Rise in global inequality

Updated - November 28, 2021 09:10 pm IST

Published - December 19, 2014 12:05 am IST

The findings from the latest International Labour Organisation report on real wages point to a mix of proactive initiatives and policy paralysis in different contexts. The study notes that continuing deceleration in the growth of global real wages and discriminatory pay gaps based on gender and nationality could sharpen household income inequalities. A most striking finding is that labour productivity growth outstripped increases in real wage between 1999 and 2013 in the advanced economies. The consequent flattening of wage rises in these countries in the last two years is therefore no surprise. Globally in 2013, wages adjusted for inflation grew on average 0.2 per cent less a month than in the year before, to 2 per cent. Dashing hopes of a return to the pre-crisis rates of 3 per cent in 2007 are significant regional variations in wage increases. The world average for the preceding two years drops by nearly a half if the progress achieved by China is discounted. The nearly 6 per cent growth in real wages for Asia and Eastern Europe, vis-à-vis the less than 1 per cent increase in Latin America and the Caribbean, point to sharp regional variations.

The distribution of wages also significantly influences differing levels of inequality. Wage gaps and job losses accounted for a 90 and 140 per cent increase in inequality in Spain and the United States respectively. These are countries among advanced economies with the maximum increase in inequality between the top and bottom 10 per cent of the population. Conversely, more equitable paid employment accounted for 87 and 72 per cent reduction in inequality between the high-end and low-end segments in Argentina and Brazil respectively. Admittedly, an increase in wages would impact on the cost of production, profitability and competitiveness of firms. But at the macro-level, wage stagnation also feeds into a decrease in domestic consumption, investment and exports. Clearly, the current ‘cut off your nose to spite your face’ approach to policy-making has to give way to more constructive means of mitigating inequalities to sustain economic growth. Based on its effectiveness in the developing and advanced countries, the ILO recommends that a minimum wage floor should be set in a manner that balances the needs of workers and their families with broader economic factors. Collective bargaining is the other key institution that has a proven record of narrowing wage inequalities, subject of course to the extent to which employees are covered under such bodies. Moreover, the cumulative cost of inequality to growth is by no means insignificant. This has been borne out by studies of educational attainments among the economically disadvantaged sections.

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