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Pay increases worldwide expected to be biggest in 3 years
Workers around the world are expected see “real” (inflation-adjusted) wage increases of 2.5 percent in 2016—the highest in three years—as pay increases combine with historically low inflation to leave employees better off, reveals a forecast by advisory firm Korn Ferry and its Hay Group division.
Average real wage increases are based on data from 75 countries in Hay Group’s database, as forecast by global HR departments for 2016. The findings are compared to predictions made a year earlier regarding 2015, and to inflation predictions for 2016 from the Economist Intelligence Unit.
“This year’s global salary forecast shows that, for the majority of countries, real wage increases in 2016 are set to be the highest in three years,” said Philip Spriet, global managing director for productized services at Hay Group. “Differing macro-economic conditions means there are stark variations globally. But overall, decent pay increases, coupled with extremely low (and in some cases, zero) inflation, mean that the outlook is positive for workers.”
An upward trend can be seen in North America, where the labor market is buoyant:
• In the U.S., with low inflation (0.3 percent), employees will see salaries increase by 3 percent and will experience real income growth of 2.7 percent, barring rising inflation from future Federal Reserve interest rate hikes.
• Canadian workers will see salaries increase by 2.6 percent, but inflation is forecast at 1.3 percent, cutting real wage growth by half, to 1.3 percent.
Workers in Latin America are forecast to see the largest salary jumps in 2016 at an average of 11.4 percent. But due to high inflation in the region (12.8 percent), they are expected to experience real wage cuts of 1.4 percent.
This will be especially evident in Argentina and Brazil, as despite salary increases of 31 percent and 7.7 percent, respectively, workers in Argentina will only see a 3.6 percent increase in wages, and those in Brazil will actually see a real pay cut of 1.2 percent in 2016.
Ultimately, Venezuela is set to suffer the most significant cut in real income across the globe. Salary increases are high at 70 percent, but when predicted inflation is factored in (122.6 percent), employees can expect real wage cuts of 52.6 percent. (As an outlier, Venezuela was excluded from the larger wage forecast averages).
According to the forecast, workers across Europe are set to see an average salary increase of 2.8 percent in 2016 and, with inflation at 0.5 percent, will see real wages rise by 2.3 percent. Fuelled by a low inflation environment, those in Western Europe will see a 2 percent increase in real wages, compared to a 2.9 percent increase in Eastern Europe.
The outlook is positive in the United Kingdom, France and Germany. While salaries will rise 2.5 percent in the U.K. (the same as the last two years), low inflation means that real wages are to increase by 2.3 percent in 2016—above the Western European average. Workers in France and Germany are also forecast to see real wage rises of 1.7 percent and 2.7 percent, respectively.
The picture is similar in Greece, where, despite economic issues, salaries are set to increase 2 percent (compared to 1.3 percent last year), with deflation leading to real wage rises of 3.4 percent expected in 2016.
Ukraine and Russia are excluded from the European regional average due to specific political issues causing high inflation, which impacts real wage increases. For instance, workers in Ukraine are forecast to see the biggest wage rises in Europe (11.5 percent) but, due to high inflation (48.3 percent), real wages are set to drastically reduce by 36.8 percent. The outlook is similar in Russia as the impact of economic sanctions and falling oil prices hit the economy. Despite an average salary increase of 7 percent, with inflation at 14.5 percent, real wages are set to fall by 7.5 percent.
In Asia, salaries are forecast to increase by 6.4 percent—down 0.4 percent from last year. However, real wages are expected to rise by 4.2 percent—the highest globally.
The largest real wage increases are forecast in Vietnam (7.3 percent), China (6.3 percent) and Thailand (6.1 percent).
Despite China’s economic slowdown, coupled with plummeting stock markets and reduced exports, workers in the country are set to see an 8 percent salary increase in 2016 as employment rates continue to grow due to the increasing need for skilled workers and the sustained rise of the burgeoning middle class.
Seeing the benefit of being a part of the fastest growing major economy, Indian workers are also forecast to see the highest real wage increase they have seen in the last three years, at 4.7 percent, compared to 2.1 percent last year and 0.2 percent in 2014.
2016 looks positive for workers in the Middle East and Africa. Despite plunging oil prices and economic and political chaos throughout the region, salaries in the Middle East and Africa are forecast to rise by 5.3 percent and 6.5 percent, respectively. Relatively low inflation means that workers are set to see real wage increases of 3.8 percent and 1.6 percent.
In the Middle East, Lebanon (11.5 percent) and Jordan (5.3 percent) are forecast to see the highest real wage increases, with the United Arab Emirates set to see the slowest real wage growth (0.9 percent)—down from 2.8 percent last year. High inflation in Egypt means it is the only country in the region set to see a cut in real wages (0.4 percent).
“Asia continues to drive growth in wages globally,” said Spriet. “However, the global labor market is in flux as the aging workforce in advanced economies begins to take hold. In emerging economies, upskilling workers is crucial for companies to maintain competitive advantage, and those skilled employees can expect to see wages rise as talent shortages in certain regions drives salaries up.”
2016 Salary Forecast
2016 Inflation Forecast
Salary Increase vs. Inflation (‘Real’ Increase)
2015 Salary Forecast
Korea (Republic of)
United Arab Emirates
Source: Korn Ferry Hay Group (salary forecasts) and Economist Intelligence Unit (inflation forecasts)
Stephen Miller, CEBS, is an online editor/manager for SHRM.
Follow me on Twitter.
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