OECD sees scope for profits to absorb wage hikes

Companies in most countries have enough profit to be able to absorb an increase in wages needed for staff to cope with high inflation, the Organisation for Economic Cooperation and Development said on Tuesday.

Although labour markets are tight, employers have not raised wages in pace with inflation in 31 out of the 34 countries tracked in the Paris-bsaed OECD’s 2023 Employment Outlook.

After taking inflation into account, wages have fallen 3.8% in the first quarter of 2023 from a year earlier with the drop the biggest in Hungary at 15.6%, the report said.

While workers have seen high inflation erode their purchasing power, all countries in the report have seen businesses’ profits grow faster than wages since the pandemic.

“The cost of a living crisis is a cost that has to be shared between what governments can do, what companies have to do and what workers have to do,” OECD head of labour policy Stefano Scarpetta told a news conference.

“There is some room in some room in profits to accommodate some increase in wages without necessarily generating a wage price spiral,” Scarpetta added.

How much wages could be raised would depend country by country and sectors would also need to be taken into account as well as profit increases were smaller at small and mid-sized firms, he said.