22 March 2013 Sangheon Lee Research and Policy Coordinator International Labour Office

Conditions of Work and Employment Branch (TRAVAIL)

Wages and equitable growth

22 March 2013

Sangheon LeeResearch and Policy Coordinator

International Labour Office


The Global Wage Report 2012/13 is the third edition of the ILO’s biennial ILO flagship report on wages

Part I presents global and regional estimates of growth in average wages, and also highlights other relevant trends.

Part II is on “equitable growth” and analyses the causes and consequences of trends in “labour income share” (the share of labour compensation in national income)

Research undertaken by an international project group lead by Marc Lavoie and Engelbert StockhammerWith critical inputs from Ozlem Onaran

Part III discusses possible policy implications.


Major Trends in Wages:Double dip & contrasting

developments


Weakening recovery from the global economic crisis

Stark differences between weaker advanced and better-performing emerging economies

Annual average growth rates, 1995-2012(GDP at constant prices)


Negative repercussions of the global financial crisis for labour markets

Unemployment in developed economies remains high.

Total unemployment rates in the world and in developed economies, 2005–11 (as % of labour force)


Global Wage Report looks at the impact of economic trends on wages. We look at real average monthly wages – or the gross

remuneration of paid employees. All wage data are in real terms (adjusted for inflation). Our data-base contains wage data for 124 countries

and territories that account for 94.3 % of the world’s employees and 97.7% of the global wage bill.

Regional and global growth rates are a weighted average of the national real growth rates.

The ‘size weight’ is the country’s share in the global wage bill.

Response weights correct for non-response bias.


Global wage growth remains far below pre-crisis level

If China is excluded, global wages have been almost flat in 2008, 2009 and 2011.

Annual average global real wage growth, 2006–11 (%)

* Annual growth rates published as "provisional estimates” (based on coverage of c.75 %).Note: Global wage growth is calculated as a weighted average of year-on-year growth in real average monthly wages in 124 countries, covering 94.3% of all employees in the world (for a description of the methodology, see the Technical appendix IV).Source: ILO Global Wage Database.


Annual average real wage growth by region, 2006–11 (%)

“Double-dip” in developed economies with falling real wages in 2009 & 2011.

Solid performance in Asia and other developed regions.


Annual average real wage growth in Asia, 2006–11 (%)

China’s wage growth carries big weight in the Asia figure.

If China is excluded, real wages in the rest of Asia are below 2007 level.

Some question-marks about India’s data.


Are wages “overshooting” (higher than labour productivity)?

But the labour income share is falling?

This puzzle is related to wage statistics in China Real growth rates of 12.9 % (2006),

13.4 % (2007), 10.7 % (2008), 12.6 % (2009) and 9.8 % (2010).

But they refer to average wages of employed persons in urban units.

Coverage is ca. 130.5 million workers in urban units (as of 2010).

Wage series excludes 158.9 million workers in Township and Village Enterprises (as of 2010).


Some caveats in interpreting global and regional trends:National Statistical Offices use different concepts and methodologies, so wage levels are not always comparable (though this has less impact on trends).

Bias due to a composition effect: If low-wage workers lose their jobs, average wages rise – even if no individual worker obtained a pay rise.

Changes in monthly average wages reflect (a) changes in the hourly wage rate, and (b) changes in the number of hours worked.


Wages and equitable growth:A short introduction


This is not just moral or social issue

Also an important economic issueThe broken linkage is

translated into declining labour income share

It may affect negatively economic growth:Level Stability


What happened? Labour income share tends to decline in both developed and developing countries

Why? A wide range of factors played a role, but policy changes (towards deregulation and financialization) as well as globalization are particularly important. These changes contributed to weakening workers’ bargaining power

What economic consequences?: Falling labour income share tends to lower and unstable economic growth with some country exception (e.g., China), but, globally this is not a viable option

Then, what to do? “Rebalancing” is needed at both national and global levels, which requires strengthening labour market and social security policies as well as taxation and financial regulation


Reconnecting wages and productivity Coordinated policy actions at multiple levels (including

global coordination) Strengthening labour market institutions

Beyond labour markets Financial regulation Taxation and social security

For developing countries Reaching other earners (self-employed and informal) Improving productivity Implementing social security schemes


The report does NOT argue for “unconditional” wage growth, BUT the need for re-linking wages and productivityGWR examines the economic consequences of the

“broken linkage” The much-needed “re-balancing” in the labour

income share does not mean ONLY wage increasesLabour income share is the sum of wages and

EMPLOYMENTAlso the dimension of distribution or inequality

The “rebalancing” in the labour market cannot be achieved WITHIN the labour marketReforms in other markets (including financial)

are critical

22 March 2013 Sangheon Lee Research and Policy Coordinator International Labour Office

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