Workers in the world’s richest countries are getting their biggest pay bump in a decade, a step toward solving a labor market puzzle that’s unnerving central bankers.
As shrinking unemployment in the U.S., Japan and euro zone finally forces companies to lift wages to retain and attract staff, JPMorgan Chase & Co. reckons pay growth in advanced economies hit 2.5 percent in the second quarter, the most since the eve of 2009’s worldwide recession. The bank predicts wages will accelerate to near 3 percent next year.
Fatter wallets should support global economic growth already enjoying its best upswing since 2011, while encouraging central banks such as the Federal Reserve to keep tightening monetary policy before inflation takes hold. It may prove less welcome news for stock and bond prices.
If sustained, the pickup in pay will settle a debate over whether the historical relationship between tightening labor markets and rising wages had broken down even as unemployment in developed economies fell to its lowest since 1980.
Reasons to doubt the reliability of the Phillips Curve, an economic model created in the 1960s, include the assimilation of China and India into the global workforce, greater automation, retiring baby boomers being replaced by lower-paid workers, low productivity, companies increasingly dominating industries and declining labor-union membership.
By suppressing pay, such forces have been identified as driving the rise of populism at the ballot box as voters embraced President Donald Trump and Brexit in the hope they would spur prosperity.
There are fresh signs employees are already doing better. Average hourly earnings for private American workers climbed 2.9 percent over the year in August, the most since the recession ended in mid-2009. Flowers Foods Inc., a Thomasville, Georgia-based maker of packaged bakery products, is among the companies reporting higher employee costs as the U.S. jobless rate sits near the lowest since the 1960s.
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