Wages come to standstill in rich economies

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Salaries Laptop Means Payroll And Income On Internet

Salaries Laptop Means Payroll And Income On Internet

While average real pay has risen slightly, some workers earn less than in 2007

Wages have flatlined in the developed world as workers fail to benefit from the uneven global economic recovery.

Average real pay in developed economies rose 0.1% in 2012 and 0.2% last year, according the International Labour Organisation’s (ILO) biennial report on global wages. Workers in several rich economies, including Italy, Japan and the UK, were earning less than in 2007.

Weak wage growth in rich countries has become one of the defining issues of the post-crisis world, with many politicians fretting about stagnant or falling living standards, particularly for poorer workers.

Barack Obama, US president, has campaigned to raise the federal minimum wage but has been stymied by Republican opposition in Congress. This year the German parliament approvedthe country’s first minimum wage.

The ILO said wage stagnation was not just the result of the 2008 financial crash, which has pushed up unemployment and lowered economic growth rates in many economies. It was also due to the long-term forces of globalisation, technology and the decline of unions.

Since the 1980s, wages have been rising less quickly than productivity, which means workers are receiving a shrinking share of economic growth. This trend was briefly interrupted by the crisis, but has resumed in most countries. The exceptions are France and the UK, where labour’s income share has remained fairly stable, though wage growth has still been weak.

The ILO said governments that wanted to address inequality in the labour market should use the minimum wage and boost collective bargaining to lift the incomes of poorer workers, rather than relying solely on fiscal policy to redistribute money from rich to poor.

“Fiscal policy for redistribution, which has historically contributed to mitigating inequality by 25% to 30%, is losing its punch,” said Sandra Polaski, the ILO’s deputy director-general for policy. “The reason fiscal policy is being less effective is it’s bearing a heavier and heavier burden, and there are political limits to what you can do.”

Meanwhile, wages have continued to rise in developing countries, though they are still a long way behind those of rich countries. Average monthly pay is about $1,000 in developing economies, a third of the average in the rich world.

There were stark differences in the rate of pay growth between regions. Wages rose an average 6% in Asia, eastern Europe and central Asia but less than 1% in Africa and Latin America. Labour’s share of economic growth has shrunk in China, Mexico and Turkey, but increased in Russia.

The ILO said there was a global “race to the middle” as wages rose in poorer countries but stagnated in richer states.

The ILO found income inequality had risen in about half of developed and developing countries between 2006 and 2010, and fallen or stayed stable in the other half. Income inequality decreased the most in Brazil and Argentina.

Copyright The Financial Times Limited 2014

(c) 2014 The Financial Times Limited

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