Global Wage Report

The latest ILO Global Wage report finds global wage growth has been weak while the gender pay gap, at about 20 per cent globally, remains unacceptably high

News | 03 December 2018
• The Global Wage Report is one of the ILO’s flagship reports, which is published every two years.

• The report shows global and regional trends in average wages, and this year it also provides an analysis of the gender pay gap, looking at the elements that lie behind these pay gaps.

• The gender pay gap is one of the greatest manifestations of social injustice today. All countries should try to better understand what lies behind gender pay gaps, with a view to accelerating progress towards gender pay equality.

Trends in average wages (Part 1 of the report)

• Looking at trends in real average wages (adjusted for inflation), the report finds that global wage growth in 2017 was not only lower than in 2016, but fell to its lowest growth rate since 2008, remaining far below the levels obtained before the global financial crisis. This is a weighted average based on 136 countries.

High-income countries

• In high-income countries, wage growth was particularly disappointing given the recovery in GDP growth and falling unemployment in many countries.

• In high-income G20 countries, real wage growth declined from 0.9 per cent in 2016 to 0.4 per cent in 2017.

• In Europe (excluding Eastern Europe), real wage growth declined from 1.3 % in 2016 to about 0 in 2017, due in particular to lower wage growth in France and Germany, and falling wages in Italy and Spain.

• In the U.S. real wage growth stayed flat at less than 1 per cent (0.7 per cent) in both 2016 and 2017.

• Early indications suggest that in most countries, slow wage growth continues in 2018. Despite more encouraging reports about growing nominal wages in the U.S. in the last few weeks, our preliminary estimate suggest that real wage growth in high-income countries will remain below 1 per cent in 2018.

• Given the recovery in GDP growth and the gradual reduction in unemployment rates in various countries, slow wage growth in high-income countries in 2017 represented somewhat of a puzzle and has been the subject of intense debate.

• Depending on the national context, possible explanations for subdued wage growth include slow productivity growth, the intensification of global competition, the decline in the bargaining power of workers and the inability of unemployment statistics to adequately capture slack in the labour market, as well as an uncertain economic outlook which may have discouraged firms from raising wages.

• Whatever the reasons, it is now widely recognized that wages are a crucial determinant of household income and living standards, and hence of aggregate demand and inclusive growth. So countries should explore more intensively, with social partners, ways to achieve socially and economically sustainable wage growth.

Emerging economies
• In low- and middle-income countries, wage growth has been more robust but with more diversity across countries and regions. In emerging G20 countries, wage growth has fluctuated between 4.9% in 2016 and 4.3% in 2017.

• In the last 20 years or so, real wages have almost tripled in emerging and developing G20 countries, while in advanced G20 countries they have increased by just 9 per cent. So average wages are coming closer to each other, even though differences in average wages remain large.

• In many low and middle income economies, wage inequality remains high and wages are frequently insufficient to cover the needs of workers and their families.

• Over the last few years, the ILO has engaged with many countries around the world to build sustainable wage policies which ensure “a fair share of the fruits of progress to all”, such as for example in South Africa, whose President just announced a new national minimum wage at 20 Rand per hour.

What lies behind gender pay gaps? (Part 2 of the report)
• The gender pay gap is an issue of major concern in our labour markets and societies, where progress has been too slow in recent years;

• We need to step up our action, and one way to accelerate progress is to better understand what lies behind gender pay gaps in different national circumstances.

• The report calculates gender pay gaps in different and sometimes innovative ways, using data covering some 70 countries and about 80 per cent of wage employees worldwide.

• Note that in the report we use the same methodology across all 70 countries: this allows us to estimate gender pay gaps comparable across countries, but it also means that some of our estimates may be slightly different compared to country’s estimates from official national statistics.

• The first finding is that gender pay gaps is a universal phenomenon that occurs in just about all countries, although with variations between them: gender pay gaps can be as high as 36 per cent in the case of Pakistan, and as low as 3 per cent in the case of Belgium.

• If we take a global average, the report shows that that globally women continue to be paid approximately 20 per cent less than men.

• In high income countries the gender pay gap is higher among top income earners, reflecting the so called “glass ceiling effect” for women in the labour market.

• In emerging and low income countries the gender pay gap is wider amongst the lower paid workers: this is an important finding because in these countries women wage employees concentrate at the bottom end of the pay scale. They are more likely to be in vulnerable jobs, often as informal wage employees.

• Factors that should objectively determine wages, such as experience, education, occupational category or industrial sector do not really explain the gender pay gap.

• Education does not play a significant role in explaining the gender pay gap. In just about all 70 countries women wage employees are just as well – if not better – educated than men.

• In many of these countries the findings suggest that women are paid less for their education compared to men.

• There is evidence of a motherhood penalty among women wage employees: Women wage employees with parental obligations receive wages lower than similar women who are not mothers This can be as high as 30 per cent in Turkey and as low as 1 per cent in South Africa. ,

• However, men with parental obligations are paid more compared to men without parental obligations. The fatherhood premium – which can be as high as 26 per cent as is the case of Korea – together with the motherhood penalty, contribute to the overall gender pay gap in the economy.

• Women and men are not evenly distributed between occupations, with more men taking the top occupational categories (e.g., as managers or CEOs) and more women in jobs classified as semi-skilled and unskilled.

• Within occupational categories, for example, comparing women and men who are in managerial positions, the findings show that within countries, women get paid less than men – despite the fact that comparing the education of women and men within occupations women are just as well educated and, sometimes even more educated than men.

• Wages tend to be lower in enterprises with a predominantly female workforce, and this clearly impacts on the gender pay gap: women tend to concentrate in particular sectors and occupations which are then associated with lower average wages.

• What the report also shows is that one cannot necessarily associate enterprises where women predominate with a lower productivity profile compared to other enterprises in the economy. For example, the report shows that in the case of Europe, wage employees that work in enterprises with a predominantly female workforce can earn about 15 per cent less compare to wage employees in enterprises with a similar productivity profile, but a different gender mix. This 15 per cent gap represents about US 4,000 less in earnings per year.

• Much of the gender pay gap cannot be explained by an objective difference in productivity between men and women; in other words, the gender pay gap is a result of well rooted prejudice and stereotyping of women in the labour market which are further reinforced because we do not yet have the right policies and legislations in place to make this reality a thing of the past.

• But clearly, the recent movements around the world for gender equality suggest that this is now the moment to take stock and take action.

• There are in fact several policy actions that can be taken to reduce the gender pay gap:

o Improving understanding of what lies behind the gender pay gaps, including by using more appropriate data and measurement methods
o Reducing stereotyping among the very young in the population – particularly through the education system – so that the in the future labour market we find that women and men are more diversified across occupations and economic sectors. This alone could lead to a change in how society values particular jobs, occupational categories and economic sectors.
o Increasing access to care services for working women with care responsibilities
o Policies that target the different segments of the wage distribution: minimum wages at the low end; collective bargaining that appropriately takes care of women’s and family needs; measures to encourage enterprises to engage in gender equitable practices
o Establish appropriate legal frameworks that penalize wage discrimination between men and women, but together with this, there is also the need to implement instruments that bring transparency on wage outcomes.

• Some countries that have put in place good practices in recent times: Germany’s new Transparency of Pay Act (2017), entitles individual employees to request the median monthly salary of employees of the opposite sex within their comparison group (e.g. with a similar work profile) and this applies to companies with 200 or more wage employees; in the United Kingdom by law, and starting in 2017, employers with a workforce of 250 or more are required to publish data on their gender pay gaps.

• SDG 8.5 calls for equal pay for work of equal value to be achieved within the framework of this new UN agenda by 2030.

• Together with the Equal Pay International Coalition (EPIC), an initiative of the ILO together with UN Women and the OECD, we hope the report contributes towards the achievement of SDG 8.5.