Relative wage in a certain country is evaluated through comparison with the wage in another country. Furthermore, the differences in countries’ labor productivity levels are a crucial determinant of their relative wage differences. In this case, there is a ratio derived from the relative wages based on labor productivity levels in different countries. On the other hand, decreased productivity in a given country leads to a subsequent decrease in wages. For instance, the wage rates in various countries relative to America are the same as their productivity relative America. Moreover, according to Nir (7), there is a positive relationship between the real wage and labor productivity, which is explained through the economic theory. Therefore, holding other factors constant, workers’ output leads to increased compensation, which is increased wage rate.
Workers in different countries around the world have been experiencing difficulties for the past decade. In fact, a global wage report from the International Labor Organizations indicated that growth of productivity exceeded the growth of real wage in numerous economies around the world for the period 1999 to 2007 (Economist.com, 1). For instance, the inflation reduced the purchasing power of worker with dormant wages in countries such as U.S and Japan. In this case, this left workers with significant problems despite the average growth of two percent in labor productivity during that period. In a country like Germany, the recession experienced during the year 2008 caused a decrease in the level of real wages, though there was an increase in the level of productivity (Economist.com, 1).
There has been a more rapid increase in the level of labor productivity in various European countries compared to the rates of wages.