WASHINGTON • It is a good time to be looking for a job as a member of the labour force in many developed countries. Unemployment rates in Group of Seven (G-7) nations such as Britain, Canada, Germany, Japan and the US are nearing or even slightly below what officials describe as a maxed-out job market.
But wage gains worldwide have been only creeping along. For developed economies, that means the powerful cycle of higher compensation fuelling stronger demand and then business investment and, eventually, a little more pricing power, has proven elusive.
"It is a mystery," said Mr Torsten Slok, chief international economist at Deutsche Bank. "We're barely seeing any wage growth."
Solving this puzzle matters, since it casts uncertainty over the health of the world's labour markets and the direction of monetary policy. Central banks, which are supposed to tune their policy rates to inflation, could end up tightening too fast too soon if they conclude employment gains mean inflation is right around the corner. Or if they focus on the weak wage gains, they may end up leaving rates too low for too long, fuelling asset bubbles.
So far, policymakers have blamed the paucity of wage gains on existing economic slack. But that explanation is starting to look weak.
In the United States, the number of workers unwillingly stuck in part-time jobs is back at 2008 lows. In Japan, where policymakers want higher inflation, labour shortages in service industries such as lodging and elderly care are not resulting in higher pay.
Even in Britain, where pay gains picked up last year, there has been a recent slowdown - which may partly be due to uncertainty since the country voted last year to leave the European Union - and evidence points to real wage gains shrinking as inflation accelerates.
In Germany, the Federal Statistics Office reported last month that inflation-adjusted wages grew by 1.8 per cent in 2016, the slowest pace in three years. All the more puzzling since Germany is running with the lowest unemployment rate since reunification.
A deeper reason for slow pay increases may be the malaise in global productivity, defined as the amount of output produced in a period of work. Productivity gains can come from a variety of places and is that magical mix of mechanisation, technology, human ingenuity and constant innovation in the way services are delivered and goods are produced.
In the US, year-over-year productivity rose 1 per cent last year, compared with 2.4 per cent in 2007, the last year of expansion before the financial crisis.
"I hate to say it but we may be in a new normal for wage growth," said senior US economist Omair Sharif at Societe Generale in New York. "Until you get productivity moving higher, it may be hard to get nominal wage growth above 3 per cent."
Another possible explanation is that the Great Recession left a deep scar on both labour and industry, and set expectations for compensation on a lower trajectory.