[xtypo_dropcap]T[/xtypo_dropcap]he International Labor Organization (ILO) published its second Global Wage Report, a statistical analysis of global salaries and a comparison how each country ranks against the rest of the world in various pay categories.
The report analyzed 115 countries, and compared how real wages have been affected during the economic crisis over the past two years. Real wage, as opposed to nominal wage, is adjusted to inflation, therefore providing a clearer representation of a person’s salary.
The results of the analysis, published late last month, show that global real wages grew 2.7 percent in 2006, 2.8 percent in 2007, 1.5 percent during the crisis year of 2008, and 1.6 percent in 2009. The data indicates that during the economic crisis global real wage growth slowed, but to the surprise of many, didn’t swing into negative territory.
The report also examined 30 countries with available data between the periods 1995-2000 and 2007-2009, and determined that the gap between the top 10 percent best paid workers and the bottom 10 percent of workers has increased in 17 out of 30 countries.
“The largest part of this increase in inequality was due to top earners flying away from the majority, another part was due to the so-called ‘collapsing bottom,’ where the distance between median workers and low-paid workers has increased in 12 out of 28 countries,” said the report.
The report concludes that low-wage workers are not just earning less money, but are also prone to instability in their earnings and are the most vulnerable in economic downturns.
“In the case of advanced countries, such as European Union (EU) members, the risk of being unemployed or inactive is sometimes two or three times higher among low-wage workers than higher wage workers. … This means that these workers suffer more than others from the effects of sudden economic downturns. … Therefore, one important test for the effectiveness of countercrisis policy measures is how successfully low-wage workers are able to cope with the recession,” states the report.
When broken down by regions, real wages in advanced countries (including Australia, Germany, South Korea, the United States, U.K., and so on) grew 0.8 percent during 2007. In the crisis year of 2008, real wages in these countries dropped 0.5 percent, but then rebounded back to positive growth of 0.6 percent in 2009. Overall, the real wage in advanced countries has increased by 5 percent over the last 10 years.
United States
In the United States, real wage growth was 1 percent in 2007, fell to negative 1.1 percent in 2008, but rebounded to positive 1.5 percent in 2009.
The United States is in second place, behind South Korea, in percentage of low-wage workers, amounting to 25 percent of its full-time employees. This signifies a large gap between the wealthy and the working class.
Germany
In EU powerhouse Germany, there has been a continuous real wage decline since the beginning of the decade—that is when it discarded its Deutsche mark currency and switched to the euro. From 2000 to 2005, German real wage growth was negative 0.4 percent. It was negative 0.9 percent in 2006, negative 0.6 percent in 2007, and negative 0.4 percent in both 2008 and 2009. According to the latest survey done by the Cologne’s YouGov-Institute, about half of all Germans would like to return to the Deutsche mark.
From the 1995-2000 period to the 2007-2009 period, Germany also saw an increase of 4 percent in the number of its low-wage workers, compounding to a total of 21 percent of all its full-time workers being low-paid.
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Latin America
Latin America and the Caribbean didn’t see a large fluctuation in wages during the financial crisis, showing solid growth of 3.3 percent in 2007, 1.9 percent in 2008, and 2.2 percent in 2009. Overall, real wages have increased in Latin American and the Caribbean by 14 percent since 2000.
Brazil, the largest economy in the region, has coped well with the crisis, growing its wages by 4.8 percent in 2007, 3.3 percent in 2008, and a remarkable 6.8 percent in the 2009 post-crisis year.
Argentina is the leader of the group with continuous impressive real wage growth of 12.6 percent in 2007, 16.5 percent in 2008 and 9.3 percent in 2009. It also boasts the highest minimum wage in the region, amounting to $896 per month. (Brazil, by comparison, has a minimum wage of $226 per month.)
Eastern Europe and Central Asia
Eastern Europe and Central Asia experienced tremendous growth years before the crisis but has been on a steady decline. In 2007 the region saw wage growth of 17 percent, followed by a 10.6 percent growth in 2008. In the following year, wages dropped by 2.2 percent. Overall in this region, the real wage has increased by an impressive 334 percent in the last 10 years. This is mostly due to the fact that these countries were coming out of a post-communist era, starting out with very small wages and slowly adjusting to Western standards.
Russia, the biggest member of the region, had an amazing 2007 with real wage growth of 17.3 percent, then slowed in 2008 with 11.5 percent growth and dipped into the negative in 2009 with a negative 3.5 percent growth.
Asia
In Asia, the effect of the global financial crisis on the growth of real wages was barely noticeable, with near constant growth of 7.2 percent in 2007, 7.1 percent in 2008 and 8.0 percent in 2009. Overall in Asia, real wages have grown by 209 percent in the last 10 years, driven mostly by Chinese economic expansion.
However, the reliability of wage data coming from China’s state-controlled National Bureau of Statistics is questionable. According to the government agency, Chinese wages grew 13.1 percent in 2007, 11.7 percent in 2008 and 12.8 percent in 2009. After further analysis of the wage data, it turns out the Chinese Bureau of Statistics mostly counted urban, state-owned enterprises and didn’t account for rural or private companies not linked to the state. A pilot project launched in 2009 accounting for the wages from all the companies in China, both state-owned and private, found that Chinese real wage growth was only 6.6 percent.
In the region of the Middle East and Africa, many countries didn’t report their wages, and sufficient data was not available for analysis.
Higher wages stimulate the development of national economies, whereby people are likely to purchase more, and therefore stimulate healthy household consumption.
“While a country’s low wages relative to its productivity may help to boost its exports, and also encourage investment to a certain extent, it is important to keep in mind the fact that low wages depress household consumption,” the report stated. “Hence, whenever a fall in wages reduces household consumption more than it increases export and investment, it has a negative effect on country’s economic growth.”
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