Workers from U.S. to Japan See Rising Costs Eating up Wage Gains

(Bloomberg) --

If it seems like you’re working harder just to pay the bills nowadays, at least take comfort in your shared struggle: the rising costs of housing and health care and the disappearance of middle-skill jobs are plaguing people in most other developed nations, too.

That’s one conclusion of the McKinsey Global Institute, a research unit of the consulting giant, which found similarities across 22 developed nations in economic changes since 2000. Many countries in Europe and Asia along with the U.S. have enjoyed strong job markets in recent years, but the rewards are maddeningly uneven.

Jobs requiring mid-level abilities such as administrative office positions and production work are being “hollowed out” in Europe and the U.S., leaving a polarized labor force of high- and low-skill roles. Meantime, rising costs -- especially for housing -- are eating up much of the wage gains workers have seen in the 21st century, the study found.

“Middle-skill, middle-income workers have been squeezed out of the labor market,” according to the report. Young people, who make up about 180 million individuals in the sample countries, have also lost out. Those aged 15 to 30 are having “difficulty obtaining well-paid, high-quality jobs” and “climbing on the housing ladder, with much lower wealth than that age group two decades ago.”

The study -- “The Social Contract in the 21st Century” -- is drawn from data on 22 developed nations in the Organization for Economic Co-operation and Development.

A major takeaway from McKinsey’s study is that workers and consumers increasingly are on their own to fend with life’s challenges. One example of that is that collective agreements covered 44% of workers on average in 2000. That fell to 38% by 2017, the data show.

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To be sure, globalization, outsourcing and other advances have benefited tens of millions, by driving down costs of most discretionary items. Nowadays, you can work six fewer weeks a year and still buy the same amount of clothes, furniture, recreation and communications equipment and services than in 2000, all else held constant, McKinsey found in a sample of 10 countries.

However, other basic costs have soared and are eating much of the wage gains people have gotten in the past two decades. Average wages rose just 0.7% per year in the 22 developed nations between 2000 and 2018, or less than half the average annual GDP growth rate of 1.6% over the same time period.

The U.K. got whacked particularly hard, with spikes in the cost of housing, education and health care devouring 107% of average income gains, McKinsey found. France fared only slightly better, with those three costs consuming 87% of income gains, while U.S. and Australian consumers each saw those expenses eat up 54%.

Still, more widely, the changing economy has affected the middle ranks. Since 2000, seven million middle-skill, middle-wage jobs have disappeared in 16 European countries and the U.S. because of automation and the shifting of manufacturing jobs to the service sector -- although the rate of loss has slowed in the U.S. recently. Middle-skill workers in Belgium, France and Greece particularly got squeezed out, McKinsey found.

“The growth in high-skill jobs offers real opportunities for workers to move up the income ladder if they are able to raise their skill levels,” the report says. “At the same time, it implies declining opportunities and wage stagnation for a significant share of the workers employed in middle-skill jobs.”

©2020 Bloomberg L.P.

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