Diminishing Wage Gap Helps Keep U.S. Jobs Onshore

North America lags globally in ‘real’ pay raises

By Stephen Miller, CEBS Dec 9, 2016

Workers around the world are expected to see "real" (inflation-adjusted) wage increases of 2.3 percent next year, down slightly from 2.7 percent for 2016. U.S. and Canadian workers will see even more-modest wage gains tempered by low inflation. But the rapid rise in emerging market pay over recent years is helping dissuade U.S. corporations from moving jobs to other countries.

North America (the U.S. and Canada combined) will see slower salary increases than other regions, with only a 1.4 percent real increase, according to regional and country-specific global pay findings released on Dec. 6 by the Hay Group division of consultancy Korn Ferry.

The data was drawn from Hay Group's client database, which contains pay information for more than 20 million job holders across more than 110 countries. Among the findings:

  • In the United States, a 3 percent salary increase is predicted for 2017, the same as this year. Adjusted for a 1.1 percent inflation rate, the real wage increase is 1.9 percent. Those findings are in line with several other pay forecast reports on U.S. wage increases for 2017, released earlier this year.

  • Canadian workers will see salaries increase by 2.5 percent; with inflation at 1.6 percent, they will experience real wage growth of 0.9 percent.

"There are still positive real wage gains across the globe," wrote Benjamin Frost, Korn Ferry Hay Group's London-based global manager for pay, in an analysis of the findings. "In addition to predicted salary increases, inflation is relatively low in most countries, which has a positive impact on real wages." However, "the global labor market is in flux as slower economic growth in mature economies keeps a check on pay raises."

Diminishing Wage Gaps and Offshoring U.S. Jobs

As regards the hot-button political issue of U.S. companies moving jobs to China and other low-wage nations, Frost noted in an e-mail to SHRM Online that "Although other countries, especially many in Asia, have lower wage costs than the U.S., salaries in those regions are rising much quicker so the gap is closing fast." The findings show, for instance, "a sharp decline in pay rises in China, reflecting the fact that there is limited room to keep increasing pay by 8-10 percent a year and remain competitive. So the case for sending jobs overseas may become less clear-cut from a financial perspective."

[SHRM members-only toolkit: Obtaining and Using Relevant Salary Survey Data]

High Wage Growth in Asia, Except China

In Asia, salaries are forecast to increase by 6.1 percent next year, down 0.3 percent from raises received in 2016. Real wages are expected to rise by 4.3 percent, the highest globally.

The regional exception is by far the largest economy—China—where real wages increases are down nearly 2.5 percent, from 6.3 percent in 2016 to 4 percent in 2017, reflecting lower growth predictions for the year ahead.

"Asia continues to drive growth in wages globally as companies look to increase pay across the board," Frost said. "In emerging economies, upskilling workers is crucial for companies to maintain a competitive advantage—and those skilled employees can expect to see wages rise as talent shortages in certain regions drive salaries up."

Inflation Roils Latin America

Workers in Latin America are forecast to see the largest salary rises in 2017 at 7 percent. Due to high inflation in the region (5.9 percent), they should see real wage increases of only 1.1 percent. In Brazil, the region's largest economy, the expected salary increase is 8.8 percent, but with 8.4 percent inflation the real increase is 0.4 percent.

Eastern Europe Faring Better than Western Europe

Workers in Eastern Europe are set to see an average salary increase of 5.1 percent in 2017, and with inflation at 3 percent, they will see real wages rise by 2.1 percent.

With inflation much lower in Western Europe, workers there will receive lower pay raises, with an average increase of 2.1 percent. With an average inflation rate of 0.4 percent, the real increase is 1.7 percent.

Despite the turmoil following the Brexit decision, the United Kingdom is faring pretty well, with predicted raises staying at 2.5 percent (the same as the last three years), the findings indicate. Adjusted for inflation, real wages will increase by 1.9 percent in 2017, which is slightly higher than the Western European average.

Pacific Region Increases Middle of the Pack

Wages throughout the Pacific region are forecast to show 2.8 percent growth, with 1.8 growth when adjusted for inflation. Australia will see a 3 percent growth, a 1.4 percent inflation rate and a 1.6 percent real wage increase.

Africa Sees Slow Real Wage Growth

Although salaries will increase 6.4 percent in Africa, high inflation means the real increase is only 0.7 percent.

Related SHRM Online article:

When Should Pay Go Global?, SHRM Online Compensation, April 2016

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