‘Superstar’ tech firms may be to blame for sluggish wage growth

“Superstar” tech firms could be to blame for sluggish wage growth in advanced economies since the crash, according to the Organisation for Economic Co-operation and Development (OECD).

Though unemployment in most OECD countries, including the Republic, has returned to pre-crisis levels, wage growth remains “remarkably lower” than it was before the crisis, the think tank observed in its latest employment outlook.

The cause of this wage stagnation and the reason why stronger labour markets in the United States and Britain have not fuelled higher wages and inflation has been one of the most hotly debated economic issues of recent times.

The OECD said much of the current productivity growth, the factor that which traditionally drives wage growth, is being generated by a small of number of innovative firms that invest massively in technology but employ few workers compared to more traditional industries.

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As a result, the share of national income going to workers in countries such as Ireland, the US, Korea and Japan, the OECD noted, has declined significantly since the crash and may explain why wage growth has been so subdued.

“Aggregate productivity gains are now led by highly-technological, innovative firms that enjoy increasingly large market shares due to their competitive advantage,” the agency said in its report.

Dominant positions

“Even though these dominant positions tend to be temporary, as firms at the technological frontier are continually being challenged by new and better innovators, this process drives down the labour share – the share of national income going to labour,” it said.

Ireland is host to some of the biggest tech firms in the world, including Apple, Google, Facebook and Microsoft, and their presence here has led to a rapid increase in national income.

Since 2013, gross domestic product (GDP) here has grown by 50 per cent, placing the Republic ahead of China in global growth terms. As a result, the value of the Irish economy is now close to €300 billion, 56 per cent higher than it was at the peak of the Celtic Tiger in 2007.

But wage growth has risen only modestly, albeit this was not entirely unexpected given the high level of unemployment.

In its report, the OECD also cited the changing nature of the skills demand after the crash as another reason for slow wage growth. “The jobs destroyed during the crisis are not the same as those created in the recovery,” it said.

Disparity

While leading firms are demanding high-skilled, highly-qualified staff and will pay bigger wages to recruit them, the majority of workers do not fall into this category, the OECD said. Hence there has been a disparity in wage growth across sectors.

In a recent report, the Central Bank forecast average salaries in the Republic would grow by nearly 7 per cent over the next two years, twice the current euro zone rate, affording workers here their biggest pay rise since the crash. However, it cautioned that most of the gains would be confined to certain sectors, such as professional and scientific services, which include accounting and law firms; financial services; and information and communications, which encompasses the State's large IT industry.