Seminar: On the sources of slow wage growth on both sides of the Atlantic

Wage growth has been sluggish in both the US and EU over the past six years. This initially looked like a ripple effect of the Great Recession and part of a cyclical adjustment of labor markets on both sides of the Atlantic. Now, however, lackluster wage growth continues in spite of very tight labor markets in many countries. This suggests that we are seeing a slow rate of trend wage growth in both the EU and the US. In this presentation, we briefly review the potential cyclical adjustments that might still affect wage growth in some countries. We then provide a framework to think about trend wage growth in terms of (i) inflation, (ii) relative price movements, (iii) productivity growth, and (iv) changes in labor shares (real unit labor costs). We use this framework to review the literature on each of these drivers of wage growth and discuss common factors that might subdue wage growth on both sides of the Atlantic.