The European and American labour markets are in the midst of one of their strongest periods since the economic downturn of the Cold War-era late 1970s, but wage growth remains stagnant and deflationary pressure persists, while poverty still remains a major concern.
Historically, high employment rates came hand-in-hand with soaring wages, inflation, and growth. But traditional models no longer seem to apply.
In the third quarter of 2018, most central banks in the developed world were set to return to “normality,” leaving behind a decade of cheap liquidity. The European Central Bank decided to end its €2.6 trillion bond-buying programme in December. The US Federal Reserve announced on December 27 yet another interest rate rise to 2.25%. These moves came four months after the Bank of England raised the base rate from 0.5% to 0.75%.
Raising interest rates while the economy is decelerating and deflationary pressure is increasing goes against conventional wisdom. Employment statistics give credence and legitimacy to this decision. Global unemployment stands at a 40-year low, despite automation. Worldwide unemployment currently stands at 5,2%, down from 8% in 2010, a UBS report points out.
Eastern Europe seems to be the biggest success story in this field. Polish unemployment tumbled from 20% in 2002 to 6.1% in September. In southern Europe, however — Greece, Italy, and Spain — the unemployment is 2% higher than the pre-crisis level of December 2007.
The ECB projects that inflation will reach the 2% policy objective in “the medium term,” a European Central Bank bulletin confirmed on December 27, which confirmed the widely held belief that wages bolster demand. While there are signs of wage growth in the Eurozone, the UK, and the US, the verdict is still out on whether this projection is actually materialising.
Analysts point to the changing nature of work, which is becoming more flexible and lower paid, especially with the advent of the gig economy. In the UK, Germany, Japan, Ireland, Indonesia, and Russia, involuntary part-time work, stagnant wage growth, allows for a reserve army of labour supply to coexist with low unemployment.
The US federal minimum wage last increased in July 2009, when it was set to $7.25 an hour. It remains nominally at that level today, but taking out inflation, it now works out to about $6.19 in 2009 terms. By 2018, the US minimum wage lost 14% of its value. In the wider scope of things, this decreasing trend has been the norm in the US for decades. Measured in 2018 dollars, the 1968 minimum wage in the US was $11.39 an hour.
Roughly 10% of working people in the Eurozone live in a household that is below the poverty line, with almost one in six workers in temporary and part-time jobs being at risk of poverty in 2017. Underemployment is, in fact, a much bigger obstacle than unemployment. In 2017, about 13% of workers in Spain and 12% in Italy were at risk of poverty. In Germany, the share of workers at risk of poverty has almost doubled since 2005, to 9.1%, while in the UK that figure currently stands at 8.9%.
The figure looks even more serious when taking into account the acute housing crisis for those who cannot afford home ownership, have irregular incomes, and often fail to secure access to descent rented accommodation.
The lack of childcare remains a serious obstacle for women in the gig economy as it decreases their flexibility to find gainful employment.