UN report: financial crisis slashed global wage growth by half

The financial and economic crisis cut global wage growth by half in 2008 and 2009, according to a new United Nations report.

“This study shows another face of the lingering employment crisis,” the Director-General of the UN International Labour Office (ILO), Juan Somavia, said of his agency’s report, calling on policy makers to focus on wage determination to strengthen the tepid recovery. “The recession has not only been dramatic for the millions who lost their jobs, but has also affected those who remained in employment by severely reducing their purchasing power and their general well-being.”

Analyzing data from 115 countries and territories covering 94 per cent of the approximately 1.4 billion wage earners worldwide, the “Global Wage Report 2010/11 – Wage policies in times of crisis” shows that growth in average monthly wages globally slowed from 2.8 per cent in 2007, on the eve of the crisis, to 1.5 per cent in 2008 and 1.6 per cent in 2009. Excluding China, global average wage growth dropped to 0.8 per cent in 2008 and 0.7 per cent in 2009.

The report cites considerable variations across regions, with wage growth slowing but remaining consistently positive in Asia and Latin America while experiencing a dramatic fall in other regions such as Eastern Europe and Central Asia. Advanced economies saw a drop in real wages in 12 of 28 countries in 2008, and in seven in 2009.

The report, the ILO’s second on the issue since 2008, says the overall short-term impact of the crisis on wages should be looked at within the context of a long-term decline in the share of wages in total income, a growing disconnect between productivity growth and wages, and widespread and growing wage inequality.

In particular, it notes that since the mid-1990s the proportion of people on low pay, defined as less than two-thirds of median wage, has increased in more than two-thirds of countries with available data. Looking ahead, it says the pace of the recovery will depend, at least partly, on the extent to which households are able to use their wage to increase consumption.

“Wage stagnation was an important trigger of the crisis and continues to weaken recovery in many economies,” Mr. Somavia said. “We are facing a world of deficient aggregate demand amidst large unmet needs and continued high unemployment – macroeconomic policy makers must turn their attention to employment and to wage determination to strengthen the tepid recovery and address longer term social and economic imbalances.”

The reports findings included that 50 per cent of countries adjusted their minimum wages as part of regular reviews or to protect the purchasing power of the most vulnerable workers – a departure from earlier crises when minimum wage freezes were the pattern – and calls for better articulation between minimum wages and social and labour market policies to help low paid workers, who are especially vulnerable to falling into poverty.