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Pay and protests

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

Wage growth picked up in advanced economies in 2018. Euro area wage growth accelerated steadily to a six-year high. US wage growth has risen to 3.7% year-over-year. Japanese wage growth has trended higher.

Will faster wage growth calm social protests? There is an idea that some people have been "left behind" by the economic recovery. Those "left behind" may turn to more radical, protest-based politics. The "gilet jaune" movement in France is a recent example. If wages are rising as labor markets tighten, could that limit the desire to protest?

Wage growth is only part of the story. Many countries have seen a rise in self-employment in recent years. This reduces the importance of wages. Income may be higher than wages if self-employed workers have steady wages with dividend or bonus payments when times are good.

The "left behind" issue is not just an income issue. This is about relative income. People do not like doing worse than their neighbors, even if they are doing better than in the past. US low-skilled workers have had lower pay increases than US high-skilled workers since 2016, for instance. While both groups had real wage gains, such gaps keep social tensions alive.