Conditions of Work and Employment Branch (TRAVAIL) Wages and equitable growth 22 March 2013 Sangheon Lee Research and Policy Coordinator International Labour Office

Conditions of Work and Employment Branch (TRAVAIL) 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 Stockhammer With critical inputs from Ozlem Onaran Part III discusses possible policy implications.

Conditions of Work and Employment Branch (TRAVAIL) Major Trends in Wages: Double dip & contrasting developments

Conditions of Work and Employment Branch (TRAVAIL) Weakening recovery from the global economic crisis Stark differences between weaker advanced and better-performing emerging economies Annual average growth rates, (GDP at constant prices)

Conditions of Work and Employment Branch (TRAVAIL) 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)

Conditions of Work and Employment Branch (TRAVAIL) 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.

Conditions of Work and Employment Branch (TRAVAIL) Global wage growth remains far below pre- crisis level If China is excluded, global wages have been almost flat in 2008, 2009 and 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.

Conditions of Work and Employment Branch (TRAVAIL) Annual average real wage growth by region, 2006–11 (%) “Double-dip” in developed economies with falling real wages in 2009 & Solid performance in Asia and other developed regions.

Conditions of Work and Employment Branch (TRAVAIL) 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.

Conditions of Work and Employment Branch (TRAVAIL) 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 million workers in urban units (as of 2010). Wage series excludes million workers in Township and Village Enterprises (as of 2010).

Conditions of Work and Employment Branch (TRAVAIL) 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.

Conditions of Work and Employment Branch (TRAVAIL) Wages and equitable growth: A short introduction

Conditions of Work and Employment Branch (TRAVAIL)

This is not just moral or social issue Also an important economic issue The broken linkage is translated into declining labour income share It may affect negatively economic growth: Level Stability

Conditions of Work and Employment Branch (TRAVAIL) 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

Conditions of Work and Employment Branch (TRAVAIL) 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

Conditions of Work and Employment Branch (TRAVAIL) The report does NOT argue for “unconditional” wage growth, BUT the need for re-linking wages and productivity GWR examines the economic consequences of the “broken linkage” The much-needed “re-balancing” in the labour income share does not mean ONLY wage increases Labour income share is the sum of wages and EMPLOYMENT Also the dimension of distribution or inequality The “rebalancing” in the labour market cannot be achieved WITHIN the labour market Reforms in other markets (including financial) are critical