Since COVID-19 struck, the connection between these two variables has been severed once again, with real wages continuing to rise at a time when private consumption has contracted. Even though private consumption has held its own in most domestic sectors, it contracted by 3.3% in 2020, mostly because of the implosion of consumption abroad and in sectors severely affected by disease prevention measures.
Real wages have therefore withstood the COVID shock, and it is unprecedented that they should rise so strongly in spite of high unemployment and an economic downturn. In our macroeconomic forecast, we project real wage growth at 4% in 2021, just under 2% in 2022, and 1.5% in 2023. As in the recent past, contractual wage rises explain the lion’s share of real wage growth.
A crisis for the “select few”?
As is implied in the discussion above, it is highly unusual for wages to rise in excess of the price level during an economic contraction coupled with high unemployment. In Q1/2021, unemployment rose to 11.3%, far above the jobless rate during the financial crisis a dozen years ago. It has now begun to ease, measuring 9.1% in May, according to the Directorate of Labour (DoL). The number of jobless persons declined in all sectors during the month, but most in sectors related to tourism.