Global wage growth stagnates

The International Labour Organization’s (ILO) Global Wage Report 2014/2015 has warned of stalled wages in many countries and points to the labour market as a driver of inequality.

According to the report wage growth around the world slowed in 2013 to 2.0 per cent, compared to 2.2 per cent in 2012, and has yet to catch up to the pre-crisis rates of about 3.0 per cent.

It indicated that the modest growth in global wages was driven almost entirely by emerging G20 economies, where wages increased by 6.7 per cent in 2012 and 5.9 per cent in 2013.

The report which was made available to the Ghana News Agency on Saturday by the ILO said by contrast, average wage growth in developed economies had fluctuated around 1 per cent per year since 2006 and then slowed further in 2012 to 0. 1 per cent and to 0.2 per cent in 2013.

“Wage growth has slowed to almost zero for the developed economies as a group in the last two years, with actual declines in wages in some,” said Sandra Polaski, the ILO’s Deputy Director-General for Policy.

“This has weighed on overall economic performance, leading to sluggish household demand in most of these economies and the increasing risk of deflation in the Eurozone,” she added.

Kristen Sobeck, Economist at the ILO and one of the authors of the report observed that, “the last decade shows a slow convergence of average wages in emerging and developing countries towards those of developed economies, but wages in developed economies remain on average about three times higher than in the group of emerging and developing economies.”

The report noted that among developing economies, the report notes vast differences between regions; for example, in 2013, wages grew by 6.0 per cent in Asia and 5.8 per cent in Eastern Europe and Central Asia but only 0.8 per cent in Latin America and the Caribbean.

It said in the Middle East, wages appear to have advanced by 3.9 per cent, but only by 0.9 per cent in Africa, however the data for these regions was incomplete.

It said for labour productivity the value of goods and services produced per person employed – continues to outstrip wage growth in developed economies, including in the most recent years; adding that this continues a longer trend, which briefly paused during the financial crisis years of 2008 and 2009.

According to the report, the growing gap between wages and productivity had translated into a declining share of gross domestic product going to labour while an increasing share goes to capital, especially in developed economies.

It explains that this trend means that workers and their households are getting a smaller share of economic growth while the owners of capital are benefitting more.

The report includes a detailed analysis of recent trends in household income inequality and the role played by wages in these trends.

It noted that wages are a major source of household income in developed, emerging and developing countries alike, particularly for middle-income households, while the top 10 per cent and bottom 10 per cent depend somewhat more on other sources of income.

It said in developed economies, wages frequently represent 70 to 80 per cent of household income in households with at least one member of working age.

“In many countries, inequality starts in the labour market, and particularly in the distribution of wages and employment,” said Rosalia Vazquez-Alvarez, econometrician and wage specialist at the ILO, also an author of the report.

The report shows that women, migrants and workers in the informal economy suffer from adverse wage gaps that cannot be explained by observable characteristics, like education or experience, which should normally explain wage differences across individuals.

“These wage gaps between different groups of workers also contribute to overall inequality. Coordinated strategies are also needed at the international level.

“If many countries try to increase exports by repressing wages or reducing social benefits, the consequences could feed into a serious contraction of output and trade.”