Global Wage Report

ILO says economic crisis eroding real wages for second year running

Global growth in real wages slowed dramatically in 2008 as a result of the economic crisis and is expected to drop even further this year despite signs of a possible economic recovery, the International Labour Organization said. “The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early. Wage deflation deprives national economies of much needed demand and seriously affects confidence”, said Manuela Tomei, Director, ILO Conditions of Work and Employment Programme and lead author of the study.

Press release | 03 November 2009

GENEVA (ILO News) – Global growth in real wages slowed dramatically in 2008 as a result of the economic crisis and is expected to drop even further this year despite signs of a possible economic recovery, the International Labour Organization said.

“The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early. Wage deflation deprives national economies of much needed demand and seriously affects confidence”, said Manuela Tomei, Director, ILO Conditions of Work and Employment Programme and lead author of the study.

The “Global Wage Report: 2009 Update” will be discussed at the ILO Governing Body in Geneva on 5-20 November as well as the implementation of the Global Jobs Pact adopted at the International Labour Conference in June. The Pact calls for measures to maintain employment and avoid the damaging consequences of deflationary wage spirals and worsening working conditions.

The update of the Global Wage Report says “the picture on wages is likely to get worse in 2009” regardless of other economic indicators suggesting an economic rebound. The report notes that in half of the 35 countries for which figures are available, real monthly wages fell in the first quarter of 2009 compared to their average of 2008, often due to cuts in hours worked.

This follows another difficult year for wages in 2008. In a sample of 53 countries for which data are available, growth in real average wages in the median country had declined from 4.3 percent in 2007 to 1.4 percent in 2008. Among the ten G-20 countries for which the data is available, growth in real average wages in the median country had declined from 1.0 percent in 2007 to -0.2 percent in 2008.

The report also says both developed and developing countries have strengthened their minimum wages in recent years, reflecting the growing concerns about increasing inequality and low pay. While during past downturns concerns about the impact on labour costs were widespread, in the current crisis, a number of countries have adjusted their minimum wages upwards.

In 2008, half of the 86 countries for which data are available – including major economies such as the U.S., Russia, Japan and Brazil – have increased minimum wages by more than inflation figures. The report describes minimum wages as “an important policy tool for social protection”, calls for the involvement of social partners in setting the level and proposes that minimum wages be combined with other income support measures and/or tax reductions.

“Minimum wages, social dialogue and collective bargaining are all ways of avoiding deflationary wage spirals and their impact on society”, said Ms. Tomei.

The current deterioration in wages follows a decade of wage moderation before the global economic crisis. The report considers that years of stagnating wages relative to productivity gains – together with growing inequalities – have contributed to the crisis by limiting the ability of many households to increase consumption other than through debt.

“In the future, restoring the link between productivity growth and wage increases is essential for economic and social sustainability. Companies should be able to achieve competitiveness through rising productivity rather than by cutting labour costs, and workers should have sufficient bargaining position to defend their wages. This will go a long way towards addressing income inequalities”, Ms. Tomei said.

According to the new report, one particular concern about the impact of the crisis on wages is the extent to which wage-arrears have increased. It says that in countries such as Ukraine and Russia where this was already a problem, it is likely that the situation may have gotten worse as a result of the crisis.

The report also says that excessive bonuses, unrelated to actual performance, contributed to the crisis by distorting incentives in the financial sector and promoting short-term risk taking.

For more information, please contact the ILO Department of Communication and Public Information at +4122/799-7912 or communication@ilo.org