The twenty-first century has proven to be a poor deal for workers in the world’s most advanced economies. They produce more value and contribute more to the economy, yet wages have not kept pace. The International Labour Organization reports that productivity growth in high income countries has outpaced real wage growth over the last quarter century. Workers have contributed about 29 percent more output, while wages have risen only around 15 percent. This widening gap signals a shift in macroeconomic dynamics where labor’s share of income tightens while capital benefits from the trend.
The analysis notes that a large portion of this gap formed during the cycle preceding the financial crisis, then remained relatively stable and widened again after the Covid crisis and the subsequent price spikes. While the price of olive oil and household electricity bills surged, workers’ productivity continued to rise, and companies worldwide continued to benefit from this dynamic. The lived experience for many employees has been a longer climb in output with comparatively modest gains in take‑home pay, complicating what many households can afford and how they plan for the future.
With the end of the health crisis and the reopening of economies, the return of in‑person services that feature lower productivity and heavy reliance on labor also materialized. This helped temper the strongest productivity gains from the sectors that stayed active during the pandemic and contributed to slower productivity growth in 2022 and 2023 compared with the 2002‑2021 period, according to the International Labour Organization.
Europeans will not recover from the price crisis until 2025
In the broad view for the century so far, the wage‑productivity gap remains negative in the wealthier economies. If one compares wage growth by territory rather than productivity, Western workers, particularly Europeans, also come up short. This reflects a persistent challenge for policy makers who aim to sustain living standards without overheating the economy and while balancing long‑term investments in labor, education, and innovation.
Globally, workers are expected to regain the purchasing power lost in 2022 this year, during a period when the historic surge in prices outpaced wage gains. This trend has been more pronounced in Western economies, yet it also touched some developing regions a couple of years ago as inflation rose across a number of markets.
Preliminary data for the first two quarters of the year indicate that, on a global basis, real wages will rise by about 2.7 percent, the largest increase in 15 years. This uptick helps ensure that the purchasing power of workers is higher today than it was two years ago, though regional disparities persist and the recovery remains uneven across sectors and countries.
But for workers in a European Union member state such as Spain, the differential remains negative by at least a full percentage point, which suggests that Europeans may not recover the lost purchasing power before 2025. The path to balanced wage growth and productivity remains a central question for policymakers, employers, and workers alike as they navigate rising costs, inflation pressures, and the ongoing transformation of work in the digital economy.
Raising the minimum wage
This week the national ministry responsible for labor initiated the process to update the interprofessional minimum wage in 2025. In this context, the International Labour Organization warns that workers who earn the minimum wage globally have fared particularly poorly during the latest price spike. Only about one in four governments that apply a minimum wage adjusted it in 2022 to match inflation. In 2023 that share rose to roughly one in two, but the real income balance for the majority of workers tied to that reference remained negative in many places.
To protect the purchasing power of low‑income workers while considering broader economic conditions, adjusting minimum wages should continue to be a priority, the International Labour Organization emphasizes. Governments are urged to weigh inflation, productivity, and employment effects as they consider policy steps that support households without dampening job creation.