Global Wages Drop Despite Economic Recovery

By Lisa Schlein

Geneva
03 November 2009

The International Labor Organization reports global growth in real wages slowed dramatically in 2008 as a result of the economic crisis and wages are expected to drop even further this year, despite signs of a possible economic recovery. The ILO warns of worse times ahead. The agency has just issued an update of its Global Wage Report. 

The report says the deterioration of real wages around the world calls into question the true extent of an economic recovery, especially if government rescue packages are phased out too early.

In a sample of 53 countries for which data are available, the International Labor Organization finds growth in real average wages had declined from 4.3 percent in 2007 to 1.4 percent in 2008. 

The report warns the picture on wages is likely to get worse this year, despite indications of an economic rebound. ILO Specialist on the Conditions of Work and Employment, Patrick Belser, says declining wage rates are linked to the levels of unemployment.

"The quite dramatic unemployment figures, which we now see in some of the countries, this strongly suggests that there will be greater pressure on wages in the future as more people will be unemployed, more people will be looking for jobs and the pressure on employers to raise wages to attract workers will decline," he said. "So, we expect that the second part of the year will not be very good in terms of wage growth."

The report finds more than a quarter of the countries experienced flat or falling monthly wages in real terms. They include, the United States, Austria, Costa Rica, South Africa and Germany.

ILO Economists say some nations have come up with polices to lessen the impact of lower wages during the economic crisis. An example of these is work sharing with government subsidies.

Under this scheme, the number of individual working hours is reduced in an effort to avoid layoffs. For this scheme to work, the government must provide wage subsidies to compensate for lost pay due to the shorter hours.

Besler says a second important finding in the report is that both developed and developing countries have strengthened their minimum wages in recent years. He calls this good news.

"A large number of countries, including major economies such as the U.S., Brazil, Russia, and also Japan have increased minimum wages by more than inflation figures in 2008. And, these countries have also addressed their minimum wages further in 2009," said Belser. "The ILO considers, as you know that minimum wages are an important tool for social protection and that everyone should have access to decent minimum living wage."

The ILO also says the United States is reporting slightly higher rates of unemployment than Europe.

October figures show a 9.4 percent U.S. jobless rate compared to 8.8 percent in the European Union.

The report notes the link between productivity growth and wage increases is essential for economic and social sustainability.

It argues companies should be able to achieve competitiveness through rising productivity rather than by cutting labor costs. And, it says workers should have enough bargaining position to defend their wages.