Drivers of Weak Wage Growth in Advanced Economies

Since the global financial crisis, advanced-economy wage growth has been generally low relative to past recoveries, especially after accounting for the evolution of labour market conditions over this period. This paper investigates a variety of potential explanations for this weakness, drawing on findings from the literature as well as analysis of recent labour market data in advanced economies. Overall, we find that much of the unexplained weakness is likely explained by alternative measures of labour market slack—particularly the rise of involuntary part-time work. In addition, changing inflation dynamics and a number of structural factors may also be contributing to the weakness. These factors include weaker bargaining power of workers due to lower unionization rates, increased firm concentration, restrictive labour mobility practices, greater labour market reform and changing demographic factors. Other factors, such as migration and technological change, may also be affecting advanced-economy wage growth, but the direction and magnitude of these impacts are more ambiguous. Identifying and quantifying the causal effects that the factors examined in this note may have on advanced-economy wage growth is beyond the scope of our analysis. However, our review of international evidence does help to recognize likely drivers of the observed weakness in wage growth and lays the foundation for future work examining certain factors in more detail.