Wages Shrink Worldwide, Workers Getting A Smaller Slice Of The Pie

Filed under: International,Labor,News,The Economy |

ILO News– Workers’ share of national income has been shrinking in most countries, causing public dissatisfaction and increasing the risk of social unrest, the International Labour Organization (ILO) has said in a new report.

Workers wages less as profits grow. Census Bureau photo

Workers wages less as profits grow. (Census Bureau photo)

“It has affected perceptions of what is fair, particularly given the huge payments some company executives have been getting,” said Patrick Belser, a co-author of the Global Wage Report 2012/13.

Simply put, more of the national pie has been going to profits, and less to workers in the form of wages.

Patrick Belser

Patrick Belser

This has in many cases hurt the economy by suppressing demand or causing unsustainable household debts.

Recent evidence shows this trend has been going on for decades, contrary to earlier assumptions.

In 16 developed economies, the average labor share dropped from 75% of national income in the mid-1970s to 65% in the years just before the economic crisis.

It then rose somewhat but declined again after 2009. In a group of 16 developing and emerging countries, it decreased from 62% of GDP in the early 1990s to 58% just before the crisis.

Even in China, where wages tripled over the last decade, workers’ share of the national income has gone down.

The False Lure Wage And Labor Cuts

Reducing labor costs to boost competitiveness on the export market appears an increasingly popular option for crisis-hit countries but is not guaranteed to prevent economic stagnation or current account deficits (when countries import more than they export, including services and capital). And, even if such policies were attractive at the national level, they would be unsustainable globally.

“While each individual country may in principle increase demand for its goods and services by exporting more, not all countries can do so at the same time,” said Sangheon Lee, another co-author of the report.

What is needed is for countries to re-establish a closer connection between wages and productivity, both as a matter of fairness and of sustainable economic growth., Lee said.

Interactive chart: The Widening Gap Between Wages And Labor Productivity

  Video: ILOTV — Lower Wages, A Smaller Slice Of The Prosperity Pie For Workers

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