Over the last decade, labour markets the world over have been under considerable pressure: in addition to the structural changes caused by globalisation and information and communication technologies (ICTs) there has also been a strong recession, especially in the developed countries.

Although a comparative analysis of wage levels is no easy task, the latest data provided by the International Labour Organisation show that, in spite of the crisis, real wages in the world are still tending to grow. This is particularly the case in the emerging regions and the gap between salaries in the different countries of the planet is therefore gradually narrowing, although there is still a long way to go.

In the emerging world, however, the progress being made is highly diverse. The Asian continent offers a highly positive note while improvements are more meagre in Africa and South America. The most acute growth is occurring in countries where, as in China, there is a combination of a gradual freeing up of economic activity, a predictable institutional environment and a stable macroeconomic framework, at least in terms of public deficit and inflation.

The crisis has not affected all countries equally in the developed world either. Macroeconomic stability has also been important in these economies, since those that have been able to maintain financial equilibrium have suffered less from the recession, avoiding the excessive accumulation of public and private debt. Nevertheless, the nature of labour market institutions has been the most decisive factor. The effects of the crisis in terms of job losses have been harsher in those countries with a more rigid labour market. This lack of flexibility in labour legislation has meant that any adjustments required due to a drop in demand have been carried out by reducing the number of employees and not via alternative measures with less negative structural and social effects, such as reducing the number of hours worked or altering other employment conditions.

More flexible labour market institutions also help sectors to readjust; a process which many advanced economies must inevitably carry out. These changes in the distribution of employment by sector are partly due to the Great Recession itself, which originated in the excessive expansion of some economic sectors but was further boosted by the persistent effects of the aforementioned structural trends: globalisation and ICTs. Exiting the Great Recession, the majority of new jobs will be created in the most dynamic economies, especially in those that provide their workers with continued training and flexible employment conditions.

Lastly, flexible labour institutions are also crucial to ensuring that growth in real wages is sustainable over time and thereby becomes a factor of social progress. In the face of structural changes and macroeconomic disturbances, this flexibility must help the economic system to bring about an evolution in real wages that is in line with each country's improvements in productivity. In a globalised world, all open economies are subject to this restriction, whether they are developed or not, and a well-designed labour market is fundamental to their successful adaptation.

Jordi Gual

Chief Economist

31 March 2014