Rise in Productivity, Fall in Real Wages : ILO Report

Rise in Productivity, Fall in Real Wages : ILO Report

Atanu Chakravarty



International Labour Organisation (ILO) has published its latest report Global Wage Report 2022-23 : The Impact of Inflation and COVID-19 on Wages and Purchasing Power. The 148 page report has covered the impact on wages and purchasing power across various countries and regions. The most startling revelation it has made is that for the first time in this century the global real wage growth has become negative while real productivity has continued to grow. The global monthly wages fell in real terms to -0.9 per cent in the first half of 2022. If China, where wage growth is higher than in most other countries, is excluded, the report mentions, the fall in real wages, during the same period is estimated at -1.4 per cent!  Indeed, the report mentions, “2022 shows the largest gap recorded since 1999 between real labour productivity growth and real wage growth in high-income countries.”


Among the G20 countries, which account for some 60 per cent of the world's wage employees, real wages in the first half of 2022 are estimated to have declined to -2.2 per cent in advanced economies, while wage growth in emerging economies slowed but remained positive at 0.8 per cent. This stark reality proves that nominal wages in many countries have not been adjusted sufficiently in the first half of 2022 to offset the rise in the cost of living, the report comments. The erosion of real wages affects all wage earners across the board. It has been found that the greater impact fell upon the low income households which spend a higher proportion of their disposable income on essential goods and services, the prices of which are increasing faster than those of non-essential goods in most countries.


The key factor behind the decline in the total wage bill, particularly during 2020 and the first quarter of 2021, was the loss in employment. The groups that suffered most were low- wage earners, informal workers and women wage earners. Further, during the cruelest months of pandemic, the report finds, total wage bill declined most at the lower end and households that were forced to go into debt for survival and now they face the double whammy of repaying their debts at higher interest rates while earning lower income. 


Wage-Indices in G-20 Economies


Between 2008 and 2022, real wage growth among G-20 countries was highest in China, where real monthly wages in 2022 was equivalent to about 2.6 times their real value in 2008. In four countries - Italy, Japan, Mexico, and the United Kingdom of Great Britain and Northern Ireland, it appears that real wages were lower in 2022 than in 2008.


Decline in Real Wages


In all the previous Global Wage Report, ILO pointed out that the average wage growth has lagged behind average labour productivity growth since early 1980s in several large developed economies. ILO has noted, in 52 high-income countries, real wage growth has been lower than productivity growth since 2000. In 2022, the gap between productivity growth and wage growth reached its widest point since the start of the twenty- first century, with productivity growth at 12.6 percentage points above wage growth.


Rising inflation has severe impact on the purchasing power and minimum wages, especially that of the low paid earners. Minimum wages have decreased in real terms in various countries due to the spiralling price inflation. 


Inflation has hollowed the real wages and accompanied by significant wage losses incurred by workers' and their family members during the pandemic. Combined with job losses, shortened hours of work and adjustments in hourly wages during the crisis it resulted in an accumulation of lost earnings for wage employees and their families in many countries. Employment losses among wage employees in informal employment were greater than among formal employees.


Moreover, it found the employment losses, including jobs and hours worked from 2020 to 2022, were greater among women and in particular during 2022.


After collating data from 28 countries, ILO found that in 20 of these countries the total wage bill decreased between 1 and 26 per cent during 2020. The average decline in the total wage bill for the sample of 28 countries was 6.2 per cent, which is equivalent to three weeks of wages on an average for each wage employee. Among the 21 countries of which the data was collected for both 2020 and 2021, the decrease in total wage bill is equivalent to four weeks of wages in 2020 and two weeks in 2021, implying a cumulative loss of six weeks of wages over the two years.


Recently, the World Economic Forum ranked India at 134 out of 146 countries in its Global Gender Gap (GGG) Index for 2022. It is the worst performer in the world in the "health and survival" sub-index where it is ranked 146. India also ranks poorly among its neighbours and is behind Bangladesh (71), Nepal (96), Sri Lanka (110), Maldives (117)

and Bhutan (126). Only Iran (143), Pakistan (145), and Afghanistan (146) perform worse than India in South Asia.


With great dismay, ILO commented that the deterioration of real income of workers will go on unabated and lead to a fall in aggregate demand, which in turn, would increase the probability of deeper recession. This will endanger the economic and employment recovery, further increasing inequalities, and giving rise to social unrest.


To stem this rot, ILO has suggested that minimum wages must be adjusted regularly to take into account the needs of workers and their families, along with economic factors. Strong social dialogue, including collective bargaining can be instrumental in achieving wage adjustments during a crisis, ILO noted.


Neoliberal economy has exposed its real face. The working people of the world are being crushed under the bulldozer of this economy. The global supply chain is under deep stress, and severe recession is looming large with more and more layoffs, wage squeeze and curtailment of basic rights. Working people have to fight back.