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

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.

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

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

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. Indeed, despite a 1.3 drop in real wages in 2011, unit labor costs remained unchanged.

Nominal wages may increase, while real wages stagnate, owing to higher inflation.

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.

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.

Keynes denied that real wages are set in the labor market.

These are efficient responses to changes in real wages.

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

In real terms, wages no longer rose (indeed, the average real wage has been stagnant for 25 years in the US), and a growing share of manpower (currently around 15 ) was without steady employment.

The economy therefore limped along year after year, with real GDP in the final quarter of each year less than 2 higher than it had been a year earlier. Employment grew more slowly than the population, and annual real wage increases averaged only about 1 .

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

The real wages of the workers fell about 50 percent from what they had been in 1913.

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 .

But such adjustments cannot happen in a monetary union, so unit labor costs are slowly re converging via a protracted process of flat nominal wage growth and slowly declining real wages (a process that would be quicker with higher inflation in Germany and Northern Europe).

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.

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.

This means that, in a competitive labor market, real wages will always be instantly adjusted to changes in conditions of demand.

Even if real wages increase in some coastal cities, surplus labor could keep the national average flat.

Contrary to stereotypes, for example, real wages in Greece have declined by 6 annually over the last three years.

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

Indeed, despite a 1.3 drop in real wages in 2011, unit labor costs remained unchanged.

Moreover, real wages have barely risen for more than 60 of German workers, they have actually fallen.

The new business cycle also embeds a monetary policy that replaces concern with real wages with a focus on asset prices.

The PRC s population is aging, real wages are rising, and growth is moderating toward more sustainable rates.

Without its own currency, the only cure for a chronic trade deficit is real wage reductions or relative productivity increases.

The plan calls for a shift to higher real wages so that household income will rise as a share of GDP.

But once workers realize that real wages have not increased, unemployment will return to its natural level consistent with stable inflation.

There is a vast difference between unit labor costs real wages adjusted for productivity in Germany and in the heavily indebted southern countries.

Real GDP growth continued at a modest pace in 2004 in the Pacific island economies.

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

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.

In tandem with an expected fall in world economic growth in 2005, growth in international trade is also expected to slow in real terms.

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.

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.

In a sample of 53 countries for which data are available, median growth in real average wages had declined from 4.3 in 2007 to 1.4 in 2008.