How to stop wage stagnation? Stronger collective bargaining, says new report

Stronger collective bargaining is part of the solution to stop wage stagnation, according to a new report.

Stronger collective bargaining is part of the solution to stop wage stagnation, says new report

A new report published by the International Labour Organisation (ILO) warns of stagnating wages in many countries and points to the labour market as the main driver of inequality.

The Global Wage Report shows that 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 with the 2008 pre-crisis rates of about 3 per cent.

Even modest growth in global wages was driven largely by emerging G20 economies, where wages increased by 6.75 per cent in 2012 and 5.9 per cent in 2013.

The reports says that average wage growth in developed economies has fluctuated around 1 per cent per year since 2006 and then slowed further in 2012 and 2013 to only 0.1 per cent and 0.2 per cent respectively.

“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 said:

“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.”

Among developing economies, the report notes vast differences between global regions.

For example, in 2013, wages grew by 6 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. In the Middle East, wages appear to have advanced by 3.9 per cent, but only by 0.9 per cent in Africa.

Labour productivity – the value of goods and services produced per person employed – continues to outstrip wage growth in developed economies.

The growing gap between wages and productivity has translated into a declining share of GDP going to workers while an increasing share goes to capital, especially in developed economies. Working families are getting a smaller share of economic growth while the owners of capital are enjoying massive economic gains.

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

The report shows that 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 emerging and developing economies, where ‘self-employment’ is higher the contribution of wages to household income is usually smaller, ranging from about 50 to 60 per cent in Mexico, the Russian Federation, Argentina, Brazil and Chile to about 40 per cent in Peru, or 30 per cent in Vietnam.

“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 and a co-author of the report.

Recent inequality trends have been mixed, but in a majority of countries where inequality has increased, such as in the USA and Spain changes in wages and employment have been the dominant force.

Where inequality has been reduced, such as in Brazil, Argentina and Russia wages and increased employment have been a driving force in reducing inequality.

As Sandra Polaski of the ILO concludes:

“A comprehensive strategy is needed which will include minimum wage policies, strengthened collective bargaining, elimination of discrimination against vulnerable groups, as well as progressive taxation polices and adequate social protection systems.”

Tony Burke is assistant general secretary of Unite

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