The Shrinking Middle, or Why the Coming Slowdown in Labour Supply Might Not Be a Workers' Paradise for All

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IZA Policy Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 20.05.2015 12:00 - 13:15


Presentation by 

Ekkehard Ernst (ILO International Labour Organization)


Global demographic changes are set to lead to a slowdown in labour supply. A classic textbook analysis would suggest that this should lead to a faster increase in wages, closing some of the gap in the labour income share that has opened up over recent decades. Indeed, current forecasts of global wages suggest an acceleration over the next five years despite currently still high unemployment rates. However, these wage increases are unlikely to benefit wage earners broadly. Already now, occupational shifts driven by globalization and technological change benefit high-skilled workers disproportionally, a trend that is likely to persist. Also, faster wage growth means less investment in employment-intensive industries and faster expansion in sectors with high capital-skills complementarities. Hence, whereas labour income shares might start to recover, income inequality is set to worsen further, a new trend at least at the global level.