Markets
Visualizing How COVID-19 Has Impacted Global Wages
Visualizing How COVID-19 Impacted Global Wages
In the years leading up to the pandemic, annual global wage growth was fluctuating stably between 1.6%–2.2%. Now, income, working hours, and employment have all been impacted by COVID-19—but for those who have held onto their jobs, how have wages been affected?
This interactive chart from the International Labour Organization (ILO) reveals how the global pandemic has affected both nominal and real wages, as well as unemployment rates.
The date of data collection varies on a country-by-country basis, using the most recent available data. The most recent measurement of wage indices is from September 2020 in some countries and the least recent available data comes from Q2’2020. In select countries the date of unemployment rates and wage indices are different. As a point of reference, the average wage index in 2019 was 100.
Note: the ILO uses national statistics databases and only the select countries had enough recent, available data for all three elements: nominal wages, real wages, and unemployment.
Where Average Wages are Falling
Average wages in many countries either plateaued or decreased significantly during the global pandemic. Sharp declines happened across a number of European countries, as well as in South Africa and Japan, for example.
Country | Unemployment Rate | Real Wage Index | Nominal Wage Index |
---|---|---|---|
🇻🇳 Vietnam (as of Q2'2020) | 2.7% | 92.4 | 94.4 |
🇪🇸 Spain (as of Q2'2020) | 15.3% | 92.5 | 92.3 |
🇲🇽 Mexico (as of August 2020) | 5% | 94.4 | 98 |
🇿🇦 South Africa (as of Q2'2020) | 23.3% | 95.2 | 97.4 |
🇰🇷 South Korea (as of August 2020) | 3.1% | 96.2 | 96.8 |
🇷🇺 Russia (as of August 2020) | 6.4% | 96.9 | 100.5 |
🇨🇿 Czech Republic (as of Q2'2020) | 6.6% | 97.8 | 99.6 |
🇸🇰 Slovakia (as of Q2'2020) | 6.6% | 97.8 | 99.6 |
🇯🇵 Japan (as of August 2020) | 3% | 98.6 | 98.7 |
🇫🇮 Finland (as of August 2020) | 7.9% | 99.6 | 100.1 |
🇩🇪 Germany (as of Q2'2020) | 4.4% | 99.6 | 100.5 |
Falling wages, however, do not necessarily mean that people are receiving less money, as many subsidies have been put in place to help cushion income or job loss.
In many cases where wage indices declined, employment did not. This is because different job retention schemes were put in place, wherein workers were furloughed, but were given a portion of their wages from the national government. This allowed unemployment rates to remain steady while wages tapered off.
In Europe, where wages have dropped considerably in many countries, wage subsidies have compensated for nearly 40% of wage bill loss in select countries. But while high income countries can afford to inject stimulus into their economies, most lower income countries cannot. This has come to be described as the fiscal stimulus gap.
Where Average Wages are Rising
While perhaps counterintuitive, rising average wages are in no way an inherent sign of a recovering economy or labor market. Regardless, when compared to 2019, wages have actually increased in the majority of countries, such as Brazil, Canada, United States, Italy, and the UK.
Country | Unemployment Rate | Real Wage Index | Nominal Wage Index |
---|---|---|---|
🇨🇦 Canada (as of August 2020) | 10.6% | 107.6 | 108.4 |
🇲🇰 North Macedonia (Unemployment: Jun '20; wage data: Aug '20) | 16.7% | 107.6 | 109.7 |
🇧🇷 Brazil (as of Q2'2020) | 13.3% | 107.3 | 109.6 |
🇧🇬 Bulgaria (as of June 2020) | 5.9% | 106.9 | 107.8 |
🇭🇺 Hungary (as of August 2020) | 4.4% | 106.3 | 106.5 |
🇮🇹 Italy (as of Q2'2020) | 8.3% | 106.2 | 106.2 |
🇫🇷 France (as of Q2'2020) | 7.1% | 105.4 | 105.9 |
🇷🇸 Serbia (Unemployment: Jun '20; wage data: Aug '20) | 7.7% | 104.7 | 106.7 |
🇳🇴 Norway (as of Q2'2020) | 4.6% | 104.5 | 105.6 |
🇺🇸 U.S. (as of September 2020) | 7.9% | 104.3 | 106.2 |
🇵🇹 Portugal (as of June 2020) | 7.3% | 103.2 | 104.2 |
🇹🇭 Thailand (as of Q2'2020) | 2% | 103 | 100.6 |
🇷🇴 Romania (as of August 2020) | 5.3% | 102.5 | 105.2 |
🇳🇱 Netherlands (as of September 2020) | 4.4% | 102 | 103.6 |
🇬🇧 UK (as of September 2020) | 4.8% | 101.5 | 102.4 |
🇩🇰 Denmark (as of Q2'2020) | 5.3% | 101.4 | 101.5 |
🇸🇪 Sweden (as of August 2020) | 8.8% | 100.8 | 101.6 |
🇨🇱 Chile (as of August 2020) | 12.3% | 100.6 | 103.4 |
🇲🇾 Malaysia (as of June 2020) | 4.7% | 100.2 | 99 |
One reason for higher average wages is something called the compositional effect. The compositional effect is what occurs when wages are not actually increasing, but the makeup of employment changes. For example, the loss and subsequent absence of many lower paying jobs from the labor market due to COVID-19 can skew the average wage upwards.
Brazil is a prime example of the compositional effect. As both nominal and real wages increase, so does unemployment. Brazil’s current unemployment rate is 13.3%, while wages have skyrocketed to a real wage index of 107.3 during the first half of 2020.
The loss of these lower paying jobs has been extremely widespread, most negatively impacting informal workers, self-employed vendors, and migrant workers. Some policymakers have seen this as an opportunity to call for universal basic income. Even with job retention schemes to keep unemployment steady, many people are earning far less income and may never return to normal working hours in their current positions.
Markets
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Small- and mid-cap stocks have historically outperformed large caps. What are the opportunities and risks to consider?
Beyond Big Names: The Case for Small- and Mid-Cap Stocks
Over the last 35 years, small- and mid-cap stocks have outperformed large caps, making them an attractive choice for investors.
According to data from Yahoo Finance, from February 1989 to February 2024, large-cap stocks returned +1,664% versus +2,062% for small caps and +3,176% for mid caps.
This graphic, sponsored by New York Life Investments, explores their return potential along with the risks to consider.
Higher Historical Returns
If you made a $100 investment in baskets of small-, mid-, and large-cap stocks in February 1989, what would each grouping be worth today?
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Starting value (February 1989) | $100 | $100 | $100 |
Ending value (February 2024) | $2,162 | $3,276 | $1,764 |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Mid caps delivered the strongest performance since 1989, generating 86% more than large caps.
This superior historical track record is likely the result of the unique position mid-cap companies find themselves in. Mid-cap firms have generally successfully navigated early stage growth and are typically well-funded relative to small caps. And yet they are more dynamic and nimble than large-cap companies, allowing them to respond quicker to the market cycle.
Small caps also outperformed over this timeframe. They earned 23% more than large caps.
Higher Volatility
However, higher historical returns of small- and mid-cap stocks came with increased risk. They both endured greater volatility than large caps.
Small Caps | Mid Caps | Large Caps | |
---|---|---|---|
Total Volatility | 18.9% | 17.4% | 14.8% |
Source: Yahoo Finance (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Small-cap companies are typically earlier in their life cycle and tend to have thinner financial cushions to withstand periods of loss relative to large caps. As a result, they are usually the most volatile group followed by mid caps. Large-cap companies, as more mature and established players, exhibit the most stability in their stock prices.
Investing in small caps and mid caps requires a higher risk tolerance to withstand their price swings. For investors with longer time horizons who are capable of enduring higher risk, current market pricing strengthens the case for stocks of smaller companies.
Attractive Valuations
Large-cap stocks have historically high valuations, with their forward price-to-earnings ratio (P/E ratio) trading above their 10-year average, according to analysis conducted by FactSet.
Conversely, the forward P/E ratios of small- and mid-cap stocks seem to be presenting a compelling entry point.
Small Caps/Large Caps | Mid Caps/Large Caps | |
---|---|---|
Relative Forward P/E Ratios | 0.71 | 0.75 |
Discount | 29% | 25% |
Source: Yardeni Research (2024). Small caps, mid caps, and large caps are represented by the S&P 600, S&P 400, and S&P 500 respectively.
Looking at both groups’ relative forward P/E ratios (small-cap P/E ratio divided by large-cap P/E ratio, and mid-cap P/E ratio divided by large-cap P/E ratio), small and mid caps are trading at their steepest discounts versus large caps since the early 2000s.
Discovering Small- and Mid-Cap Stocks
Growth-oriented investors looking to add equity exposure could consider incorporating small and mid caps into their portfolios.
With superior historical returns and relatively attractive valuations, small- and mid-cap stocks present a compelling opportunity for investors capable of tolerating greater volatility.
Explore more insights from New York Life Investments
-
Markets2 days ago
Swiss Watches: Market Share by Brand in 2023
In this graphic we rank the top Swiss watch brands, based on their estimated 2023 market share.
-
Markets3 days ago
Charted: Luxury Goods Investments vs. S&P 500 in the Last 10 Years
How does investing in luxury goods like expensive watches and rare whisky compare to other goods, or to the S&P 500?
-
Markets5 days ago
Visualizing the World’s Largest Sovereign Wealth Fund
This graphic breaks down the portfolio of the world’s largest sovereign wealth fund, valued at $1.4 trillion.
-
Markets6 days ago
The 12 Worst Investment Funds Over the Past Decade
The 12 worst investment funds have destroyed $56 billion in shareholder wealth over the past decade, as of Dec. 2023.
-
Markets1 week ago
Visualizing the Biggest Companies on Major Stock Exchanges
With trillion dollar valuations becoming more common, we’ve compared the five biggest companies by stock exchange.
-
Markets1 week ago
Will Tesla Lose Its Spot in the Magnificent Seven?
We visualize the recent performance of the Magnificent Seven stocks, uncovering a clear divergence between the group’s top and bottom names.
-
Demographics5 days ago
Top 20 Countries Where Young People Are the Happiest
-
Markets1 week ago
Visualizing the Green Investments of Sovereign Wealth Funds
-
Markets1 week ago
Ranked: The 20 Top Chinese Stocks by Market Cap, and Performance YTD
-
Markets1 week ago
Will Tesla Lose Its Spot in the Magnificent Seven?
-
Technology1 week ago
Charted: The Jobs Most Impacted by AI
-
Markets1 week ago
Visualizing the Biggest Companies on Major Stock Exchanges
-
Money1 week ago
The World’s Top 50 Largest Banks by Consolidated Assets
-
Demographics1 week ago
Visualizing the Declining Birth Rate in Japan