What rate of wage growth can I expect?

Greg BeckerGetGuidance.com2013

What rate of wage growth can I expect?

In this slide deck, we cover the following:1. What is wage growth?2. Why is wage growth split into two parts?3. Who estimates inflation and wage growth?• Who is the IMF? Who is the ILO?

4. What has real wage growth been in recent years?5. How did we make estimates for each country?6. Inflation, Real Wage and Nominal Wage estimates

by country (and the exceptions)7. Should regional averages be used?

Is past data useful for looking into the future?8. How much might I still earn before retirement?9. Final Thoughts

What is wage growth?

• Wage growth is the gradual increase in salaries and wages • If wages in a year x are Wx, then the average wage rate between

year x and x+n, (i.e. over the following n years) is:

1/nWx+n

Wx( ) -1

Why is wage growth split into two parts?

Wage growth = real wage growth + inflation

• Wages have a real and a nominal component• Wages are split into these two parts so that an increase above

inflation can be analysed separately from inflation• The factors leading to a change in each component differ• For example, inflation can be affected by exchange rates and wages can

be affected by productivity changes• The long term prospects for workers is best measured by real

wage growth

Who estimates inflation and wage growth?

• Many make estimates of inflation and wage growth• When looking for estimates, it is important to search for

accurate, credible, independent and unbiased estimates• The same is true when looking for projections or forecasts

• The International Monetary Fund is a good source of estimates of many economic variables including inflation• The World Economic Database from April 2013 is a good example of the

statistics they gather and freely publish• The International Labour Organisation (ILO) maintains the ILO

Global Wage Database and produces reports like the ILO Global Wage Report

Who is the IMF?IMF = International Monetary Fund

• The IMF is the International Monetary Fund, and it describes itself at www.imf.org as

The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable

economic growth, and reduce poverty around the world.

• The IMF produces various economic statistics, and includes them in it’s World Economic Database. The April 2013 edition can be accessed here:http://www.imf.org/external/pubs/ft/weo/2013/01/weodata/index.aspx

Who is the ILO?ILO = International Labour Organisation

• The ILO is the International Labour Organisation and describes their mission and objectives on www.ilo.org as

The main aims of the ILO are to promote rights at work, encourage decent employment opportunities, enhance social protection and strengthen dialogue on work-related issues.

• The ILO maintains the Global Wage Database and produces reports like the Global Wage Report

What has real wage growth been in recent years?

• Real wages have been volatile over the most recent period for which there is good quality data (2006-2011)

• Analysis shows that the compound average increase by region over these 6 years is:

Africa2.6%

Asia4.1%

Developed Economies0.4%Eastern Europe and Central Asia 8.4%Latin America and the Caribbean 2.1%Middle East-0.5%World

1.9%

Data from the ILO’s Global Wage Report 2012-13

The ILO has growth rates by region for 2000-2011:

• The compound average real wage growth rate by region for the period 2000-2011 is as follows:

How did we make estimates for each country?What is our approach?• We have taken the annual estimates for the period 2006-2011 from the ILO’s

Global Wage Database and calculated the geometric mean when data was available for all years

• When data was not available, we used the regional averages (as shown on slide 9). When the data was incomplete, we used what was available

• The advantages of this approach are:• It is simple• It gives a single point estimate of the recent wage rate which may be a good

estimate for future rates• A rate can be developed for almost 180 countries• The standardised approach used by the ILO allows for inter-country and inter-

region comparison• The estimate has been compiled by impartial experts

• The disadvantages of this approach are:• The estimates are out of date and do not reflect real time developments• The single data point does not capture the impact of the uncertainty, and a

range or probability density function may be more appropriate

Inflation, Real Wage and Nominal Wage estimates by countryWorkings by GetGuidance.com, with data from the ILO and IMF

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Afghanistan 5.5% 5.2% 10.7%Albania 8.6% 2.9% 11.5%Algeria 2.5% 4.1% 6.6%Angola 2.5% 7.4% 9.9%Argentina 1.8% 10.1% 11.9%Armenia 12.9% 4.0% 16.9%Australia 1.3% 2.5% 3.8%Austria 0.5% 1.9% 2.4%Azerbaijan 8.8% 6.4% 15.2%Bahrain 1.6% 2.0% 3.6%Bangladesh 2.8% 5.7% 8.5%Barbados 1.8% 4.4% 6.2%Belarus 10.1% 19.3% 29.4%Belgium 0.3% 1.2% 1.5%Belize 1.8% 2.0% 3.8%Benin 2.5% 2.9% 5.4%Bhutan 5.5% 7.3% 12.8%Bolivia 1.8% 4.1% 5.9%Bosnia and Herzegovina 5.3% 2.0% 7.3%Botswana 2.5% 6.6% 9.1%

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Brazil 3.4% 4.5% 7.9%Brunei 5.5% 1.6% 7.1%Bulgaria 7.5% 2.6% 10.1%Burkina Faso 2.5% 2.0% 4.5%Burundi 2.5% 5.4% 7.9%Cambodia 5.5% 3.3% 8.8%Cameroon 2.5% 2.5% 5.0%Canada 1.0% 2.0% 3.0%Cape Verde 2.5% 2.7% 5.2%Central African Republic 2.5% 2.1% 4.6%Chad 2.5% 3.0% 5.5%Chile 2.3% 3.0% 5.3%China 11.9% 3.0% 14.9%Colombia 0.9% 3.0% 3.9%Comoros 2.5% 3.3% 5.8%Congo 2.5% 2.8% 5.3%Costa Rica 3.3% 5.0% 8.3%Côte d'Ivoire 2.5% 2.5% 5.0%Croatia 1.3% 2.4% 3.7%Czech Republic 0.2% 2.0% 2.2%

Inflation, Real Wage and Nominal Wage estimates by countryWorkings by GetGuidance.com, with data from the ILO and IMF

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Democratic Republic of the Congo 2.5% 7.5% 10.0%Denmark 0.3% 2.0% 2.3%Dominican Republic 1.3% 4.2% 5.5%Ecuador 2.7% 3.3% 6.0%Egypt 4.8% 9.1% 13.9%El Salvador -1.5% 2.6% 1.1%Equatorial Guinea 2.5% 5.0% 7.5%Eritrea 2.5% 12.3% 14.8%Estonia 3.4% 2.6% 6.0%Ethiopia 2.5% 9.1% 11.6%Fiji 5.5% 3.0% 8.5%Finland 1.5% 2.1% 3.6%France 1.0% 1.6% 2.6%Gabon 2.5% 3.0% 5.5%Gambia 2.5% 5.1% 7.6%Georgia 15.4% 5.0% 20.4%Germany -0.2% 1.8% 1.6%Ghana 2.5% 7.6% 10.1%Greece 3.6% 0.7% 4.3%Guatemala 1.8% 4.2% 6.0%

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Guinea 2.5% 6.5% 9.0%Guinea-Bissau 2.5% 2.1% 4.6%Guyana 1.8% 4.7% 6.5%Haiti 1.8% 3.6% 5.4%Honduras 0.6% 5.6% 6.2%Hong Kong 1.1% 3.5% 4.6%Hungary -0.1% 3.1% 3.0%Iceland -1.5% 2.9% 1.4%India -1.8% 8.5% 6.8%Indonesia -0.7% 5.4% 4.7%Iraq -0.8% 5.5% 4.7%Ireland -0.1% 1.6% 1.5%Islamic Republic of Iran -2.5% 20.7% 18.2%Israel 0.2% 2.0% 2.2%Italy -0.3% 1.4% 1.1%Jamaica -2.1% 6.7% 4.6%Japan -0.4% 2.2% 1.8%Jordan 2.5% 2.4% 4.9%Kazakhstan 7.1% 6.1% 13.2%Kenya -3.0% 5.0% 2.0%

Inflation, Real Wage and Nominal Wage estimates by countryWorkings by GetGuidance.com, with data from the ILO and IMF

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Kuwait 1.3% 4.0% 5.3%Kyrgyzstan 10.8% 6.2% 17.0%Lao P.D.R. 5.5% 4.4% 9.9%Latvia 4.6% 2.2% 6.8%Lebanon -0.8% 2.1% 1.3%Lesotho -5.9% 5.1% -0.8%Liberia 2.5% 5.0% 7.5%Libya 2.5% 4.1% 6.6%Lithuania 7.9% 2.4% 10.3%Luxembourg 0.7% 1.9% 2.6%Madagascar 2.5% 5.6% 8.1%Malawi 2.5% 5.1% 7.6%Malaysia 1.3% 2.4% 3.7%Maldives 5.5% 4.6% 10.1%Mali 2.5% 2.7% 5.2%Malta 1.2% 2.1% 3.3%Mauritania 2.5% 5.4% 7.9%Mauritius 2.2% 4.9% 7.1%Mexico 0.4% 3.1% 3.5%Moldova 6.6% 5.0% 11.6%

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Mongolia 14.7% 7.7% 22.4%Morocco 1.7% 2.6% 4.3%Mozambique 3.3% 5.6% 8.9%Myanmar 5.5% 5.0% 10.5%Namibia 2.5% 4.8% 7.3%Nepal 5.2% 6.8% 12.0%Netherlands 0.4% 1.5% 1.9%New Zealand 0.8% 2.1% 2.9%Nicaragua -1.7% 7.1% 5.4%Niger 2.5% 1.6% 4.1%Nigeria 2.5% 7.2% 9.7%Norway 2.5% 2.1% 4.6%Oman 0.3% 3.4% 3.7%Pakistan 2.0% 10.9% 12.9%Panama 2.0% 3.8% 5.8%Papua New Guinea 5.5% 6.0% 11.5%Paraguay 1.7% 4.5% 6.2%Peru 3.9% 2.1% 6.0%Philippines -0.5% 3.2% 2.7%Poland 3.2% 2.3% 5.5%

Inflation, Real Wage and Nominal Wage estimates by countryWorkings by GetGuidance.com, with data from the ILO and IMF

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Portugal 1.5% 1.4% 2.9%Qatar 6.3% 4.6% 10.9%Romania 7.8% 2.7% 10.5%Russia 7.8% 6.0% 13.8%Rwanda 2.5% 5.3% 7.8%Saudi Arabia -4.1% 3.5% -0.6%Senegal 2.5% 1.6% 4.1%Serbia 3.3% 4.2% 7.5%Sierra Leone 2.5% 6.3% 8.8%Singapore 0.9% 2.8% 3.7%Slovakia 3.0% 2.2% 5.2%Slovenia 2.7% 2.0% 4.7%Solomon Islands 5.5% 4.5% 10.0%South Africa 3.4% 5.1% 8.5%South Korea 0.4% 3.0% 3.4%Spain 0.6% 1.5% 2.1%Sri Lanka 5.5% 6.2% 11.7%Sudan 2.5% 16.5% 19.0%Suriname 1.8% 4.0% 5.8%Swaziland 2.5% 5.2% 7.7%

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Sweden 1.0% 2.3% 3.3%Switzerland 0.7% 0.8% 1.5%Tajikistan 20.1% 6.8% 26.9%Tanzania 2.5% 5.2% 7.7%Thailand 1.9% 2.4% 4.3%The Bahamas 1.8% 2.0% 3.8%Macedonia 3.1% 2.0% 5.1%Timor-Leste 5.5% 8.0% 13.5%Togo 2.5% 2.8% 5.3%Trinidad and Tobago 1.8% 4.0% 5.8%Tunisia 1.7% 4.3% 6.0%Turkey 2.5% 5.1% 7.6%Turkmenistan 7.8% 5.1% 12.9%Uganda -0.6% 5.0% 4.4%Ukraine 7.6% 4.9% 12.5%United Arab Emirates 2.6% 2.0% 4.6%United Kingdom -0.9% 2.1% 1.2%United States 0.2% 2.0% 2.2%Uruguay 4.5% 6.4% 10.9%Uzbekistan 5.8% 11.0% 16.8%

Inflation, Real Wage and Nominal Wage estimates by countryWorkings by GetGuidance.com, with data from the ILO and IMF

Country

Real Wage Growth Inflation

Nominal Wage

Growth

Venezuela -2.4% 23.5% 21.1%Vietnam 5.5% 7.7% 13.2%Yemen -0.8% 8.2% 7.4%Zambia 2.5% 5.1% 7.6%Zimbabwe 2.5% 4.0% 6.5%

Exceptions where there was incomplete data during 2006-2011

Note: Countries for which we had to use the regional assumption include:Algeria, Angola, Benin, Botswana, Burkina Faso, Burundi, Cameroon, Cape Verde, Central African Republic, Chad, Comoros, Congo, Côte d'Ivoire, Democratic Republic of the Congo, Equatorial Guinea, Eritrea, Ethiopia, Gabon, Gambia, Ghana, Guinea-Bissau, Guinea, Liberia, Libya, Madagascar, Malawi, Mali, Mauritania, Namibia, Niger, Nigeria, Reunion, Rwanda, Senegal, Sierra Leone, Somalia, Sudan, Swaziland, Tanzania, Togo, Zambia, Zimbabwe, Afghanistan, Bhutan, Brunei, Cambodia, Fiji, Lao, Maldives, Myanmar, Papua New Guinea, Solomon Islands, Sri Lanka, Timor-Leste, Viet Nam, Denmark, Uzbekistan, Argentina, Bahamas, Barbados, Belize, Bolivia, Guadeloupe, Guatemala, Guyana, Haiti, Suriname, Trinidad and Tobago, Iraq, Lebanon and Yemen

Note: Countries for which we had partial data and used what was available:Egypt, South Africa, Bangladesh, China, Hong Kong, Indonesia, Pakistan, Philippines, Belgium, Finland, France, Greece, Iceland, Ireland, Israel, Japan, Luxembourg, Netherlands, Norway, Portugal, Romania, Slovenia, United Kingdom, United States, Albania, Armenia, Belarus, Bosnia and Herzegovina, Croatia, Georgia, Tajikistan, Turkmenistan, Ukraine, Dominican Republic, El Salvador, Honduras, Panama, Venezuela, Bahrain, Jordan, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates

Should regional averages be used?Is past data useful for looking into the future?• The data suggests that countries with higher than average

growth rates in one year are likely to have higher than average growth rates in a subsequent year

• This reflects the underlying factors driving increases often taking a long time to be fully reflected

• For example, productivity. A society showing rapid productivity increases is unlikely to do so only in one isolated year

• Regional estimates of wage growth may be suitable for future estimates as the drivers are often similar across countries at the same stage of development and facing similar challenges

• Regional estimates help to reduce the volatility of some small countries data

How much might I still earn before retirement?Try the calculator from GetGuidance.com

• The impact of wage growth and inflation on your earnings / wages can be explored here

• This online calculator allows you to work out the impact of wage growth on your future earnings, and explore various scenarios:

How much might I still earn before retirement?

Final Thoughts

• Estimates may be wrong• Estimates are immediately out of date, and circumstances can change

• A point estimate may be less useful than a range• an inflation rate is best described as a likely range, for example there is a

90% chance that the rate is likely to be between 3% and 5% with an average of 3.8%

• Wage growth has two parts: Real wage growth and inflation• Both should be explored when making personal financial decisions• Anticipated inflation rates can change quickly due to forces beyond

anyone’s control• Note: Your personal situation may not be accurately

represented by the average person

An individual’s wage growth will be affected by the national rate of wage growth, but increases in work experience, personal

productivity and the fortunes of their employer and sector may have a larger impact

GetGuidance is an unbiased, online guidance platform that offers users relevant personalised information, and together with simple next steps helps users make decisions and take action where necessary to improve their health and wealth .