workers around the world face 'Painful' wage cuts

The global economic crisis is expected to lead to painful cuts in the wages of millions of workers worldwide this year, warns the International Labour Office (ILO).

"For the world's 1.5 billion wage-earners, difficult times lie ahead," director-general Juan Somavia said in a statement issued on Sunday by the Geneva, Switzerland-based office.

"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", warns that tensions are likely to intensify over wages. Based on the latest International Monetary Fund growth figures, the ILO predicts global growth in real wages will at best reach 1.1 per cent this year, down from 1.7 per cent last year, but wages are expected to decline in a large number of countries, including major economies.

Overall, wage growth in industrialised countries is expected to fall from 0.8 per cent last year to minus 0.5 per cent this year.

The ILO report also shows concerns for wage growth. In recent years, while wage growth has lagged behind overall economic growth during upswings, it slowed down more rapidly during economic downswings.

The report says from 1995-2007, for each 1-percentage-point decline in gross domestic product (GDP) per capita, average wages fell even further, by 1.55 percentage point - a result that points to the possible effects on wages of the present crisis.

"If this pattern were to be followed in the rapidly spreading global downturn, it would deepen the recession and delay the recovery," Somavia said.

Globally, from 2001-07, minimum wages were allowed to rise an average of 5.7 per cent per year in real terms - contrasting with some previous periods when the real value of the minimum wage declined - and increase in proportion to the average wage.

Governments are encouraged to display a strong commitment towards protecting the purchasing power of wage-earners and hence stimulating internal consumption.

First, social partners should be encouraged to negotiate ways to prevent a further deterioration in the share of wages relative to the share of profits in GDP.

Second, minimum wages should effectively protect the most vulnerable workers.

Third, minimum wages and wage bargaining should be complemented by public intervention through, for instance, income-support measures.

The report shows minimum wages and collective bargaining can be efficiently combined. Higher coverage of collective bargaining ensures that wages are more aligned with economic growth and contributes to lower wage inequality.