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Global wage growth cut in half

20 December 2010
by Patrick Love

Got any sardines then?

The only time I’ve had more money than I could spend was in Warsaw in the 1980s. You had to change a certain sum from hard currency into zlotys for each day on the visa, and though I like a nice tin of sardines or an attractive wood carving as much as the next man, the thrill starts to fade after a while.

So there we were on the night before we left, rushing round the shops at closing time trying to convince ourselves that a dozen AC/DC transformers would make an ideal gift and that you can never have too many hammers. Our other memorable shopping experience had been taking turns with our Polish friends to wait in a queue all afternoon to buy meat.

Since then of course, Poland has been transformed out of all recognition, and joined the OECD in 1996. The queues have gone and living standards have been rising steadily.

The latest ILO report on global wages doesn’t show the difference between the 1980s and now, but even taking 1999 as a baseline (= 100), real wages in Eastern and Central Europe rose by over half in the past ten years (index =161). For Eastern Europe and Central Asia, the rise is even greater, at 334, although for many of the countries included, this is because the baseline is so low.

There was less progress elsewhere, especially in the advanced countries (index = 105) and Latin America and the Caribbean (index = 114).

This positive trend doesn’t tell the whole story however.

The crisis cut growth in global wages by half in 2008 and 2009, and the report also shows that the proportion of people earning low pay – defined as less than two-thirds of median wages – has increased since the mid-1990s in more than two-thirds of the countries for which data are available.

In countries with a high or growing share of low pay, the probability of moving into better-paid jobs remains low, and the risk of being trapped into low-paid jobs is high.

The report also argues that discrimination is partly to blame for the persistence of both low pay and wage gaps. In both industrialised and developing countries, low-paid workers tend to be young, are disproportionately female, and are more likely to be members of a disadvantaged ethnic minority, racial or immigrant group.

The ILO also note that amount of national income going to paid labour (wage share)has been declining since the mid-1980s in OECD countries as a whole, although with significant fluctuations over time and among countries. Apart from a redistribution from wages in favour of profits, there has also been a redistribution from median earners to high-wage earners.

Not surprisingly, the ILO is worried about “social tensions” that could arise due to another widening gap: that between those who caused the crisis and are now doing well again, and those who paid for it and see little hope of improving their lot.

Useful links

Growing Unequal: Income Distribution and Poverty in OECD Countries

OECD work on employment

OECD Insights: From Crisis to Recovery has a chapter on employment

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