The OECD warns of the loss of purchasing power among workers who earn less. The organization confirms that inflation —by reducing the goods and services that can be purchased with a certain amount of money— is reducing the real value of salaries, that is, it causes a loss of purchasing power in salaries, without there being an explicit decrease. Despite this, the organization recognizes that labor markets have lower inactivity rates, nominal wages have risen and there are fewer vacant positions. This is stated in the report OECD Employment Outlook 2023, presented this Tuesday in Paris.
In the first quarter of 2023, despite the rebound in nominal wages, the real annual wage fell by 3.8% on average in 34 OECD countries. A dynamic that is even more damaging for low-income workers, since they have to allocate a greater percentage of their income to energy and food.
Here, one of the recommendations given is to increase the protection mechanisms. Specifically, the OECD calls for raising the minimum wage and promoting collective bargaining. The document indicates that the nominal legal minimum wages “have kept pace with inflation” thanks to specific increases or indexation mechanisms, but warns that the wages negotiated in collective agreements “have decreased in real terms” because “they are reacting with a certain delay” to the inflationary escalation.
In Spain, the good news comes hand in hand with the drop in temporality, and the not so good news, hand in hand with automation. It is one of the countries in the OECD environment in which the number of temporary contracts has fallen the most. The document highlights that, on average, the weight of temporary contracts fell from 49% in 2019 to 46% in 2022 and, together with Norway, Sweden, Slovakia and Ireland, one of the largest decreases is recorded.
More worrying is the data that indicates that 28% of employment in Spain is at high risk of automation, above the OECD average (27%). On this, Stefano Scarpetta, employment director of the OECD, has pointed out that “there is no evidence” that artificial intelligence has pushed back employment for the moment. Although the report does warn that its “rapid development” will force a re-elaboration of the skills necessary to access the labor market and, probably, will affect less-skilled jobs in the long term, since they are more susceptible to automation.
Wages, inflation and business margins
In the group of countries that make up the organization, between December 2020 and May 2023, legal minimum wages increased by 29% and average prices increased by 24.6% on average during the same period. “Looking ahead, it is important to ensure that the legal minimum wages continue to be adjusted regularly,” says the document, which also rules out that the SMI contributes significantly to fueling inflation.
As for the salaries negotiated in the agreement, the OECD warns that they “rarely” adjust immediately for inflation and projects growth of around 4% in the total area of the organization during this year, being 3.5% in 2024. One of the fundamental dangers that are often cited against salary increases is that they can cause inflationary spirals. In other words, companies raise prices to maintain their profit margin in crisis contexts, workers ask for wage increases in order to maintain their purchasing power, then companies raise prices again to meet the cost and the spiral is unleashed.
In this sense, the report argues that: “In several sectors and countries, there is room for earnings to absorb some additional increases in wages to mitigate the loss of purchasing power.” He also points out that the increase in company margins is largely responsible for recent inflation in most OECD countries, while wages have been less responsible.
Regarding the evolution of the economy, the report indicates that economic growth in the OECD will be moderate in 2023 and 2024, specifically, they indicate that GDP as a whole will be below the growth trend of 1.4%, but will pick up in 2024 as inflation moderates. The good news, according to Scarpetta, is that employment across the OECD in May 2023 was around 3% higher than in December 2019, so pre-pandemic levels have returned despite the difficult environment.
Artificial Intelligence at work
One concern that the agency keeps on the horizon is the irruption of artificial intelligence (AI) and the consequences that this may have on employment. The Secretary General of the OECD, Mathias Cormann, has referred to it as “an unprecedented tool” and has stressed the need to promote multilateral regulation so that its integration does not jeopardize job opportunities or the rights of workers.
The report warns of three key points: AI expands the range of jobs that can be automated, with the consequent impact on workforces; It is a transversal technology, so it will affect all sectors and, finally, he warns that the speed of its development is “unprecedented”.
In the short term, all the possibilities have yet to be seen, but the OECD warns that although AI currently seems to “complement” many occupations, “this is not necessarily the case for all workers” and focuses on less-skilled workers, who are more likely to be replaced.
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