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Global Wage Report 2012/13

Workers getting a smaller slice of the pie

Workers have been getting a smaller share of national income, as a bigger slice has gone to profits in most countries. This trend has wide-ranging economic and social implications.

News | 07 December 2012
GENEVA (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 report.

“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.

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 labour share dropped from 75 per cent of national income in the mid-1970s to 65 per cent 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 per cent of GDP in the early 1990s to 58 per cent 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 of cutting labour costs

Reducing labour 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.

The widening gap between wages and labour productivity

Mouse over the charts to see the values
Since the indices refer to a weighted average, developments in the three largest developed economies (United States, Japan and Germany) have a particular impact on this outcome. Labour productivity is measured as output per worker.
Sources: ILO Global Wage Database; ILO Trends Econometric Model, March 2012.