TECHNOLOGY AT WORK

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Citi GPS: Global Perspectives & Solutions February 2015
Australia. In contrast, the United Kingdom and Japan have seen wages at the
bottom and top of the skill distribution rise roughly in tandem, consistent with the job
polarisation story. In other advanced economies such as Spain and France, wages
at the bottom of the skill distribution have actually accelerated more quickly than at
the top. The wage data for emerging markets tell a similar country-specific story
(Figure 59).
The large degree of heterogeneity of low- versus high-skilled wage trends across
countries points toward institutional differences that may be playing a role. In
particular, improving worker productivity from new technology is not the only force
driving wage trends, especially at the bottom of the skill distribution where politicaleconomy
factors such as union participation and the generosity of unemployment
compensation also likely play a determinant role.
Figure 58. Ratio of real high-skilled average hourly wage rate to real
low-skilled average hourly wage rate
Figure 59. Ratio of real high-skilled average hourly wage rate to real
low-skilled average hourly wage rate
1.3
1.2
1.1
Index, 1995=1
1.6
1.5
1.4
1.3
1.2
Index, 1995=1
Brazil Hungary
Mexico Poland
Russia Turkey
1.0
1.1
0.9
0.8
Canada
Spain
Japan
Germany
United Kingdom
United States
0.7
1995 1997 1999 2001 2003 2005 2007 2009
Note: The wage data comes from the WIOD Socio-economic Accounts, in which skills
are defined on the basis of educational attainment. The hourly wage rate is calculated
as total labor compensation divided by total hours worked. The wage data are deflated
using national consumer price data.
Source: WIOD Socio-economic Accounts, Citi Research
1.0
0.9
0.8
0.7
0.6
1995 1997 1999 2001 2003 2005 2007 2009
Note: The wage data comes from the WIOD Socio-economic Accounts, in which skills
are defined on the basis of educational attainment. The hourly wage rate is calculated
as total labor compensation divided by total hours worked. The wage data are deflated
using national consumer price data.
Source: WIOD Socio-economic Accounts, Citi Research
There is some evidence that wage inequality
between high- and low-skilled workers is
rising in some countries because of
increasing automation
The bottom line is that there is some evidence that wage inequality between highand
low-skilled workers is rising in some countries, likely driven in part by increasing
automation in the workplace. Whether this translates into persistent output gaps and
chronically depressed policy rates is still an open question. It is interesting to note,
however, that financial markets, which are forward looking, have to some extent
priced in low interest rates well into the future. Indeed, stock prices seem high in
many advanced economies (Figure 60), but not if there has been a sizeable change
in the discount rate due to lower expected policy rates. Home prices, which are also
sensitive to forward-looking assumptions about policy rates, are also high in some
countries (Figure 61), though home price movements have been more disparate
than stock price movements since the 2008 financial crisis.
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