Value of workers’ pay hits a three-year high

The slowing world economy looks set to get a boost from stronger consumer demand next year, as low inflation boosts the real value of workers’ pay rises to a three-year high, according to a survey published yesterday.

A plunge in oil prices has pushed inflation sharply lower, and means real wages are predicted to rise by an average of 2.5% globally in 2016, the study by human resources firm Korn Ferry Hay Group showed.

Nominal wage growth of 4.9% across a range of 24,000 firms and organisations around the world was in line with recent years.

But the fall in inflation was putting more money into the pockets of consumers globally, Benjamin Frost, a consultant with Hay Group who oversees its salary databases, said.

“A lot of what they seem to be doing is spending that money and companies are generally not doing badly either,” Mr Frost said.

“They are sharing the love with pay increases and hopefully that will come back around into their tills again.”

US workers were on course for a 3% increase in wages at the start of 2016, resulting in a 2.7% increase in real pay when taking in account projected annual inflation of about 0.3% at the same time, the study showed.

In Britain, wage growth of 2.5% and projected inflation of just 0.2% meant British workers were on course for stronger real wage growth than the 2% average expected for employees in Western Europe.

Central banks are watching to see if the fall in inflation results in lower pay rises in cash terms, which would push down on future inflation.

The study was drawn from data from companies and organisations in 110 countries.

The biggest gain in real wages by region was expected in Asia where workers in China were likely to see a 6.3% increase in 2016 as demand grew for skilled workers despite the economy’s economic slowdown, it said.

Meanwhile, the US and British economies appear to be losing steam while the Chinese economy is showing some signs of stabilisation after a period of weakness, a monthly indicator published by the Organisation for Economic Co-operation and Development showed yesterday.

The Paris-based OECD’s leading indicator, which is supposed to capture turning points in the economy, pointed broadly to stable growth rates, notably in the eurozone, where France stood out with further signals of strengthening growth.

In index readings where 100 is the long-term average, the latest reading for the eurozone was steady at 100.6.

The US reading fell to 99.1 from 99.2, and the UK to 99.3 from 99.5. Japan dipped to 99.8 from 99.9.

“Among the major emerging economies, tentative signs of stabilisation are emerging in China as well as in Brazil, while firming growth is anticipated in India,” the OECD said.

“In Russia the outlook continues to be for weak growth momentum.”