MAY BE HARD TO GET NOMINAL WAGE GROWTH ABOVE 3%.

the more puzzling since Germany is running with the lowest unemployment rate since reunification.

And as Germany is the euro area’s largest economy, it’s a matter of concern for European Central Bank President Mario Draghi, who called wages a “key point” in the assessment of the economy last week. In the central bank’s pursuit of just under 2 per cent inflation over the medium term, wage growth has to return.

It’s “the linchpin of a selfsustained increase in inflation,” Draghi said on March 9. “That is the key variable that we should look at.”

And it’s not just the G7. In an interview with Bloomberg News

In the U.S., year-over-year productivity rose one per cent in 2016, compared with 2.4 per cent in 2007, the last year of expansion before the financial crisis.

“I hate to say it but we may be in a new normal for wage growth,” said Omair Sharif, senior U.S. economist at Société Générale in New York. “Until you get productivity moving higher, it may be hard to get nominal wage growth above three per cent.”

When productivity is rising, companies can push more goods and services out the door at a lower cost. Some of the increasing profits may accrue to labour in the best of cases, lifting compensation. Low productivity means that companies have to hire more people to get the job done as GDP expands. That helps underpin demand as more consumers are getting a paycheck. But compensation isn’t rising much.

U.S. payrolls increased by 235,000 jobs last month and the unemployment rate stood at 4.7 per cent, near the 4.8 per cent Fed estimate of a rate that represents maximum use of labour resources. Average hourly earnings rose 2.8 per cent in nominal terms for the 12-month period, similar to gains over the past year. The consumer price index rose 2.5 per cent in January, so in real terms wage increases are low.

The same explanation may apply to Japan, where industries experiencing labour shortages are also areas of low productivity. Hotels, restaurants and retirement homes all need more staff but are struggling to find new efficiencies.

In manufacturing, robotics holds scope for productivity but this won’t necessarily translate into higher wages for blue-collar workers, whose jobs can also be moved overseas.

Another possible explanation is that the Great Recession left a deep scar on both labour and industry, and set expectations for compensation on a lower trajectory.

“Inflation expectations have become exceedingly well-anchored, and, related to that, wage demands have been very tempered,” said Nathan Sheets, a visiting fellow at the Peterson Institute for International Economics in Washington. “It is a legacy of the low-inflation, disinflationary, and even deflationary environment we have had for the past couple of years.”

It’s very much the case in Japan, where workers and labour unions are more focused on preserving jobs than pursuing pay gains. While the unemployment rate is down to just 3 per cent, a level last seen in the mid 1990s, average monthly wages in Japan adjusted for inflation fell for four straight years through 2015. Data from the labour ministry points to an increase of just 0.7 per cent last year.

Central bankers could be pleased with some aspects of the current Goldilocks environment. Unemployment is low and inflation is low at a time of growing employment.

However, current conditions also belie low expectations about the future, and Japan is an example of how difficult it can be to shock an economy into a more dynamic regime.