HONG KONG/WASHINGTON • Workers in the world's richest countries are getting their biggest pay bump in a decade, a step towards solving a labour market puzzle that's unnerving central bankers.
As shrinking unemployment in the United States, Japan and euro zone finally forces companies to lift wages to retain and attract staff, JPMorgan Chase reckons pay growth in advanced economies hit 2.5 per cent in the second quarter, the most since the eve of 2009's worldwide recession.
The bank predicts wages will accelerate 3 per cent next year.
Fatter wallets should support global economic growth, which is already enjoying its best upswing since 2011, while encouraging central banks such as the Federal Reserve to keep tightening monetary policy before inflation takes hold. It may prove less welcome news for stock and bond prices.
"It's a good thing: You're more confident in the sustainability of your expansion, you're more confident that you're going to get inflation moving up," said chief economist Bruce Kasman at JPMorgan in New York. "It is a signal that we are normalising economic cycles."
If sustained, the pick-up in pay will settle a debate over whether the historical relationship between tightening labour markets and rising wages had broken down even as unemployment in developed economies fell to its lowest since 1980 by JPMorgan's estimation.
There are fresh signs employees are already doing better. Average hourly earnings for private American workers climbed 2.9 per cent over the year last month, the most since the recession ended in mid-2009.
Flowers Foods, a Thomasville, Georgia-based maker of packaged bakery products, is among the companies reporting higher employee costs as the US jobless rate sits near the lowest since the 1960s.
In Japan, cash earnings rose 1.5 per cent in July from a year ago and 3.3 per cent in June. Again, companies are feeling the pinch. Toyota Motor, the country's biggest manufacturer, said in March that its pay rises this year top the 3 per cent increase of last year and the 2.4 per cent bump in 2016.
Wages in the euro area rose 2.2 per cent in the second quarter, the most since 2012, while earnings excluding bonuses in Britain climbed 3.1 per cent in July, the most since 2015.
The key question is how sustainable the recent gains will be. Even if pay growth does continue, any accompanying rise in inflation will eat into the ability of consumers to spend by pressuring so-called real wages.
One reason to expect pay to stay weak is that companies are increasingly offering more flexible working arrangements, longer vacations and better benefits instead of higher wages. A recent survey by Bank of America Corp found that younger workers and women in particular place greater importance on non-monetary "lifestyle" benefits than their counterparts.
Some economists are confident that wages will extend their best run in a decade.
Those at Citigroup argue that earnings are now outpacing the rate of overall gross domestic product growth in several advanced economies and predict they will keep rising faster than inflation as productivity picks up and firms absorb some of the higher labour costs. That's what happened in the last two US expansions, they said in a new report.
Meantime, economists Andrew Cates and Robert Dent at Nomura wrote in a report last month that many of the trends which undermined pay are now reversing course as the working-age population declines and governments pursue protectionism.
"If negative structural forces are the key driver behind rising wages, we could see a scenario where both equities and bonds underperform," they said. "This would be a surprise for market participants."