Global Trends in Wages Major findings and their implications for future wage policies Malte Luebker, Senior Regional Wage Specialist ILO Regional Office for Asia and the Pacific, Bangkok Email: luebker@ilo.org ITUC-Asia Pacific Regional Conference on Wage Policy for Sustainable Wage-led Growth Singapore, 8-9 April 2014
Outline 1. Wage trends in Asia and the Pacific (and beyond): Findings from the ILO s Global Wage Report and an update for the region. 2. Two global policy challenges: Wage inequality (distribution between workers). Wage shares (distribution between capital & labour). 3. Implications for future wage policies: Containing wage inequality and protecting low-paid workers. Halting the decline in the labour share: Re-linking wages and productivity and wage-led growth. 2
1. Wage trends in Asia and the Pacific (and beyond) 3
Monitoring wage trends across the world: The ILO s Global Wage Report ILO flagship publication Global Wage Report: Highlights importance of wage trends & tracks policy developments. Database contains data for 124 countries. Coverage: 94.3% all employees and 97.7% of the global wage bill. New edition in late 2014. 4
What has happened to wages during the crisis? Global wage growth remains far below precrisis level. Without China, global wages have been almost flat in 2008-09 and 2011. 5
Difference in performance by region Double-dip in developed economies: real wages fall in 2009 & 2011. Asia & Pacific outperforms other regions. Africa Asia Developed E. Europe Latin America Middle East 6
Real average wages: Long-term trends Conditional convergence of wages over 2000s: Near-stagnation in the developed world. Wages in Asia nearly doubled (driven by China). 7
What is behind Asia s strong performance? China s wage growth carries big weight for Asian figure. If China is excluded, real wages for the rest of Asia stagnate. Annual average real wage growth in Asia, 2006 11 (%) 8
Wage trends in East Asia Take-off in China and Mongolia. Stagnation in the high-income economies. 9
Wage trends in South-East Asia Slow growth in South East-Asia: Acceleration in Thailand, Indonesia and Malaysia in 2012 and 2013 with new minimum wages. 10
Wage trends in South Asia Slow growth in South Asia: Finding for India depends on data source. 11
2. Two global policy challenges 12
Wages and income distribution Wages have direct impact on income distribution though two main channels: a) Wage inequality: Distribution between workers. b) Labour shares: Distribution of value added between labour and capital (functional income distribution). Adverse trends can be seen in both areas, both globally and in Asia and the Pacific. Combined impact exacerbates growing income inequality. 13
a) Rising wage inequality Rising wage inequality as global trend: In more than two-thirds of the countries with data, the gap between the bottom and top wage earners has increased since 1995 (GWR 2008/09). Implies that low-wage workers do not fully benefit from trends in average wages and has negative impact on poverty and social cohesion. Concern of social justice (normative perspective). Main explanations cited in literature: Market forces and globalization (orthodox view), but erosion of labour market institutions also matters. 14
Wage trends by group in Singapore Source: W.T. Hui, based on Ministry of Manpower, Report on Labour Force in Singapore. Substantial real wage growth at the top. Stagnation of real wages at the bottom. 15
b) Falling labour shares The labour share is a simple measure to assess the evolution of total wages relative to GDP: Labour share = compensation of employees / GDP. In the 1960s and 1970s, stability of the labour share was accepted as a stylized fact. Over past 25 years, many countries (US, Germany, etc.) have experienced declining labour share. Implies a shift towards capital incomes and that workers wages do not grow in line with economic performance. Main reasons cited in the literature: Increased role of financial markets (financialization), globalization, technological progress and weakening of labour market institutions (collective bargaining, etc.) 16
Declining labour shares In advanced countries and in emerging and developing economies. 17
Rapid decline of the labour share in China Chinese wages have lagged behind productivity growth. Steep fall in labour share (and real unit labour cost) since 2002. 18
3. Implications for future wage policies 19
Implications for future wage policies policies in regard to wages and earnings, hours and other conditions of work calculated to ensure a just share of the fruits of progress to all, and a minimum living wage to all employed and in need of such protection; Declaration of Philadelphia (1944) Declaration of Philadelphia (1944) still has relevance in light of today s challenges: a) Containing wage inequality and protecting low-paid workers. b) Wages and growth: Halting the decline in the labour share and re-linking wages to productivity. 20
a) Protecting low-paid workers Main purpose of Minimum Wage Fixing Convention, 1970 (No. 131): providing protection for wage earners against unduly low wages (Preamble) Some positive developments: Malaysia: Introduction of national minimum wage of RM 900 / RM 800 in 2012. Singapore: Progressive Wage Model makes minimum pay of S$1000 mandatory for cleaners, other sectors to follow. De-facto minimum wage by giving the force of law to provisions of collective agreements ( see R135, para 6 [e]). 21
Challenges: Exclusion of low-paid workers Minimum wages fail to provide protection for many low-paid workers: Weak implementation. Widespread informality. Exclusion of some groups from coverage. Low-pay incidence in the Philippines (2008) 22
Challenges: Exclusion of low-paid workers (ii) Domestic workers: Among the lowestpaid groups in all countries. Most domestic workers in Asia are excluded. Some Indian states, the Philippines, Hong Kong SAR provide protection. C189 calls for inclusion of domestic workers. Minimum wage coverage for domestic workers (2010) 23
b) Wages and growth Decline in labour shares implies that wages have become de-linked from productivity growth. This raises questions of social justice, but has also prompted and economic debate: Is a falling wage share good for growth? Dual nature of wages in economic theory: Cost to enterprises: Lower wage cost makes enterprises more profitable, so they have resources to increase investment. Income for workers: Higher wages mean more income for workers, so this raises demand and enterprises can sell more goods so to serve demand, they should expand. Orthodox economics focuses on first aspect, but literature on wage-led growth highlights second. 24
Effects of changes in the labour share on growth Changes in the capital and labour shares affect all three main components of aggregate demand (which is equal to GDP). Investment: Effect of wages can go either way. Net exports: Lower wages usually lead to higher net exports. Consumption: Higher wages usually boost consumption. 25
Revisiting the Asian growth model Economies in (East and South-East) Asia have traditionally relied on exports for economic growth: This implied low-wage strategy to compete in international markets and to boost exports. However, strategy is showing its limitations: Demand from main export markets is fragile. Not all countries can run an export surplus. Wages are rising in many countries. Countries in Asia are re-considering growth strategy: China: Wage policy has central role to boost domestic demand and address imbalances. Malaysia: Rising wages as part of strategy to reach high-income country status by 2020. 26
Summary and discussion 1. Wages in Asia have grown faster than in the rest of the world. But: Much of the good performance is due to China. 2. Main global policy challenges also affect Asia: Rising wage inequality. Falling labour shares. 3. Implications for wage policies: Protecting low paid-workers, containing wage dispersion and income inequality. Linking wages to productivity gains and addressing declines in the labour share. 27