Reports from the Economic Front

a blog by Marty Hart-Landsberg

Bad News For Global Wage Trends

The International Labor Organization recently published its Global Wage Report 2014/15.  The report looks at global trends in wages and income inequality and its findings are far from positive for working people in the developed world.

The ILO summarizes its findings as follows:

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 to the pre-crisis rates of about 3.0 per cent . . . .

Even this modest growth in global wages was driven almost entirely by emerging G20 economies, where wages increased by 6.7 per cent in 2012 and 5.9 per cent in 2013.

By contrast, average wage growth in developed economies had 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.

As Figure 7 from the report makes clear, the wage slowdown in the developed world is not due to a slowdown in productivity, or output per worker.  The fact is that workers contribute far more in production than they receive in compensation.  The growing gap between the two helps to explain the recent explosion in corporate profits.

Productivity and Wages

Figure 9 lets us look at productivity-compensation trends in several different individual developed countries.  The figure includes two different ways of measuring compensation.  The blue dots measure worker compensation adjusted for changes in consumer prices.  The red dots measure worker compensation adjusted for changes in the prices of both consumer and non-consumer goods and services.  In general, the blue dots provide a more accurate picture of worker purchasing power and well-being.

If earnings and productivity grew at the same rate, the different national blue dots would all be on the 45 degree line.  If a nation’s productivity grew faster then its compensation over the period then its blue dot would fall below the 45 degree line.  If its compensation grew faster than its productivity, then its blue dot would be above the line.

Looking just at the big-3–the U.S., Japan, and Germany–we see that the U.S. recorded the highest rate of productivity growth over the period, followed by Japan, with Germany last. But the rise in worker compensation fell short of the growth in productivity in all three countries, with the largest gap in Japan.

National productivity and wages

The gap between productivity and compensation in most of the developed world also helps to explain the decline in labor’s share of national income.  As illustrated in Figure 10 below, the share of GDP going to workers in the form of wages and benefits, despite some fluctuations, declined in all the selected countries over the period 1991 to 2013. In the U.S., the adjusted labor income share fell from approximately 61% to 56% over the period.

Adjusted labor income shares

The ILO report does offer suggestions for improving worker well-being, including higher minimum wage and stronger union protection laws, as well as better funded social programs.  These all deserve our support.  However, there are real forces opposing these reforms and ongoing initiatives to promote greater freedom of movement for large corporations, such as the Transpacific Partnership free trade agreement, only strengthen these forces.  Said differently we need a broader agenda for change if we are to defend majority living and working conditions, one that directly challenges contemporary globalization dynamics.

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