Financial crisis likely to cause wage cuts worldwide

Wednesday, 26 November 2008, 05:44 Hrs   |    7 Comments
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Geneva: The International Labor Organization (ILO)has warned that millions of workers worldwide would likely see a reduction in their wages in 2009 due to the global financial crisis.

In industrialized countries, wages would likely decline by 0.5 percent. That compares to growth of 0.8 percent in 2008.

Adding to the bad news, the ILO reported that wages fall at a faster rate than gross domestic product (GDP) contraction in bad economic years, but grow at a slower rate than GDP in good years. Indeed, for every 1 percentage point of GDP growth, salaries only increased by 0.75 percentage point.

"In years of expansion, wages grow slower than GDP," said Manuela Tomei, one of the authors of the ILO's Global Wage Report. "In years of contraction, wages decline faster than GDP," she continued.

If wages were to fall, she warned, purchasing power would be decreased, further adding to the world's economic woes.

The global economy grew at a 4 percent annual rate between 2001 and 2007, but wages only increased by 1.9 percent or less in half the world's countries, the report said.

In China, Russia, and other so-called "transition countries," growth in real wages reached 10 percent or more during that period. In the United States, Japan and Spain, real wage growth was close to zero.

During that period, globally, minimum wages rose by an average 5.7 percent annually in real terms.

However, inequalities between the rich and poor inside countries continued to grow. Germany, Poland and the United States led the way among developed nations, with the gap between their rich and poor widening. China also showed increased signs of a widening gap.

Women also continued to make less than men, especially in Asia, the report stated.

The ILO called for steps to "prevent a further deterioration in the share of wages relative to the share of profits in GDP."

It also said effective minimum wages, which need to be enforced, should be instituted to protect "the most vulnerable" and that collective bargaining was a good tool to ensure wages were more aligned with overall growth.

The report noted that collective bargaining power has decreased in many countries in recent years.

"The legitimacy of globalization," said Juan Somavia, the ILO's chief, depends on "greater fairness in outcomes."

Last week the organization warned that unemployment next year would rise globally and that the number of "working poor," those who have jobs but make less than 2 dollars a day, would also increase.

The Organization for Economic Co-operation and Development's latest outlook projected that member countries would see 8 million more unemployed people next year and a drop in overall economic activity.
Source: IANS
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