Tatsat Chronicle Magazine

The World Has A Wage Problem

The latest Global Wage Report raises several red flags, stating that just as the world was recovering from the impact of the Covid-19 pandemic, global inflationary pressures have driven down wages, which has impacted the purchasing power of people

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Photo: WORK_MARUF RAHMAN I PIXABAY

When a once-in-a-lifetime event unfolds, its ripple effect can last for years. This has been strongly underlined in the latest Global Wage Report that has been released by the International Labour Organisation (ILO). It sounds a dire warning that lower than expected growth rates of wages across the world over the past two years along with rising inflation will significantly dent the spending ability of people in most parts of the world.

According to the report, the main driver for the negative growth of real wages is high job losses and wages due to the Covid-19 pandemic, which either slowed down or brought economic activity to a halt. The report also underlines the impact of the Russia-Ukraine war on rising inflation due to high energy and gas prices and how this has dealt a second blow to wage growth rates. It’s clear from the report that global wage growth rates will continue to remain depressed in the near future, which will adversely impact purchasing power of people.

As in the case of other disruptions in the past, poor and low-income countries have been the worst affected in terms of job losses and are feeling a greater impact of high global inflation, reaching up to 8.8% as the year came to a close. The International Monetary Fund (IMF) has predicted that the global economic growth for the better part of 2023 will be between 2% and 2.3%, after a downward revision from the projection of 3.2% in April 2022. The net effect of all these factors is that unless wages and labour incomes are adjusted against real inflation rates, the living standards of the labour and working class and their dependants will continue to decline.

On global wage trends

The report estimates that global monthly wages fell in real terms to –0.9% in the first half of 2022—the first negative global wage growth recorded since the first edition of the Global Wage Report in 2008. If China, where wage growth is higher than in most other countries, is excluded from the computations, the fall in real wages during the same period is estimated at –1.4%.

Among the G20 countries, which account for some 60% of the world’s wage employees, real wages in the first half of 2022 are estimated to have declined to –2.2% in advanced economies, while wage growth in emerging economies slowed but remained positive at 0.8%. This clearly indicates that nominal wages in many countries have not been adjusted sufficiently in the first half of 2022 to offset the rise in the cost of living. This erosion of real wages comes on top of some significant wage losses incurred by workers and their families during the Covid-19 crisis.

The IMF has predicted that the global economic growth for 2023 will be between 2% and 2.3%, after a downward revision

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Photo: JANNO NIVERGALL I PIXABAY

On G20 wage indices

Looking at a longer period, real wage growth among all G20 countries between 2008 and 2022 was highest in China, where real monthly wages in 2022 were equivalent to about 2.6 times their real value in 2008. In four countries—Italy, Japan, Mexico and the United Kingdom of Great Britain and Northern Ireland—it appears that real wages were lower in 2022 than in 2008. Conversion of all the G20 countries’ average wages into US dollars using purchasing power parity exchange rates yields a simple average wage of about $4,000 per month in the advanced G20 economies and approximately $1,800 per month in the emerging G20 economies.

On link between productivity and wages in high-income countries

Productivity growth is a key factor in achieving real wage growth. As pointed out in previous editions of the Global Wage Report, average wage growth has lagged behind average labour productivity growth since the early 1980s in several large, developed economies. This report shows that in 52 high-income countries for which data is available, real wage growth has been lower than productivity growth since 2000. Whereas the sharp decline in labour productivity growth during 2020 momentarily reduced the gap, the erosion of real wages in the first half of 2022, combined with positive productivity growth, has once more increased the gap between productivity and wage growth. In fact, in 2022 the gap between productivity growth and wage growth reached its widest point since the start of the 21st century, with productivity growth 12.6 percentage points above wage growth.

On cost of inflation across different income groups

The report shows that rising inflation can have a greater cost-of-living impact on lower-income households. This is because such households spend most of their disposable income on essential goods and services, which generally experience greater price increases than non-essential items.

The average decline in the wage bill for the sample of 28 countries was 6.2%, which is equivalent to the loss of three weeks of wages

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Gender gap: Women workers suffered higher wage losses over the past two years [Photo: MARUF RAHMAN I PIXABAY]
A comparison of the evolution of the prices of different groups of items with the general consumer price index (CPI) for about 100 countries from all regional groups indicates that the prices of food, housing and transport have all increased more rapidly than the general CPI. By estimating the change in the cost of living between 2021 and 2022 at each decile of the household income distribution, the report finds that the increase in the cost of living among low-income households can be between 1 and 4 percentage points higher than that faced by high-income ones.

This means that even if wages were adjusted to compensate for the increase in the average cost of living as measured by the CPI, low-income households would still suffer in many countries from an erosion in the purchasing power of workers’ wages.

On the real impact of Covid-19

Drawing on data from 28 countries representing different regions and income groups, the report finds that in 20 of these countries the total wage bill decreased by between 1% and 26% during 2020. The average decline in the total wage bill for the sample of 28 countries was 6.2%, which is equivalent to the loss of three weeks of wages, on average, for each wage employee. Among the 21countries with data available for both 2020 and 2021, the decrease in the total wage bill is equivalent to four weeks of wages in 2020 and two weeks in 2021, implying a cumulative loss of six weeks of wages over these two years.

The decline in the total real wage bill was more pronounced in low- and middle-income countries than in high-income countries, where job retention schemes and wage subsidies sustained both wage employment and nominal wage levels during lockdowns, even when there was a decrease in the number of hours worked.

On comparison of wage bill between men and women

Estimates from some 30 countries show that the contribution of inflation to the decline in the total wage bill ranged from 1% to 18%. In 2022, inflation has become the dominant factor behind the decline in the total wage bill. Thus, in all 12 countries with data up to the first quarter of 2022 inflation has eroded the total real wage bill, with its contribution ranging from 2.2% to 18.2%.

If the total wage bills for women and men are considered separately, estimates indicate that employment losses (including jobs and hours worked) from 2020 to 2022 were greater among women, particularly during 2020, even though employment levels in the last two years recovered for both women and men. At the same time, and especially during 2020, increases in average wages were greater for women. This suggests that the employment losses of women were even more concentrated among low-paid workers than those of men, leading to a stronger composition effect and hence a greater jump in average wages for women.

(Edited excerpts of the Global Wage Report 2022 have been published under the Creative Commons Licence)

He is the Executive Editor of Tatsat Chronicle and has more than 22 years of experience during which he held several senior editorial positions in print publications, news television and digital media platforms. The former Managing Editor of Sports Illustrated has launched two editions of one India’s largest circulating English newspapers and five magazines. He has written and reported on wide-ranging subjects from crime to politics, from technology to sports, from bureaucracy and governance to environmental issues.

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