ILO foresees painful cuts in wages

The global economic crisis is expected to lead to painful cuts in the wages of millions of workers worldwide in 2009, according to a new report published today by the International Labour Office (ILO).

"For the world's 1.5 billion wage-earners, difficult times lie ahead", says ILO Director-General Juan Somavia. "Slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of many workers, particularly the low-wage and poorer households. The middle classes will also be seriously affected".

The report, entitled Global Wage Report 2008/09 (Note 1), warns that tensions are likely to intensify over wages.

Based on latest IMF growth figures, the ILO forecasts that the global growth in real wages will at best reach 1.1 per cent in 2009, compared to 1.7 per cent in 2008, but wages are expected to decline in a large number of countries, including major economies. Overall, wage growth in industrialized countries is expected to fall, from 0.8 per cent in 2008 to -0.5 per cent in 2009.

The ILO report shows that this bleak outlook follows a decade in which wages failed to advance in lockstep with economic growth.

According to the report, between 1995 and 2007, each additional 1 per cent in the annual growth of GDP per capita led to on average only a 0.75 per cent increase in annual growth of wages. As a result, in almost three-quarters of countries worldwide the labour share in GDP has declined.

While inflation was low and the global economy grew at a 4.0 per cent annual rate between 2001 and 2007, growth in wages lagged behind, increasing by less than 2 percent per year in half of the world's countries, the report says.

There were wide regional differences. The growth in real wages was about 1 per cent per year or less in most developed and Latin America countries, but reached 10 per cent or more in China, Russia and a number of other transition countries.

The report also shows that since 1995, inequality between the highest and lowest wages has increased in more than two-thirds of the countries surveyed, often reaching socially unsustainable levels. Among developed countries, Germany, Poland and the United States are amongst the countries where the gap between top and bottom wages has increased most rapidly. In other regions, inequality has also increased sharply, particularly in Argentina, China and Thailand.

The pay gap between genders is still high and closing only very slowly. Although about 80 per cent of the countries for which data are available have seen an increase in the ratio of female to male average wages, the size of change is small and in some cases negligible. In the majority of countries, women's wages represent on average between 70 per cent and 90 per cent of men's wages, but it is not uncommon to find much lower ratios in other parts of the world, particularly in Asia.