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Global Wage Report 2020/21: Wages and minimum wages in the time of COVID-19

Global Wage Report 2020-21: Wages and minimum wages in the time of COVID-19

The COVID-19 pandemic has transformed into an unprecedented global economic and labour market crisis, hurting millions of workers and enterprises. While the impact on jobs has been widely documented, the effects on wages are less known.   

What have been the pandemic’s impacts on workers’ wages? What key measures have governments and social partners taken to protect workers’ wages? How have minimum wages evolved, both before and during the crisis?

We invite you to explore the findings of the 2020-21 edition of the ILO’s Global Wage Report in this InfoStory. The InfoStory will be updated regularly as new statistical data are collected.

Recent trends in wages

Before the crisis

While country experiences varied, before the crisis the general trend was that real average wages were growing rapidly in some lower- and middle-income countries but much more slowly in high-income countries.  

In high-income countries, wage growth lagged behind labour productivity growth, and this gap led to a global decline in the labour income share (the share of GDP going to wages).

Wage subsidies during the crisis

From March and April 2020, when the pandemic and resulting lockdowns threatened to push enterprises into bankruptcy and millions of workers into unemployment, at least 40 countries have adopted “temporary wage subsidies” as part of a range of policy measures to counteract the effects of the crisis.

These temporary wage subsidies sought to prevent mass layoffs, to help enterprises retain their skilled workers, and to support the recovery of production once the lockdowns ended. 

They also aimed to ensure that workers continued to receive at least part of their usual wages, even if some workers had to take wage cuts.

Argentina

Wage subsidies vary by enterprise size. For small enterprises (up to 100 workers), the Asignación Compensatoria al Salario contributed up to 50% of the gross salary in February 2020, with a minimum value of one current minimum wage and a maximum value of two current minimum wages.

For larger enterprises, the REPRO programme offered a payment of between ARS 6000 and ARS 10000. As of 20 April, 80% of businesses (or 420,000) had submitted claims.

Bangladesh

The Government has allocated USD 600 million to subsidize loans for exporting companies in the ready-made garment sector.

The loans are to be used to pay three months of wages to safeguard jobs for some 4 million workers in this very important sector. Companies that have already laid off employees are not eligible.

 

Botswana

The State compensates 50% of employees’ monthly wages, with a minimum at BWP 1000, a cap at BWP 2500, and a duration of three months. All enterprises across sectors with no government shares are eligible. The subsidy only applies to citizens.

Canada

Registered employers whose revenues decreased by at least 30% in March, April and May as compared to last year are eligible for the Canada Emergency Wage Subsidy (CEWS). Seeking to re-employ laid-off workers and to prevent future dismissals, CEWS subsidizes 75% of salaries, with a maximum of CAD 847 per week, for an initial duration of 12 weeks from 15 March.

On 15 May the Government extended CEWS for an additional 12 weeks and declared its intention to maintain the programme to the end of the year. As of 2 August, CAD 25.51 billion had been allocated, covering more than 11 million salaries.

 

France

The pre-existing chômage partiel scheme, intended to prevent economic layoffs in difficult times, has been extended and strengthened to cope with the COVID-19 crisis. Any business forced to cease activity due to lockdown or social distancing measures can apply for a wage subsidy.

The government subsidizes 70% of the employee's gross salary (100% for those paid at the minimum wage), up to a limit of 4.5 minimum wages, for a maximum period of 12 months. As of 1 June this was reduced to 60% for least exposed activities, and from 1 October all employees in partial activity will receive 60% of their gross salary.

For the some 12 million requests made between 1 March and 20 July, the scheme protected, in terms of full-time equivalent, 2.2 million jobs in March, 5.6 million in April, 3 million in May  and 1.5 million in June. Some 31 billion euros have been budgeted to finance the scheme.

Germany

The Kurzarbeit scheme covers a percentage of workers’ wages ̶  60% for individuals without children and 67% for those with children. The remaining percentage is covered by enterprises according to their capacities. After the fourth and seventh month, an increase to 70 and 80% for employees without children and 77 and 87% for employees with children is foreseen.

Eligible enterprises can register if 10% of their workforce have their working hours reduced by 10%. It also covers temporary workers and enterprises that contract out temporary workers. An estimated 9.3 million persons benefited from Kurzarbeit between March and April, a number already much larger than that during the 2008-09 financial crisis.

Malaysia

The wage subsidy similarly varies depending on the number of employees in the establishment, ranging  from MYR 600 to 1200 per month per worker. Companies with less than 75 employees receive the highest amount; companies with up to 200 employees receive MYR 800; and companies with more than 200 workers, MYR $ 600.

The scheme, intended to protect around 1 million workers for an estimated cost of MYR 1.2 billion, requires that employees keep their jobs and be paid their full salary for a period of six months (3 months being subsidized).

Morocco

Employees registered with the Caisse Nationale de Sécurité Sociale (CNSS) whose employers are experiencing difficulties receives a net monthly lump sum compensation of MAD  2000. Compensations paid from 15 to 30 June came from a COVID-19 fund of some MAD 10 billion, and required employers to certify partial or total stopping of activity.

This support system was subsequently extended to the informal sector, with informal workers receiving a one-off payment ranging between MAD 800 and 1200 depending on the size of the household. In June, despite a slight upturn in activity, more than 2 million employees in the private sector benefited from this support, at a cost of MAD 1.3 billion.

United Kingdom

The Coronavirus Job Retention Scheme accounts for 80% of workers’ monthly wages. A ceiling is set at GBP 2,500 a month for a duration of at least 3 months. The Job Retention Scheme had stipulated that working hours of furloughed employees must be reduced to zero, prohibiting any intermediate arrangements.

However, from 1 July employers can bring their employees back to work with reduced working hours while the government continued to subsidize normal non-worked hours, as in the German Kurzarbeit or French chômage partiel schemes. In September and October, the Government will reduce its contribution to 70% and then 60%, with employers having to provide 10% and 20% of the gross monthly wage.

As of 2 August, 9.6 million workers had been furloughed by around 1.2 million employers, at a total cost of GBP 33.8 billion.

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What has happened to real average wages in 2020?

Early data shows that in some countries, for example the US, average earnings took a surprising jump in the statistics. However, this was largely artificial, reflecting the loss of lower-paying jobs in the economy. When low-paid workers become unemployed, the average wage reflects the wages of the higher-paid workers who remain employed. 

In other countries, where unemployment did not increase as much – possibly owing to the use of wage subsidies and other job retention measures - average wages remained flat or declined, as working time was cut or as the nominal wages of workers were frozen or reduced.

The full extent to which the crisis has impacted average wages in 2020 will only become clear as national statistical offices publish their new statistical estimates towards the end of the year or even later.

Minimum wages and inequality

The economic and labour market crisis due to COVID-19 has hurt vulnerable groups, threatening to further increase inequality and to push many families into poverty. In this context, adequate minimum wages – set by governments or negotiated through collective bargaining – can play an important role. They can protect workers’ wages from spiralling down to unduly low levels, prevent even larger increases in poverty and inequality, and contribute to economic stability and recovery.

There are three factors that influence the extent to which a minimum wage may realize its full redistributive potential: (a) the characteristics of the beneficiaries of the minimum wage; (b) broad legal coverage and compliance with minimum wage legislation; and (c) an adequate minimum wage level.

Regarding the beneficiaries of the minimum wage, an estimated 327 million workers globally are paid at their countries’ minimum wage or below. This represents about 19% of the world’s wage earners, and includes 152 million women.

Workers earning the minimum wage or below tend to live in households with lower incomes. Women, young workers (aged under 25), workers with lower education and rural workers are all over-represented. However, almost 80 per cent of sub-minimum and minimum wage earners are aged over 25 and almost half of them have children. These findings vary by country and region.

Who is legally covered?

Minimum wages exist in more than 90% of ILO member States. Some countries have just one minimum wage applicable to all employees. Other countries have more complex systems with multiple rates, which vary by region, industry or occupation.

Whatever the system, to be effective at protecting workers and reducing inequality, minimum wages should be legally applicable to categories of workers who are most at risk of unduly low pay.

Unfortunately, this is not always the case. Two categories at risk of unduly low pay are agricultural and domestic workers. At least 29 countries exclude some or all of these two categories from minimum wage regulations.  

Compliance and the informal economy

Non-compliance undermines the effectiveness of minimum wages. We estimate that globally 266 million workers are paid less than the minimum wage, either because they are not legally protected or because of non-compliance.

In a hypothetical scenario where minimum wages covered all groups of wage workers and where there was full compliance, our simulations show that inequality and poverty levels could be considerably reduced.

While compliance can be promoted by measures like information campaigns and labour inspections, high levels of informality and low productivity can make compliance particularly challenging.

Globally, the informal economy accounts for 2 billion workers, including 724 million casual or salaried wage workers – many of whom earn less than the minimum wage. Minimum wages thus need to be accompanied by policies that raise productivity and bring informal workers into the formal economy.

Setting adequate minimum wage levels

To reduce poverty and inequality, minimum wages should be set at adequate levels, taking into account the needs of workers and their families as well as economic factors.

There is no perfect formula, but the use of statistical indicators can help governments, employers and workers to reach agreement on levels that are adequate in national circumstances. Over the years, the ILO has provided technical advice to numerous countries.

Minimum wages should also be adjusted regularly. In the ten years before the crisis, only about 70% of the countries for which we have data had raised the real value of their minimum wage. 

Since the outbreak of COVID-19, some countries have opted to stick to planned minimum wage increases, while others decided to freeze their rates. 

What comes next?

In the near future, the economic and employment consequences of the COVID-19 crisis are likely to continue to inflict massive downward pressure on wages.

In navigating the crisis and planning for the new and better “normal” after the crisis, governments, employers and workers should seek to strengthen social dialogue around wages.

Adequately balanced wage adjustments – both minimum wages and wages above existing floors– will be required to safeguard jobs and at the same time protect the incomes of workers and their families to sustain demand and avoid deflationary situations. 

Social dialogue can help to ensure that all receive a fair share of the fruits of progress, and that a minimum living wage is enjoyed by all those employed and in need of protection.

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