Global real wage growth has decelerated, finds ILO

A Journal of People report

How are the global wage trends? How to raise the levels of pay for the millions of working poor around the world? How to ensure fair distribution? How to reduce excessive salary of a few? How to take away income inequalities? These are few of the questions the working people face constantly while they struggle for survival.

Payment of extremely high wages to a few individuals leads to a “pyramid” of highly unequally distributed wages. There are instances, where at the very top end of the curve, the top 0.1 per cent of individuals is paid €211 per hour while the enterprises in which they work pay on average €45 per hour. Some workers earn wages far below the average wages of the enterprises in which they work.

The ILO’s Global Wage Report 2016/2017 (part I) shows:
In the wake of the financial crisis of 2008–09, global real wage growth started to recover in 2010, but has decelerated since 2012, falling from 2.5 per cent to 1.7 per cent in 2015, its lowest level in four years. If China, where wage growth was faster than elsewhere, is not included, real wage growth has fallen from 1.6 per cent in 2012 to 0.9 per cent in 2015.

The report highlights the frequent correlation between greater wage inequality, greater household income inequality and declining labor shares.

The ILO report says:
Average wages do not tell the story of how wages are distributed among different groups of wage earners. It is a well-established fact that during recent decades wage inequality has increased in many countries around the world.

The Global Wage Report 2016/2017 says:
Recent evidence shows that, when set at an adequate level, minimum wages can raise the income of low-paid workers – many of whom are women – without significant negative effects on jobs. The setting of minimum wages, however, is a balancing act; it should be evidence-based and done in full consultation with social partners and, where appropriate, with their direct participation on an equal footing.

The report says:
During most of the post-crisis period global wage growth was driven to a large degree by relatively strong wage growth in emerging and developing countries in Asia and the Pacific, most notably in China, as well as in some other developing countries and regions. More recently, this trend has slowed or reversed. Among emerging and developing G20 countries real wage growth fell from 6.6 per cent in 2012 to 2.5 per cent in 2015.

The report finds:
In 2015, real wage growth remained at a relatively robust 4.0 per cent in Asia, but declined to 3.4 per cent in Central and Western Asia, and was tentatively estimated at 2.1 per cent in the Arab States and at 2.0 per cent in Africa.
In 2015, real wages dropped by 1.3 per cent in Latin America and the Caribbean, and by 5.2 per cent in Eastern Europe (mostly due to falling wages in the Russian Federation and Ukraine).

The report finds:
Wage growth increased in the developed countries. Among developed G20 countries, real wage growth went from 0.2 per cent in 2012 to 1.7 per cent in 2015, the highest rate of the last ten years.
In 2015, real wage growth rose to 2.2 per cent in the United States, 1.5 per cent in Northern, Southern and Western Europe, and 1.9 per cent in the countries of the European Union (EU).

It is as yet unclear, the ILO report said, whether such wage growth will be sustained into the future or whether developed countries will return to their previous pattern of wage stagnation.

The report says:
In an economic context in which risks of deflation have increased in many countries, falling wages could themselves become an important risk factor, potentially leading to deflationary wage–price spirals.

The report observes:
Globally, the recovery in Northern America and some European countries was not sufficient to offset the decline in emerging and developing economies. The lower differential in wage growth between developed and developing countries also implies a slowdown in the process of wage convergence between the two groups of countries.

The report says:
There is now a large literature showing that in a majority of countries across the world wage growth in recent decades has lagged behind the growth of labor productivity, leading to a fall in the labor share of GDP. This is likely due to a combination of factors including globalization, skills-biased technology, the weakening of labor market institutions, and the growing pressure from financial markets to shift surpluses generated by large businesses towards investors.

The report shows:
After some expected countercyclical upward movement in the labor share in many countries during the years 2007–10, the labor share has resumed its long-term decline in a small majority of countries during 2010–15. Exceptions include China, Germany and the US, but even in these countries the labor shares remain far below their peak levels.

Citing studies the report says:
Across most countries for which data are available, the gender pay gap, the percentage shortfall in the average wage of women relative to the average wage of men, has generally narrowed over time but has not been closed.

But whether it is due to decline in men’s wage or not is not clear.

The report says:
Wage inequality in a country can be measured in different ways: Ranking all of a country’s salaried workers in ascending order of their wages and dividing them into ten groups (deciles) or 100 groups (centiles).
In most countries wages climb gradually across most of the wage distribution and then jump sharply for the top 10 per cent and, especially, for the highest-paid 1 per cent of employees.
In Europe, the highest-paid 10 per cent receive on average 25.5 per cent of the total wages paid to all employees in their respective countries, which is almost as much as what the lowest-paid 50 per cent earn (29.1 per cent). Although the data are not strictly comparable, the share of the top 10 per cent is even higher in some emerging economies, for example Brazil (35 per cent), India (42.7 per cent) and South Africa (49.2 per cent).
In South Africa and India, the lowest-paid 50 per cent receive, respectively, just 11.9 per cent and 17.1 per cent of all wages paid out.

The report says:
Descriptive statistics for a sample of both developed and developing countries document that a university degree does not necessarily guarantee a highly
paid job; that the real estate and financial sectors are over-represented among top-paid workers; and that the proportion of women continuously declines as one moves towards the higher-paid deciles.
In Europe, for example, women make up on average 50–60 per cent of workers in the three lowest pay deciles; this share falls to about 35 per cent among the best-paid 10 per cent of employees, and further to 20 per cent among the highest-paid 1 per cent of employees.
In some emerging and developing countries, the contrast is even greater.

The report says:
While inequality between enterprises has played a crucial role in recent wage trends, it is not always the largest contributor to total wage inequality. It has been documented previously that in the United States, a larger share of total wage inequality can be attributed to inequality within enterprises than to inequality between enterprises. And, although the latter accounts for much of the recent rise in wage inequality, among workers of “mega-firms” employing more than 10,000 workers both types of inequality have increased considerably, by roughly equal magnitudes.
In Europe in 2010, wage inequality within enterprises accounted for almost half of total wage inequality.
In Europe, there is considerable wage inequality, particularly within enterprises that register relatively high average wages.

When comparing the wages of individuals to the average wage of the enterprises in which they work, the report finds:
Most people (about 80 per cent) are paid less than that average wage. At the very low end of the curve, some workers earn wages far below the average wages of the enterprises in which they work, pointing towards large inequality within such enterprises as a cause of unduly low pay.

The report shows:
The gender pay gap is present in the labor market from an early age but increases substantially for workers who are above 40 years old.

The ILO report’s conclusions include:
Stagnating average wages and a declining labor share can have both social and economic consequences.
The disconnect between economic growth and wage growth means that workers and their families do not feel that they are receiving a just share of the fruits of economic progress, which fuels their frustration.
Low wage growth dampens household consumption, which can reduce aggregate demand, particularly when wages stagnate in many large economies at the same time.

The report says:
The higher wage growth seen in 2015 in various countries has had positive economic effects beyond their borders. Where economically feasible, higher wage growth should be sustained or further encouraged. This cannot be the case in every single country, as in some countries higher wage growth may increase labor costs in a way that is not sustainable for enterprises and jobs, and may result in significant reductions in exports or investment. Differentiated country-specific approaches are thus needed.

It says:
In 2016 the G20 called for the implementation of macroeconomic policies to achieve substantial wage and productivity growth, and for sustainable wage policy principles in which strengthened labor market institutions and policies – such as minimum wages and collective bargaining – could help wage increases to better reflect improvements in productivity growth.

The ILO report suggests:
Vigorous and ambitious action is needed to implement at every level policies that ensure sustainable wage growth and a just share of the fruits of progress to all.

On collective bargaining the report says:
Minimum wages and collective bargaining have the potential to simultaneously reduce inequality between and within enterprises. But differences in the way collective bargaining is organized have different effects. When collective bargaining takes place at the national, industry and/or branch level in multi-employer settings with coordination across levels, a larger proportion of workers are covered and inequality is likely to be reduced both within and between enterprises. The extension of collective agreements by governments to all workers in a particular sector or country can reinforce these effects.
When the collective bargaining system is narrow, taking place at the company or workplace level, the effect is restricted to wage inequality within these enterprises.

The report mentions:
New proposals and initiatives have been put forward in recent years to address the growing inequality between enterprises, particularly between buyers and their subcontractors, aimed at ensuring the inclusion of all parts of the supply chain in collective bargaining agreements. At the international level, some enterprises have highlighted the difficulty of raising wages at the enterprise level in a competitive environment where buyers can shop for the lowest prices. One interesting move in this respect is the decision of some major global brands to start a joint initiative with manufacturers and trade unions to promote multi-employer collective bargaining at the industry level in garment-producing countries.

On the issue of top salaries the report says:
Many CEOs effectively determine their own pay, and shareholders have often been unable to ensure fair executive remuneration in line with social values or even with company performance.
Initiatives to regulate top wages have focused in the past on the transparency of remuneration and on shareholders’ “say over pay”. Now there are also questions as to whether more regulation is necessary to discourage compensation packages based on short-term shareholder value rather than long-term enterprise performance.

The report says:
There need not be a trade-off between growth and inequality. Yet if growing inequality between enterprises is due to polarization and outsourcing, there may be little scope for improving productivity at the low value added segment.

It adds:
Inequality and discrimination are incompatible with sustainable enterprise development, and emphasize the importance of an environment that is conducive to the creation and growth or transformation of enterprises on a sustainable basis. Such an enabling environment combines the legitimate quest for profit, which is one of the key drivers of economic growth, with the need for development that respects human dignity, environmental sustainability and decent work.

Labor market institutions and wage policies will be truly effective in reducing inequality only if they include and protect groups that are vulnerable, disadvantaged or subject to discrimination. Gender pay gaps – differences in average wages between men and women – remain a global concern.

The report highlights the following fact:
Although gender pay gaps are found in all types of enterprises, they are particularly large among enterprises with high average wages.
This suggests that enterprise-level job evaluations remain an essential complement to legislation guaranteeing the right to equal wages for work of equal value, effective enforcement of this right by governments, and effective access to justice for workers to claim this right.

Global Wage Report is published every two years and that the previous edition examined the relationship between wages, household incomes and broader inequality, suggesting a number of other policy measures to reduce inequality.

The report says:
In many developed economies taxation systems have become less progressive in recent years, amplifying the inequality that arises in the labor market. Reforms that address corporate and individual tax avoidance and offer targeted tax relief for low-income households can restore some of the lost progressivity to tax systems. Steeper and more progressive taxation may also contribute to lower executive pay, reducing incentives for CEOs to demand higher compensation. It is also essential that fiscal policy addresses inequality through transfers where payments are made to lower-income households, whether directly, as cash, or in the form of public employment opportunities or employment guarantees, or else as subsidized food. Although many countries have expanded their social protection systems, a large share of the world’s population still remains without health insurance and old-age benefits, and an even larger proportion lives without child and family benefits and protection in case of unemployment, disability, work injury or maternity.

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