Lack of pay rises hurting workers and economies, says ILO

Focus on rewarding investors rather than workers has kept pay in developed countries low despite increased productivity, ILO report says.

American fast-food workers, healthcare workers and their supporters march in Los Angeles on December 4, 2014, as part of a nationwide protest to demand an increase in the minimum wage to US$15 per houShow more

GENEVA // Stagnant wage growth in rich countries is a result of corporate penny-pinching and not competition from cheap Chinese labour, the International Labour Organisation said on Friday.

Average wages in developed countries have grown only 0.4 per cent since 2009 despite a 5.3 percent increase in workers’ productivity, the ILO said in its latest Global Wage Report.

Globally, wages are slowly converging as poor countries close the gap with rich countries. Wage growth in developed economies was a 0.1 per cent in 2012 and 0.2 per cent in 2013, while developing economies saw increases of 6.7 per cent and 5.9 per cent respectively.

In Greece, Ireland, Italy, Japan, Spain and Britain, real wages actually fell below 2007 levels in 2013.

But it is not cheap labour competition that is causing wages to stagnate in more advanced economies, said Sandra Polaski, the ILO’s deputy director for policy.

“If productivity levels are increasing you can accommodate the competition because the productivity of your firm will allow you to continue to pay good wages and still be able to compete.”

Profits have recovered since the global financial crisis but that income was not being reinvested at the rate that was seen previously, Ms Polaski said.

“It’s sitting on this retained profitability that’s not producing good results for the global economy.

“Those lower incomes in these advanced economies are reducing household demand which is decreasing overall aggregate demand.”

The sluggish growth in remuneration to employees also suggests that rewards are shifting away from work toward investors. That is crimping domestic demand, notably in the euro area where wages have dropped in countries such as Greece and Spain as their governments seek to bolster competitiveness.

According to the ILO, the widening gap between wages and productivity means that households are getting a “smaller share of economic growth while the owners of capital are benefiting more”. That analysis echoes a public debate this year in part fuelled by Thomas Piketty’s Capital in the Twenty-First Century, which said that capitalism may permit the wealthy to pull ahead of the rest of society at ever-faster rates.

“Wage stagnation must be addressed as a matter of fairness and of economic growth,” said Ms Polaski. “Because overall inequality is driven significantly by wage inequality, labour-market policies are needed to address it.”

Wage growth in emerging economies helped push up the global average to 2 per cent in 2013 and 2.2 per cent in 2012, down from 3 percent before the financial crisis. But among emerging nations there were major regional variations – Asia saw growth of 6 per cent in 2013, compared to 0.8 per cent in Latin America and the Caribbean. Removing China from the 2013 global wage figure cuts it almost in half, to 1.1 per cent.

Real wages in the Asia Pacific region are now 2.4 times higher than they were in 1999, the ILO figures revealed.

The ILO’s biennial report also highlighted how the gender pay gap persists worldwide even when different circumstances such as education levels are taken into account.

Averaging between four and 36 per cent, the gap widens for higher-earning women, while mothers also earn less than women without children, the ILO found.

* Reuters, Bloomberg and Agence France-Presse