The tracks of inequality

ILO: Minimum wages and collective bargaining are an important part of the solution.

World earnings growth lowest since 2012, reports the UN.

 According to the International Labour Organization (ILO) Global Wage Report 2016/17: Wage inequality in the workplace, wage growth fell from 2.5 per cent in 2012 to 1.7 per cent in 2015. Without China, with the fastest wage growth in the world, the drop would be from 1.6 per cent to 0.9 per cent.

‘In an economic context in which lower demand leads to lower prices (or deflation), falling wages could be the source of great concern,’ Deborah Greenfield, the ILO Deputy Director-General for Policy, said in a news release announcing the report.

In much of the period following the 2008-2009 financial crisis, wage growth was propelled by relatively strong growth in developing countries and regions. More recently, this trend has slowed or reversed. Among emerging and developing G20 countries, real wage growth declined from 6.6 per cent in 2012 to 2.5 per cent in 2015.

Looking only at 2014 and 2015, we see that, with the exception of Australia, all the developed countries of the G20 have experienced an increase in average real wage growth, with steeper rises for Germany, the Republic of Korea and the United States. In Italy and the United Kingdom, average real wages returned to modest growth after several years of decline. The wage recovery in some developed economies was not sufficient to offset the decline in emerging and developing countries.

Regional differences

In most countries wages climb gradually across most of the distribution and then jump sharply for the top 10 per cent and, even more, for the highest-paid one per cent of employees, but the report showed vast differences between regions among developing economies.

In 2015, growth in South and East Asia, and the Pacific was relatively robust at 4.0 per cent, but this declined to 3.4 per cent in Central and Western Asia, and is estimated at 2.1 per cent in the Arab countries and at 2.0 per cent in Africa. Real wages fell by 1.3 per cent in Latin America and the Caribbean, and by 5.2 per cent in Eastern Europe.

Showing the stark distribution among wages within countries, in Europe, for instance, the top 10 per cent of best paid employees took on average 25.5 per cent of the total wages in their respective countries, almost as much as what the lowest paid 50 per cent received (29.1 per cent).

Gender differences

The ILO flagship report further revealed that the wage inequality is even steeper for women:

‘While the overall hourly gender pay gap for Europe is about 20 per cent, the gender pay gap in the top 1 per cent of wage earners reaches about 45 per cent. Among men and women CEOs who are among the best-paid one per cent of wage earners, the gender pay gap is more than 50 per cent.’

Differences within enterprises

This report is the first to explore wage distribution within enterprises. It found that inequality between enterprises tended to larger in developing than in developed countries. ‘On average, in 22 European countries, inequality within enterprises accounts for 42 per cent of total wage inequality, while the rest is due to inequality between enterprises,’ said Rosalia Vazquez-Alvarez, ILO economist and one of the authors of the report.

When comparing the wages of individuals to the average wage of the enterprises where they work, in Europe about 80 per cent workers are paid less than the average in those enterprises. In the 1 per cent of enterprises with the highest average wages, the bottom 1 per cent of workers are paid on average Euro 7.1 per hour while the top one per cent are paid on average Euro 844 per hour.

The report also highlighted policies that can be used to reduce excessive wage inequality.

‘Minimum wages and collective bargaining play an important role in this context,’ said the ILO, noting other possible measures, such as regulation or self-regulation of executive remuneration, promoting the productivity of sustainable enterprises and addressing the factors leading to wage inequality between groups of workers, including women and men.

In the following video clip, ILO economist Rosalia Vazquez-Alvarez outlines the main findings, looking at global wage trends, policy recommendations, new research on wage inequalities within enterprises, and the importance of a living wage.

 

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