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GLOBAL WAGE REPORT 2016/17 WAGE INEQUALITY IN THE WORKPLACE Patrick Belser Senior Economist, ILO Belser@ilo.org

Outline Part I: Major Trends in Wages Global trends Wages, productivity and labour shares Part II: Wage Inequality in the Workplace The extent of wage inequality Within & between enterprises Gender pay gaps Part III: Summary & Conclusion 1 Global Wage Report 2016/17

There is growing recognition that wage trends have been problematic in many countries 2 Global Wage Report 2016/17

The ILO wage database has data on average wages for 133 countries Global Wage Database (1999-2015) Weighted average, % Methodological Issues 98 46 69 75 64 70 Country Coverage Some data have gaps for some years which we have filled through interpolation and extrapolations based on a model with few variables. We then calculate real wage growth using CPIs. 98 99 100 95 64 74 Employee Coverage We use this data to produce regional and global estimates, which take into account the relative size of each country (i.e. they are weighted estimates), and we try to correct for the bias that arises because some countries have no data at all. 3 Global Wage Report 2016/17

Global wage growth has decelerated since 2012 Annual average global real wage growth (2006-15) Weighted average; data from ILO global wage database, % Global Global (without China) 4 4 3 3 2.5 2.5 2 1.9 1.7 2 1.6 1.6 1.3 1 1 0.9 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 4 Major Trends in Wages

Wage growth has increased in developed countries; but declined in emerging economies 4 Annual average real wage growth in the G20 (2006-15) Weighted average; data from ILO global wage database, % G20 2 Developed 1.7 1 0.2 0.4 0.5 3 2.7 2.6 0 2 1.9 2.0-1 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Emerging 10 1 8 6 4 2 6.6 6.0 3.9 2.5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 5 Major Trends in Wages

In the last 10 years, real wage gaps have opened up between developed countries 6 Major Trends in Wages

and also between emerging economies 7 Major Trends in Wages

In developed countries, real wages growth has lagged behind the growth of labour productivity 10ps 7ps 5ps 8 Major Trends in Wages

and there has been a global decline in labour income shares Adjusted labour income share, % China 56 54 52 50 48 46 44 42 1992 1997 2002 2007 2012 46 44 42 40 38 36 34 32 30 Mexico 1995 2000 2005 2010 2015 Portugal 63 61 59 57 55 53 51 49 47 45 1991 1996 2001 2006 2011 United States 62 61 60 59 58 57 56 55 1991 1996 2001 2006 2011 9 Note: China data is unadjusted Major Trends in Wages

In conclusion Emerging economies Some emerging economies have performed well in terms of average wage growth, but the pace of convergence is slowing down Developed economies Wage growth has been slow in many developed economies, lagging overall behind productivity growth Coordination Coordination of wage policies should take into account the relationship between wages & productivity, and labour income shares. 10 Major Trends in Wages

Motivation and Data Sources Motivation for Part II Data sources for Part II Excessive inequality is bad for economic growth; It reduces social mobility and creates divisions within society. Debate has mostly focused on the characteristics of workers, and the effects of technology and globalization. A new literature looks at the role of the workplace. For Europe, we use EMPLOYER- EMPLOYEE matched data (Structure of Earnings Survey, Eurostat). 22 Countries, 2002 to 2010, 22 million wage employees from about 1.1 million enterprises For Emerging & Low income Economies, such data is not available. Instead, we used labour & household surveys & enterprise level surveys 12 Wage Inequality in the Workplace

Wage inequality increases sharply at the top Gross monthly wage of employee (2010) Weighted average by centile; data from 22 European economies, Euro (thousand) 14 12.5 12 10 8 6 4.7 7.4x 4 2 0.5 0.8 1.0 1.3 1.5 1.7 1.9 2.2 2.5 3.1 0 1st 2nd-10th 2nd 3rd 4th 5th 6th 7th 8th 9th 91st - 99th 100th 13 Wage Inequality in the Workplace

There are differences across countries; some have much lower wages inequality Gross hourly wage of employee (2010) Weighted average by centile; data from 22 European economies, Euro Finland France 100 100 91 80 71 80 60 40 4.4x 60 40 20 16 20 14 0 0 Spain United Kingdom 100 100 80 80 60 40 6.2x 56 60 40 13.3x 20 9 20 0 0 14 Wage Inequality in the Workplace

Top decile of highest-paid employees earn 2-5 times more than the bottom decile 6 Real gross monthly wage share of employee (2010) Weighted average; data from 22 European economies, % 5 4 3 2 1 3.6% 0 0 10 20 30 40 50 60 70 80 90 100 Bottom 50% takes 29.1% Top 10% D90 takes 25.5% 15 Wage Inequality in the Workplace

Education is correlated with wage levels Education of wage employee (2010) Weighted average by centile; data from 22 European economies, % Primary Lower secondary Upper secondary Post secondary University Postgraduate 0 0 0 1 1 1 1 2 3 5 5 7 8 10 13 5 16 6 20 7 27 8 10 36 11 45 12 57 Having college degree 51 62 does not help you 53 move to top 1% 53 13 52 50 48 12 44 38 11 11 26 32 22 21 19 18 23 15 18 11 11 9 10 9 8 6 6 5 4 3 4 2 4 1 1 1-10th 11th to 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91st to 100th centile 20th 99th centile 16 Wage Inequality in the Workplace

Can such wage distributions be justified by differences in worker characteristics? Predicted & actual wages using a classic human capital model (age, education, tenure) (2010) Individual ranked by average hourly wage; 22 EU economies data, Euro (ln) Methodologies & Findings 6 5 4 3 2 1 0-1 -2-3 -4 Maximum distance Average distance Minimum distance 1 6 11 16 21 26 31 36 41 46 51 56 61 66 71 76 81 86 91 96 1 We run a model which tries to explain the wages of individuals to the observed skillsrelated characteristics of workers, including age, education and tenure. 2 The result shows that these factors are important, but that there are enormous differences between individuals actual wages and those predicted by the model. 3 This is particularly striking at the top (where people s actual wages exceed predictions) and at the bottom (where wages are below predictions). 17 Wage Inequality in the Workplace

Next, we therefore bring enterprises into the analysis Between enterprises According to recent research, increases in inequality in the U.S. are due to mainly to growing difference in productivity and average wages between enterprises Within enterprises But what about inequality within enterprises? Let us also distinguish changes over time, and the part of total inequality due to between and within inequality at one point in time 18 Wage Inequality in the Workplace

About 80% of employees earn less than the average wage in their enterprises Average hourly wages of individuals & enterprises (2010) By centile ranking of individual wages; data from 22 European economies, Euro (ln) 5 4 Individuals 3 Establishments where they are employed 2 1 0 10 20 30 40 50 60 70 80 90 100 19 Wage Inequality in the Workplace

Wage inequality is much higher among enterprises that pay high average wages Average minimum & maximum wages of individuals (2010) By centile of establishments ranked by average hourly wage; data from 22 European economies, Euro 140 120 Avg max of individuals 100 80 60 40 20 0 Avg wage at enterprise level Avg min of individuals 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 95 20 Wage Inequality in the Workplace

A few workers in a few enterprises earn extremely high wages Mountain of wage inequality in Europe (2010) Hourly wage; enterprises and individuals ranked by their average wages in centiles; data from 22 European economies, Euro Wages 844 90 100 0 10 20 30 40 50 60 70 80 90 0 100 60 7080 50 40 30 20 10 21 Wage Inequality in the Workplace

Real-estates & finance and transportation & communication sector provide high wage jobs Economic sector of wage employee (2010) Weighted average by centile; data from 22 European economies, % Mining and quarrying Construction and utilities Hotel and restaurants Real Estate and finance Other service providers Manufacturing Trade Transports and communications Social services and public administration 28 25 22 19 20 20 22 26 30 29 20 15 18 20 20 22 15 1 2 2 3 1 6 5 7 4 9 9 9 7 10 5 12 3 2 23 21 7 6 6 21 18 15 13 23 22 5 6 11 11 2 10 1 9 8 9 10 9 8 12 19 16 21 8 12 13 12 12 1 1 1 8 9 13 7 7 6 12 15 17 19 20 19 18 17 15 13 13 1 in 5 top 1% wage earner work in R&F 1-10th centile 11th to 20th 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91st to 99th 100th centile 22 Wage Inequality in the Workplace

Decompose total variance in wages as the sum of the within and between Average hourly wages of individuals & enterprises (2010) Wage variance; data from 22 European economies, % of total 57 43 Variance within establishments Variance between establishments Within-enterprise inequality is as nearly important as between- establishments inequality 23 Wage Inequality in the Workplace

Countries with more between inequality also have more within inequality Decomposition of variance (2010) Average hourly wage; data from 22 European economies s 2 (ln) WITHIN.05.1.15.2 Slovakia Cyprus Czech Republic Europe Norway Sweden Belgium Finland France Italy Greece Spain Netherlands Luxembourg Portugal PolandLithuania United Kingdom Hungary EstoniaLatvia Bulgaria 0.1.2.3 BETWEEN Romania 24 Wage Inequality in the Workplace

Fewer women in top deciles; more woman in low-pay Gender of wage employee (2010) Weighted average by centile; data from 22 European economies, % Female Male 42 42 45 50 53 55 54 55 58 66 79 4x 1.4x 58 58 55 50 47 45 46 45 42 34 21 1-10th centile 11th to 20th 21-30 31-40 41-50 51-60 61-70 71-80 81-90 91st to 99th 100th centile 25 Wage Inequality in the Workplace

Gender wage gap is even wider among top 1% of wage employees Gender of wage employee (2010) Ratio of female to male hourly earnings among total population; data from 22 European economies, % Gender pay gap among the highest-paid occupational categories By occupational category & within top 1 per cent 45 Among top 1% earners 20 Wage earning population The gender pay gap is not just larger among the highest-paid occupational categories but actually increases at the top end of the wage distribution. The gender gap among CEOs in the population is about 40 per cent twice as high as the overall gender pay gap. Within the top 1 per cent, male earn almost twice as much as their female counterparts The gender pay gap reaches about 45 per cent overall, and among CEO top 1 per cent amounts to more than 50 per cent. 26 Wage Inequality in the Workplace

Proposing country-specific measures to reduce excessive wage inequality 1 Productivity growth Govern ment Minimum wages & collective bargaining Top salaries: regulation or selfregulation? Employ er Sustainable Wage Policies Trade Union Gender & other pay gaps 28 Summary & Conclusion

THANK YOU FOR YOUR ATTENTION! For further information on Global Wage Report or research conducted by the ILO wage group, please refer to: Global Wage Report 2016/17 http://www.ilo.org/global/research/globalreports/global-wagereport/2016/wcms_537846/lang--en/index.htm Minimum Wage Guide & Other Publications http://www.ilo.org/global/topics/wages/publicatio ns/lang--en/index.htm 32 Global Wage Report 2016/17