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Rising Wages in Emerging Economies: What Does it Mean for the West?

A new labor report shows the gap between developed and developing worlds narrows not just because of their growth, but our decline

PARIS - The International Labor Organization (ILO) has released a new and very detailed survey on wages in 115 countries. As always the study's results are highly anticipated, as a global snapshot of trends in wages, economic growth, productivity and living standards.

This year's conclusions can be divided into two key areas: wage progress in many (but not all) emerging economies, and the general economic standstill in developed countries.

During the worst two years of the global financial crisis, 2008 and 2009, wages in rich countries did not decline as feared—but they didn't rise either. In the rest of the world, on the other hand, wages continued to climb, and in some cases, even skyrocketed. In Asia, in particular, the average worker saw a 7% increase in his wages in real terms, taking inflation into account.

In fact, the ILO report issued Wednesday found that this trend has persisted over a much longer period. Over the last ten years, average real wages have increased 25% globally. They doubled in Asia, and even tripled in some Eastern European countries. In advanced economies, however, they only increased by 5%.

Because these are averages, of course, there are some country-specific variations. In Germany, for example, wages stagnated, while in France, they grew. The ultimate takeaway, though, is the same: emerging economies are catching up, and the gap between developed and developing worlds is only narrowing. Engineers in Shanghai or Bangalore can now earn salaries not that different from what they could earn in Paris.

For years, economists have thought that emerging countries would overtake the developed world without the West slowing down. Then, they predicted that developing countries would catch up and we would slow down—a trend that many considered "normal." Today, however, many experts are saying that the developing world is catching up precisely because we are slowing down.

There is, of course, an obvious causal relationship. After all, products like electronic chips and t-shits are simply cheaper to produce in emerging economies. But this does not explain everything. In France, for example, wage stagnation can be largely attributed to a decline in our own productivity.

So, is this necessarily good news? In principle, yes. The West welcomed worker strikes in China's Foxconn factory, where a worker earns just $300 a year. And, with rising salaries, outsourcing will become less profitable for many Western economies, meaning Europe and America will have to develop their own domestic labor force.

But many Western companies are still moving to countries like Cambodia or Indonesia, where labor is still cheaper than in China. Prices for t-shirts and televisions, meanwhile, will continue to rise for European consumers.

Though this trend could be reversed, all the factors now are pointing in this direction. Even worse is the fact that the West must now rejoice: for the rest of the world.

Read the original article in French

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