But wages have grown at a far slower pace than GDP.

Unit labor costs reflect compensation levels and productivity gains in productivity can offset the effect of wage growth.

Wage growth, rather than borrowing and financial booms, fuelled demand growth.

This disparity reflected some differences in productivity growth but even more so differences in wage growth.

Moreover, wage flexibility meant that substantially slower wage growth in the states that lost industries helped to attract and retain other industries.

During this long process of industrialization, wages will increase gradually, but it is very unlikely that they will grow at the same rate as labor productivity.

Productivity growth at the historical rate of 0.7 in Germany, with wage growth of 4 , would be compatible with an inflation rate a little above 3 .

A rapid reduction in unit labor costs, through structural reforms that increased productivity growth in excess of wages, is just as unlikely.

After a decade that saw wages grow faster than productivity, unit labor costs (and the real exchange rate based on those costs) appreciated sharply.

Nevertheless, weak demand in EU will reduce the growth of exports while slower real wage growth will dampen private consumption.

The developing world is not doing much better. As the International Labor Organization s latest Global Wage Report shows, wage gains are lagging far behind productivity growth.

Muted wage growth increases competitiveness, and underutilized labor and capital are redeployed.

So the conclusion seems to be that wage growth will not threaten China s competitiveness in the next 10 or even 20 years.

The alternative is muted wage and income growth shared across the income spectrum, combined with productivity enhancing measures.

Wages have stagnated despite strong productivity growth, while the trade deficit has set new records.

Productivity growth has an impact on poverty because productivity drives wage increases, which help to improve the standard of living.

Indeed, productivity growth in India s service sector matches productivity growth in China s manufacturing sector, thereby reducing poverty by enabling wages to rise.

Fourth, private consumption growth in the last few quarters does not reflect growth in real wages (which are actually falling).

(c) Wages

The more trade unions defend existing wage structures, and the lower productivity growth is, the longer the slump will be.

The notional pension capital accrues an interest like in the case of the funded pension scheme however, in contrast to the funded pension scheme where the growth of the capital depends on the return on the investment, the growth of the first tier capital depends on the wage growth in the country.

One explanation for the difference is accelerating wage growth across developing regions, which is raising commodity demand, whereas stagnating wages in developed markets are causing the reserve price to decline.

Nor are the non poor faring particularly well, as wage growth has remained virtually flat for a very long time, even as corporate profits are booming.

The German solution to this conundrum keeping wage growth below that of productivity, thereby reducing unit labor costs took more than a decade to yield results.

Determination of wages.

Unemployment remained high, at 7.8 at the end of 2012, and there has been almost no real wage growth over the last few years.

The similarities are large trade deficits, manufacturing job loss, asset price inflation, rising debt to income ratios, and detachment of wages from productivity growth.

Average unemployment would then have to rise in order to keep workers demands for real wage increases at a level warranted by productivity growth.

This structure contrasts with the pre 1980 business cycle, which rested on wage growth tied to productivity growth and full employment.

Movements in minimum wages

Evidence that China s wage efficiency remains high relative to other developing countries comes in the form of continued growth in inflows of foreign direct investment over the past 12 months, despite wage increases. In July, for example, FDI increased by 29.2 year on year, much higher than the global average.

Moreover, it is clear that northern European countries could help to close the competitiveness gap more rapidly by encouraging faster wage growth.

Then a decade of nominal wage growth that out paced productivity gains led to a rise in unit labor costs, real exchange rate appreciation, and large current account deficits.

Since the implementation of the Pay Equity Act, progress has been made in closing the gap in salaries.

Wage determination and job evaluation.

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Likewise, competitiveness losses have been partly reversed as wages have lagged productivity growth, thus reducing unit labor costs, and some structural reforms are ongoing.

Persistently weak labor productivity growth has created a situation in which unit labor costs do not fall, even if real wages remain stagnant or decline.

A decade of wage growth exceeding productivity gains led to real appreciation, loss of competitiveness, and large current account deficits.

In the United States, since 2001 we've had five years of economic growth, five years of productivity growth in the workplace, but median wages are stagnant and the percentage of working families dropping below the poverty line is up by four percent.

Chinese wages are even lower, at just 4 of the western German average.

Most of these economies were suffering a loss of their export markets to low wage Asia. A decade of wage growth exceeding productivity gains led to real appreciation, loss of competitiveness, and large current account deficits.

A. Review of the pay and benefits system

C. Review of pay and benefits system

Scarce labor drives wages.