The political roots of falling wage growth

The political roots of falling wage growth

News:

Latest Global Wage Report of International Labour Organization’s (ILO) finds that, wages grew at an annual rate of just 1.1% in 2017, down from 1.8% in 2016.

Important Facts:

Major Finding of the reports:

• Lowest wage growth globally in 2017 since 2008
  • Global wage growth in 2017 was not only lower than in 2016, but fell to its lowest growth rate since 2008, remaining far below the levels obtaining before the global financial crisis.
  • Global wage growth in real terms (that is, adjusted for price inflation) has declined from 2.4 per cent in 2016 to just 1.8 per cent in 2017. 

• Slow wage growth in high-income countries despite economic recovery and falling unemployment
  • In the advanced G20 countries, real wage growth declined from 1.7 per cent in 2015 to 0.9 per cent in 2016 and 0.4 per cent in 2017.
• More robust wage growth in low- and middle-income countries, with much diversity across countries and regions.
  • In emerging and developing countries of the G20, real wage growth has fluctuated in recent years, rising from 2.9 per cent in 2015 to 4.9 per cent in 2016, and then falling back to 4.3 per cent in 2017.
  • Workers in Asia and the Pacific have enjoyed the highest real wage growth among all regions over the period 2006–17. However, even here wage growth in 2017 was lower than in 2016, falling from 4.8 per cent in 2016 to 3.5 per cent in 2017
  • Real wages between 1999 and 2017 have almost tripled in the emerging and developing countries of the G20, while in advanced G20 countries they have increased by a much lower total of 9 per cent
• Wage growth lagging behind productivity growth in high-income countries
  • Looking at trends in average wages and labour productivity over the period 1999–2017 in 52 high-income countries, the report finds that, on average, labour productivity has increased more rapidly (by a total of 17 per cent) than real wages (13 per cent), although the gap between the two trends narrowed between 2015 and 2017
• Wage inequality highest in low-income countries
  • The report finds that the countries with the lowest levels of wage inequality are found among the high-income group, whereas countries with the highest levels of wage inequality are found in the low- and middle-income groups.

Why have conditions for workers in most parts of the world has not improved:

• Deepening integration into the global market, together with increased reliance on automation and Artificial Intelligence, has weakened workers’ bargaining power and shifted labour demand into very specific and limited sectors.
• Legislation and court judgments are increasingly trampling on long-recognized labour rights.
• Governments focused solely on improving “labour-market flexibility” and have pursued policies that privilege employer’s interests over those of workers.
• Fiscal consolidation and austerity has prevented the social spending that could expand public employment and improve workers’ conditions.
• The current regulatory environment increasingly allows for large corporations to wield power without accountability, resulting in higher monopoly rents and greater bargaining power.
• Neoliberalism’s intellectual capture of economic policymaking across a wide range of countries, is resulting in the exclusion of most wage earners from the gains of economic growth.

Example of China:

• China followed the doctrine of W. Arthur Lewis, who explains how employment in new & more productive sectors can absorb surplus labour and push up wages over all.
• China has augmented this effect through systematic state policies designed to improve labour conditions which has resulted into double average nominal minimum wage in between 2011 and 2018.
• At the same time, the government has expanded other forms of social protections for workers.

Way Forward:

• The report emphasizes the importance of good data and highlights the need in many countries for better data on the distribution of wages. In particular, low- and middle-income countries have very limited statistics on the average wages of women and men.
• The report also recommends evaluation of gender pay gaps in more homogeneous subgroups of wage earners. This is especially useful where women’s labour force participation is low and where women cluster in particular sectors and occupations.