Workers miss out on gain from growth across the OECD

Workers are gaining less of the proceeds from economic growth right across the OECD, according to a report published today from the independent think tank the Resolution Foundation. The report, Painful Separation, examines the relationship between economic growth and wages for workers on middle (median) wages over the last 30 years in 10 major OECD countries.  Countries are then grouped to describe the severity of the situation in each, with the UK in the middle of the pack:

• Chronic – the US, Australia and Canada, where median pay consistently grew at less than half the rate of economic output
• Acute – the UK, France and Germany, where median pay tracked growth in economic output for long periods, but increased at less than half the rate of GDP per capita in the last decade.
• Mild – Finland, Japan, Denmark and Sweden – where median pay outpaced or tracked GDP in the 1990s, but grew at only around three-quarters of the rate of GDP per capita in the most recent decade

The report concludes that greater inequality in pay appears to be the most significant factor distinguishing the chronic and acute countries from the mild, with wages for the top 10% moving further away from wages for those at the bottom and in the middle of the earnings scale.

The report points to increasing demand for skilled rather than unskilled labour at the same time as a ‘hollowing out’ of middle skilled jobs, greater rewards for shareholders rather than workers, and a reduction in the bargaining power of workers as some of the reasons for the shift.

Resolution Foundation’s earlier report ‘Missing out’, showed that in the UK, of each £100 of GDP, only £12 is now paid as wages to the bottom half of workers, down from £16 thirty years ago.

Matt Whittaker, senior economist at the Resolution Foundation and author of the report said:  ‘This shows it is not only the UK where lower paid workers are missing out from the proceeds of growth. This is an issue, to a greater or lesser degree, right across the OECD. The challenge for policy makers in the UK is to look to those countries which seem to be keeping a closer connection between how the economy is doing and the rewards that ordinary workers get, and learn from what they are doing’

Steve Machin, Research Director, Centre for Economic Performance, London School of Economics said: ‘The Resolution Foundation report on international trends in who gains from growth is a fascinating piece of research highlighting that workers in the middle of the wage distribution have been receiving a declining share of the proceeds of growth over time.  Their work reinforces the need to better understand how we can ensure that workers across all parts of the wage distribution can benefit from growth.’

Notes to editors

The Resolution Foundation’s previous report ‘Missing out’ was published in July 2011 and showed that in the UK, of each £100 of GDP, only £12 is now paid as wages to the bottom half of workers, down from £16 thirty years ago http://www.resolutionfoundation.org/media/media/downloads/Missing_Out.pdf.

This report will feed into the work of Resolution Foundation’s Commission on Living Standards – a wide-ranging investigation into the challenges faced by low to middle income households in Britain. The Commission today launches a new interactive website www.livingstandards.org

Matthew Whittaker, senior economist at the Resolution Foundation, is the author of today’s report.