2022 has been a year where inflation has seriously eaten into or even totally diminished any salary increases workers might have received. For people in some countries, this scenario has actually been a reality for decades. Stagnant real wages—wages that are not increasing after inflation—have plagued high-income nations like Japan, Italy and Spain. In Mexico, real wages have not only remained very stagnant, but also very low during the past three decades.
The OECD publishes real wage statistics on its member and affiliate countries, showing that when adjusting for purchasing power parity, Mexico had the lowest average annual full-time wage before tax out of 36 countries surveyed at just $16,429 in 2021. This average wage increased by only 6% since 1990 after adjusting for inflation.
While they are not usually part of the OECD or its affiliates, lower-income and middle-income countries like Mexico are actually most at risk of having wage increases wiped out by inflation as runaway price increases more often happen in less developed countries. But even in countries without a history of rampant inflation prior to 2022, economic stagnation can become so severe that salary increases are virtually non-existent for decades.
In Japan, one of the most developed and also most expensive countries in the world, average wages after adjustment for inflation and purchasing power buy slightly less than those in Italy or Lithuania. While Japan did have a comparable average wage with Canada, Australia or Germany in 1990, this is hardly the case 30 years later as the latter countries have enjoyed sizable increases to real wages—between 34% and 40%—while Japan has not.
Adverse to change?
Japan has experienced years of low economic growth, low inflation and even deflation. Paired with a business culture that is adverse to change, prices as well as wages and much of everything else have been poised to stagnate in the country which was a tech pioneers of the 1990s but has been losing its innovation prowess lately. A growing low-wage sector of employees on short-term or part-time contracts did the rest to destroy any overall wage growth Japan might have had.
Italy’s stagnating economy, lack of well-paying industries and overall dearth of perspective had much of the same effect. The country shares this characteristic with other nations of wage stagnation or generally low pay in Southern Europe, for example Greece or Spain.
The biggest success stories in terms of real wage increases can be found in Eastern Europe and the Baltic States—in Lithuania, but also in Latvia and Estonia and to a lesser degree in the Czech Republic. Despite the increases, some Eastern European wages remain among the lowest in the OECD.
Ireland, with its wages rising 90% between 1990 and 2021 is another example of the transformation from a lower-wage economy into one that pays better salaries. South Korea’s development is similar to Ireland’s in that its job market was characterized by lower wages as recently as the 1990s before a modernization of the economy allowed for significant wage increases that outpaced inflation by a large margin.
Charted by Statista