The global economic crisis will lead to painful cuts in the wages of millions of workers worldwide the International Labor Office (ILO) warned in a report published yesterday.

"For the world's 1.5 billion wage-earners, difficult times lie ahead", said ILO Director-General Juan Somavia. "Slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of many workers, particularly low-wage and poorer households. The middle classes will also be seriously affected".

The Global Wage Report 2008/09, warns that tensions over wages are likely to intensify.

Based on the latest IMF growth figures, the ILO forecasts that global growth in real wages will at best reach 1.1 percent in 2009, compared to 1.7 percent in 2008, but wages are expected to decline in many countries. Overall it expects wages in industrialized countries to fall by 0.5 percent in 2009, compared to a growth of 0.8 percent in 2008.

The ILO report says this bleak outlook follows a decade in which wages have failed to keep pace with economic growth.

According to the report, between 1995 and 2007, each additional 1 percent in the annual growth of GDP per capita led to on average only a 0.75 percent increase in wages. As a result, in three-quarters of countries worldwide the share of labor in overall GDP has declined.

From 2001 to 2007 while the global economy grew at a 4.0 percent annual rate, growth in wages lagged behind, increasing by less than 2 percent per year in half of the world's countries, the report says.

There were wide regional differences. The growth in real wages was about 1 percent per year or less in most developed and Latin America countries, but reached 10 percent or more in China, Russia and a number of other transitional countries.

Unsustainable growth in wage inequality

The report also shows that since 1995, the gap between the highest and lowest wages has increased in more than two-thirds of the countries surveyed, often reaching socially unsustainable levels. Among developed countries, Germany, Poland and the United States are amongst the countries where the gap between top and bottom wages has increased most rapidly. In other regions, inequality has also increased sharply, particularly in Argentina, China and Thailand.

Countries that have succeeded in reducing wage inequality include France and Spain, as well as Brazil and Indonesia, though in the latter two countries inequality remains at a high level.

The pay gap between genders is still high and closing only very slowly. Although about 80 percent of the countries for which data are available have seen an increase in the ratio of female to male average wages, the size of change is small and in some cases negligible. In the majority of countries, women's wages represent on average between 70 percent and 90 percent of men's wages, but it is not uncommon to find much lower ratios in other parts of the world, particularly in Asia.

Wages support the real economy

Based on an analysis of major trends in the level and the distribution of wages around the world in recent years, the ILO report shows that while wage growth has lagged behind overall economic growth during upswings, it has slowed down even more rapidly during economic downswings. According to the report, between 1995 and 2007, for each 1 percent decline in GDP per capita, average wages fell even further by 1.55 percentage point – a result that points to the possible effects on wages of the current crisis.

"If this pattern were to be followed in the rapidly spreading global downturn it would deepen the recession and delay the recovery", Mr. Somavia said.

The report says a combination of minimum wages and collective bargaining are needed to fight against wage cuts. Collective bargaining keeps wages in step with economic growth and contributes to lower wage inequality. Effective minimum wages reduce wage inequality in the bottom half of the wage distribution, limit low pay, and reduce the gender pay gap.

"The legitimacy of globalization and of open economies and societies hinges critically on greater fairness in outcomes. Central to this fairness is the ability of working women and men to obtain a fair share of the wealth they create", Mr. Somavia said.

(China.org.cn November 27, 2008)