Developed Countries Suffer Wage Squeeze - Minimum Wages Key To Cutting Working Poverty: ILO

The global crisis has had significant negative repercussions for labor markets in many parts of the world, and recovery is proving uncertain and elusive. Wage growth remains far below pre-crisis levels and has fallen into the red in developed countries, although it has remained significant in emerging economies, the International Labor Organization said on Friday.

In developed economies, the crisis led to a “double dip” in wages: Real average wages fell in 2008 and again in 2011, and the current outlook suggests that in many of these countries wages are growing marginally, if at all, in 2012, the ILO said in its Global Wage Report, published every two years.

The U.N. agency said global monthly wages adjusted for inflation increased by 1.2 percent in 2011, down from 2.1 percent in 2010 and 3 percent in 2007. These numbers are even lower if China is excluded from the calculations.

Because of its size and strong economic performance, China weighs heavily in this global calculation. ILO added that if China was omitted from the equation, global wages grew by just 0.2 percent last year from 1.3 percent in 2010 and 2.3 percent in 2007.

In a longer perspective, the ILO report pointed out that since 2000, average global wages had grown by nearly a quarter, although the regional differences again were striking. Salaries in Asia had, for instance, almost doubled over the 11-year period, while developed countries saw a mere 5 percent increase in wages.

In spite of the faster growth in real average wages in emerging regions over the last decade, absolute differences in wage levels across countries and regions remain considerable. According to the report, a manufacturing worker in the Philippines took home less than $1.50 for every hour worked, compared with nearly $5.50 in Brazil, $13 in Greece, $23.30 in the U.S., $24.23 in Canada and almost $35 in Denmark.

The ILO called for wages to grow in line with productivity and urged more countries to adopt minimum wage policies to protect vulnerable employees.

The report highlights recent findings that show wages have grown at a slower pace than labor productivity -- the value of goods and services produced per person employed -- over the past decades in a majority of countries for which data is available.

This trend has resulted in a change in the distribution of income, meaning that workers are benefitting less from the fruits of their work while the owners of capital are benefitting more.

“Where it exists, this trend is undesirable and needs to be reversed,” said Guy Ryder, ILO director-general, in a statement. “On a social and political level, its clearest interpretation is that workers and their families are not receiving the fair share they deserve.”

In developed economies, labor productivity has increased more than twice as much as wages since 1999.

In the U.S., hourly labor productivity in the nonfarm business sector increased by about 85 percent, while earnings only increased by about 35 percent since about 1980. In Germany, labor productivity surged by almost a quarter over the past two decades, while wages remained flat.

Even in China -- a country where wages roughly tripled over the last decade -- the labor share went down as gross domestic product increased at a faster rate than the total wage bill.

The report warns that policymakers should be careful not to promote “a race to the bottom” in labor shares, adding that unrestrained pursuit of labor cost advantage in securing economic competitiveness is likely to discourage economic innovation and upgrading.

In Greece, for instance, the minimum wage was cut by a dramatic 22 percent. This was part of the conditions set by official creditors to release bailout funds.

The ILO has called on its 185 member states to adopt minimum wage policies as a way of reducing working poverty and providing social protection for vulnerable employees.

“Minimum wages help protect low-paid workers and prevent a fall in their purchasing power, which in turn hurts domestic demand and the economic recovery,” Ryder said.