Profits are high enough to absorb pay rises says OECD

The OECD says in its March 2024 Wage Bulletin “After growing considerably and making unusually large contributions to domestic price pressures in 2021 and 2022, unit profits [..] have started to absorb some of the [..] impact of increasing unit labour costs. In most countries, there is further room for profits to provide some buffering, given their significant growth over the past three years.”

The real value of wages, is still below 2019 levels.  “After a decline in the past two years, real wages are now growing on an annual basis in several countries but remain below 2019 levels in most” says the OECD’s Wage Bulletin.

“Together with falling non-labour costs like energy and high profits over the last three years, wages can grow without contributing to inflation. This should allow central banks to reduce interest rates and make it easier to invest in climate action and other urgently needed investment, for example in health and care services and education and training for the digital and green transitions.”

TUAC Senior Economist Ronald Janssen explains in more detail what is revealed in the Wages Bulletin and what it means for monetary policy in an article OECD on wages and profits: Unusually higher profits allow wages to recover without risking an inflationary wage-price spiral.