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ILO warns over flatlining wages in developed nations

Update: December, 05/2014 - 10:22

GENEVA – Wages in developed countries are flatlining and even falling in some places, holding down economic growth after the financial crisis and increasing the risk of deflation, the International Labour Organisation said on Friday.

The UN agency said that tax and welfare interventions were not enough to address the resulting inequality, and urged governments to introduce or boost national minimum wages and strengthen collective bargaining.

In its latest biennial update on world trends, the ILO said wage growth in developed economies was just 0.2 per cent last year and 0.1 per cent in 2012, down from around 1.0 per cent before the global financial crisis.

By contrast, strong wage growth in Asia helped push up the global average to 2.0 per cent in 2013 and 2.2 per cent in 2012, down from 3.0 per cent before the financial crisis. In Greece, Ireland, Italy, Japan, Spain and Britain, real wages actually fell below 2007 levels in 2013.

"Wage growth has slowed to almost zero for the developed economies as a group in the last two years, with actual declines in wages in some," said Sandra Polaski, the ILO's deputy director-general for policy.

"This has weighed on overall economic performance, leading to sluggish household demand in most of these economies and the increasing risk of deflation in the eurozone."

Cutting wages has been a key element in the international bailouts of eurozone members, and European Central Bank chief Mario Draghi called last week for wage cuts to strengthen the viability of the single currency.

However, there are concerns that exceptionally low price rises in the 18-countries sharing the euro could augur a long period of slow growth and falling prosperity.

Strong wage growth in Asia

The modest global growth in wages was driven almost entirely by emerging economies, where salaries rose by 6.7 per cent in 2012 and 5.9 per cent in 2013.

But among emerging nations there were major regional variations – Asia saw growth of 6.0 per cent in 2013, compared to 0.8 per cent in Latin America and the Caribbean.

Removing China from the 2013 global wage figure cuts it almost in half, to 1.1 per cent.

Real wages in the Asia Pacific region are now 2.4 times higher than they were in 1999, the ILO figures revealed.

And across the world, the slow trend towards a convergence of wages between developed and emerging countries continues.

But Polaski cautioned that lower wages in Europe and Japan did not necessarily mean more money for workers elsewhere.

While company profits had recovered after the crisis, many were guarding the money instead of reinvesting it in a way that would benefit labour, she said.

Impact on inequality

The wage stagnation in developed countries comes despite an increase in productivity, with the result that workers are receiving a smaller share of economic growth compared to the owners of capital.

The ILO warned of the importance of wages in combating inequality, and Polaski said governments must address the issue "as a matter of fairness and of economic growth."

Taxes and social protection policies were part of the solution, but "a comprehensive strategy" was needed that includes minimum wage policies, collective bargaining and anti-discrimination measures, she said.

The report also highlighted how the gender pay gap persists worldwide even when different circumstances such as education levels are taken into account.

Averaging between four and 36 per cent, the gap widens for higher earning women, while mothers also earn less than women without children, the ILO found. — AFP

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