1. Kristen Sobeck ILO WAGES AND LABOUR PRODUCTIVITY ACROSS DEVELOPED ECONOMIES 1999 - 2013

2. Source: ILO Global Wage Report 2014/15.

3. LABOUR PRODUCTIVITY HAS OUTSTRIPPED WAGE GROWTH Source: ILO Global Wage Report 2014/15.

4.  Presents macroeconomic implications for aggregate demand and economic growth.  Decoupling has occurred in a context of increasing inequality, and a decline in the bargaining power of workers.  Speaks to the distribution of wealth in society and the consequences and the policy implications. WHY IS THIS IMPORTANT?

5. LABOUR PRODUCTIVITY HAS OUTSTRIPPED WAGE AND COMPENSATION GROWTH Source: ILO Global Wage Report 2014/15.

6. Wages (earnings) = direct wages and salaries for time worked (in cash and in-kind) + remuneration for time not worked (holidays, vacations) + bonuses and gratuities PLUS Social insurance contributions payable by employers which include contributions to social security schemes; actual social contributions to other employment-related social insurance schemes; and imputed social contributions to other employment-related social insurance schemes. EQUALS Compensation of employees MEASUREMENT DEBATE: WAGES VERSUS COMPENSATION

7.  The Consumer Price Index (CPI) measures changes in the prices of goods and services that households consume. They are intended to capture price inflation perceived by households and changes in the cost of living.  Wages and compensation deflated by the CPI reflect changes in the purchasing power of workers’ wages.  GDP deflator measures changes in the prices of goods produced in the domestic economy (not just those consumed by households).  Since labour productivity is calculated from real GDP (which is deflated by the GDP deflator), using the GDP deflator to deflate wages and compensation eliminates variability in deflators as a factor which may drive the final results. MEASUREMENT DEBATE: CPI VERSUS GDP DEFLATOR

8. THE DEFLATOR CHANGES THE RELATIONSHIP LP Wage & Compensation / GDP deflator Wage & Compensation / CPI

9. THE CONCEPT (WAGES VS. COMPENSATION) CHANGES THE RELATIONSHIP Compensation/ CPI & GDP deflator Wage/ CPI & GDP deflator LP

10. THE RELATIONSHIP DEPENDS ON BOTH CONCEPTS LP Compensation / CPI Wage /CPI & GDP deflator AND Compensation /GDP deflator

11. MEASUREMENT IS IRRELEVANT LP Wage & Compensation/ CPI & GDP deflator

12. MEASUREMENT CAN MATTER

13. IN COUNTRIES WHERE A TREND CAN BE IDENTIFIED, LABOUR PRODUCTIVITY GREW FASTER THAN WAGES OR COMPENSATION

14.  Since wages are different from compensation, the link between wages and labour productivity could differ from trends in the labour income share.  Labour income share - unadjusted= Compensation of employees GVA/GDP  In most countries, the relationship between wages (deflated by the GDP deflator) and labour productivity is a reasonable proxy for trends in the labour income share.  In the few countries where trends in wages (deflated by the GDP deflator) and labour productivity are inconsistent with the labour income share, the discrepancies are explained by a combination of differences in: data coverage, series breaks, estimates for missing data, provisional data, and improvements in data over time. ARE TRENDS IN WAGES AND LABOUR PRODUCTIVITY CONSISTENT WITH THE LABOUR INCOME SHARE?

15.  In about half of developed economies, the relationship between wages, compensation and labour productivity depends on the concept and deflator used.  In the other half, measurement doesn’t matter, or only matters for one combination among the concept-deflator combinations.  Although wages are different from compensation by definition, the relationship between wages and labour productivity is a reasonable proxy for trends in the labour income share in developed economies. CONCLUSIONS