significantly in the future. New jobs may emerge in different areas than where losses occur. Approximately 7% of jobs are in high-emission industries, according to the OECD. Workers facing job loss might experience prolonged earnings reduction without proper retraining.

Unlock your financial prowess with the Bloomberg Digital Newspaper Subscription, offering unparalleled insights from the top financial news agency. Whether you’re an investor, entrepreneur, or student, delve into global markets for a wealth of knowledge and opportunity.