Wages in the U.S. Have Climbed and are Recovering in Europe

In a world that is becoming increasingly divided, one thing that a great many people share is a negative outlook on the economy. A recent poll conducted by YouGov on behalf of The Economist revealed that only one in ten Americans believe their financial situation has improved in the past year. This sentiment is echoed in other surveys conducted in various other places.

 Despite the US economy having achieved a great accomplishment, with workers' real wages increasing more than expected even after factoring inflation, there is still an overall feeling of dejection. Particularly those with lower incomes have seen good results due to the competitive labour market that has been present since the start of 2021.

 In October, the average weekly pay for workers across the country was close to $1,170, which is a 3% increase in real terms since the conclusion of 2019. The Federal Reserve Bank of Atlanta's reports show that the lowest earners have seen their annual nominal wages increase by 5.6% each year since the start of 2020, while the highest earners have had a 3.8% yearly rise.

 Various stories can be spun when it comes to economic data, based on the selected baseline. At the start of the pandemic, incomes rose sharply due to the government's generous assistance. Comparing this to the current situation, incomes are actually lower. The consumer-price index is often mentioned, but this is an inaccurate measure of wage erosion as it does not take into account how people adjust their spending as prices rise quickly.

 Both the American and British economies have seen growth in real wages during the COVID-19 pandemic, with inflation-adjusted pay 1.5% higher than the end of 2019. The lower end of the jobs market has also seen a boost from this year's 9.7% increase and a projected 9.8% rise for 2021 in the minimum wage. However, other data sources, such as tax receipts, suggest a slower rate of growth, and on a longer-term basis, real wages remain 4.7% below their peak in 2008. The government's forecasting office predicts wages will not return to this level until 2028.

 European workers, who are typically covered by collective-bargaining agreements that last for a year or more, are not feeling the effects of a tight labour market as quickly as in other areas. This is because the agreements do not respond rapidly to inflation, which means that real wages in the euro zone decreased by 5.2% in the previous year as a result of the increased inflation.

 Since then, however, wage deals have seen a boost. For instance, in the Netherlands, which holds some of the most current data in Europe, wage increases that have been arranged are at 6% this year, while inflation has dropped to 0%. As deflation continues in other places and new contracts are signed, real wages should increase further. In Germany, for example, federal government employees will get nominal wage boosts of up to 16.9% in the coming year, with those at the lowest pay grades receiving the biggest raises.