Inflation hits real wages even as OECD jobs market remains tight

Unemployment in OECD countries, at 4.8% for the third consecutive month in May 2023, is at its lowest level since the early 1970s, with OECD-wide employment projected to continue to expand in 2023 and 2024.

However, nominal wage growth, which rose 5.8% between Q1 2022 and Q1 2023, has been outpaced by inflation in 30 of 34 countries with available data, which means real wages have fallen 3.8% in the corresponding period. All G7 countries registered a fall in real wages.

Analysis in the OECD’s latest report indicates that there is room for company profits, which have outpaced labour compensation, to absorb further wage adjustments. This would recover some of the losses in purchasing power gradually without generating significant price pressures or affecting labour demand.

Illustrations

The loss of purchasing power is particularly challenging for workers in low-income households. To support low-paid workers, minimum wages and collective bargaining can help mitigate losses in purchasing power. Governments can also provide targeted support through the tax and benefit system to raise low-income households’ net income. Broad fiscal support should be unwound given the decline in energy prices from their 2022 peaks.

This year’s edition also analyses the impact of artificial intelligence (AI) on the labour market. While firms’ adoption of AI is still relatively low, rapid progress in the technology, falling costs and the increasing availability of workers with AI skills suggest that OECD countries may be on the brink of an AI revolution, according to the Outlook.

“Labour markets have shown remarkable resilience over the past year and remain tight, though high inflation and the rising cost of living has eroded real incomes,” OECD Secretary-General Mathias Cormann said. “The recent acceleration of generative AI related developments and tools marks a technological watershed with material implications in many workplaces. There is a real need to consider longer term policy frameworks on the use of AI in the workplace and to continue to foster international cooperation to maximise the benefits while appropriately managing the downside risks.”

Taking the effect of AI into account, occupations classified to be at highest risk of automation account for about 27% of employment. High-skill occupations, despite being more exposed to recent progress in AI, are still at least risk of automation. Low and middle skilled jobs are most at risk, including in construction, farming, fishing, and forestry, and to a lesser extent production and transportation.

The Outlook presents the results of the first-ever cross-country survey of the impact of AI in the labour market, involving workers and companies in finance and manufacturing in seven OECD countries. It finds that so far there is little evidence of negative employment effects among firms that adopt AI. What is more, workers and employers report that AI can reduce tedious and dangerous tasks, leading to greater worker engagement and physical safety. At the same time, the survey finds that a significant share of workers (three in five) is worried about losing their job entirely to AI in the next 10 years. A similar share worries that wages in their sector would decrease because of AI. Three in four workers say that AI has increased work pace and more than half are concerned about privacy.

Rapid AI development and adoption means that new skills will be needed, while others will become obsolete. Low-skilled, older workers, but also higher skilled workers, will need training. Governments should encourage employers to provide more training, integrate AI skills into education, and support diversity in the AI workforce.

There is also an urgent need for policy action to address the risks that AI can pose when used in the workplace – in terms of privacy, safety, fairness and labour rights – and to ensure accountability and transparency for employment-related decisions supported by AI.

As AI evolves, international cooperation will be critical to ensure a common approach that serves to support inclusive labour markets, rather than hinder them. This will help avoid a fragmentation of efforts that would unnecessarily harm innovation and create regulatory gaps that might lead to a race to the bottom, according to the Outlook.

​More informations

For further information, journalists are invited to contact Spencer Wilson in the OECD Media Office (+33 1 45 24 81 18).

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