The Financial Express

ILO Global Wage Report

Real monthly wages fall sharply in many states

| Updated: December 01, 2022 14:49:27

Real monthly wages fall sharply in many states

The severe inflationary crisis and slowdown in economic growth across the globe - driven in part by the war in Ukraine and global energy crisis - are causing a striking fall in real monthly wages in many countries, according to a latest ILO report.

The International Labour Organization (ILO) report, published on Wednesday, suggested urgent well-designed policy measures to prevent deepening of the existing level of poverty, inequality and social unrest.

According to the report - 'The Global Wage Report 2022-2023: The impact of inflation and COVID-19 on wages and purchasing power' - the crisis is reducing the purchasing power of the middle class and particularly hitting the low-income households hard.

"In Asia and the Pacific, real wage growth increased to 3.5 per cent in 2021 and slowed in the first half of 2022 to 1.3 per cent," it said.

When China is excluded from the calculations - considering the large weight the country has in the region - real wage growth increased by 0.3 per cent in 2021 and 0.7 per cent in the first half of 2022.

The report, however, estimated that global monthly wages fell in real terms to minus 0.9 per cent in the first half of 2022 - the first time in this century that real global wage growth became negative.

Among the developed G20 countries, real wages in the first half of 2022 were estimated to have declined to minus 2.2 per cent, whereas real wages in the emerging G20 countries grew by 0.8 per cent, 2.6 per cent lower than in 2019, the year before the COVID-19 pandemic.

In North America (Canada and the United States), average real wage growth slid to zero in 2021 and dropped to minus 3.2 per cent in the first half of 2022.

In Latin America and the Caribbean, real wage growth declined to minus 1.4 per cent in 2021 and minus 1.7 per cent in the first half of 2022.

In the European Union, where job retention schemes and wage subsidies largely protected employment and wage levels during the pandemic, real wage growth increased to 1.3 per cent in 2021 and declined to minus 2.4 per cent in the first half of 2022.

In East Europe, real wage growth slowed down to 4.0 per cent in 2020, 3.3 per cent in 2021, and fell to minus 3.3 per cent in the first half of 2022.

"The multiple global crises we are facing have led to a decline in real wages. It has placed tens of millions of workers in a dire situation, as they face increasing uncertainties," said ILO Director-General Gilbert F. Houngbo in a statement.

"Income inequality and poverty will rise, if the purchasing power of the lowest paid is not maintained. In addition, a much-needed post-pandemic recovery could be put at risk. This could fuel further social unrest across the world and undermine the goal of achieving prosperity and peace for all," he added.

The report showed that the cost-of-living crisis comes on top of significant wage losses for workers and their families during the COVID-19 crisis, which in many countries had the greatest impact on low-income groups.

Besides, rising inflation has a greater cost-of-living impact on lower-income earners. This is because they spend most of their disposable income on essential goods and services, which generally experience greater price increase than non-essential items.

The report noted that inflation is also biting into the purchasing power of minimum wages. Estimates showed that despite nominal adjustments are taking place, accelerating price inflation is quickly eroding the real value of minimum wages in many countries, for which data is available.

Adequate adjustment of minimum wage rates could be an effective tool, given that 90 per cent of the ILO member states have minimum wage systems in place. Strong tripartite social dialogue and collective bargaining can also help to achieve adequate wage adjustments during a crisis.

Other policies that can ease impact of the cost-of-living crisis on households include measures targeting specific groups, such as giving vouchers to low-income households to help them buy essential goods, or cutting value added tax (VAT) on these goods to reduce the burden inflation places on households while also helping to bring down inflation, it added.

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