Introduction

• The International Labour Organisation’s Global Wage Report has put into sharp relief one of the biggest drags on global economic momentum: slowing wage growth.
• The ILO’s report underlines the need for wage expansion that is robust and also equitable.

Key observations

• Global wage growth, adjusted for inflation, slowed to 1.8% in 2017, from 2.4% in 2016, this is the lowest rate since 2008.
• Excluding China (given its high population and rapid wage growth it tends to skew the mean), the average was even lower (1.1% in 2017 against 1.8% in 2016).
• Across a majority of geographies and economic groupings, wage expansions were noticeably tepid last year.
• In the advanced G20 countries the pace eased to 0.4%, with the U.S. posting an unchanged 0.7% growth and Europe (excluding Eastern Europe) stalling at about zero.
• The emerging and developing economies in the G20 were not spared a deceleration, with the growth in wages slowing to 4.3%, from 4.9% in 2016.
• In the Asia and Pacific nations, where workers had enjoyed the biggest real wage growth worldwide between 2006 and 2017, it slid to 3.5% from the previous year’s 4.8%.

Causes and effects of low wage growth

• The obvious impact of this low pace has been on global economic growth with consumption demand hurt by restrained spending by wage-earners.
• The ILO report observes that the acceleration of economic growth in high-income countries in 2017 was led mainly by higher investmentspending rather than by private consumption.
• Real wages almost tripled in the developing and emerging countries of the G20 between 1999 and 2017, while in the advanced economies the increase over the same period aggregated to a far lower 9%.
• In many low- and middle-income economies the average wage, in absolute terms, was so low it was still inadequate to cover the bare needs of workers.
• The intensification of competition in the wake of globalisation, accompanied by a worldwide decline in the bargaining power of workers has resulted in a decoupling between wages and labour productivity.
• Share of labour compensation in GDP across many countries that remains substantially below those of the early 1990s.

Do you know?

• For the first time, the ILO report also focuses on the global gender pay gap, using data from 70 countries and some 80 per cent of employees worldwide.
• Its findings indicate that despite some significant regional differences, men continue to be paid around 20 per cent more than women.
• In high-income countries the gender pay gap is at its biggest in top-salaried positions.
• In low and middle-income countries the gap is widest among lower-paid workers.
• Its data also suggests that traditional explanations for this – such as differences in the levels of education between men and women who work – play only a “limited” role in explaining gender pay gaps.
• In many countries women are more highly educated than men but earn lower wages, even when they work in the same occupational categories.
• The wages of both men and women also tend to be lower in enterprises and occupations with a predominantly female workforce.

Conclusion

• The widening inequality is slowing demand and growth by shifting larger shares of income to rich households that save rather than spend.
• For India; to reap the demographic dividend we need not only jobs, but wage expansion that is robust and equitable.
• To reduce gender pay gaps more emphasis should be placed on ensuring equal pay for women and men, and on addressing the lower value placed on women’s work.