20.12.2022
ILO: THE INCREASE IN WAGES DOES NOT LEAD TO AN INCREASE IN INFLATION
A severe inflationary crisis combined with a global slowdown in economic growth – partly caused by the war in Ukraine and the global energy crisis – is leading to a staggering drop in real monthly wages in many countries.
According to a new report by the International Labor Organization, the crisis is reducing the purchasing power of the middle class and hitting low-income households particularly hard.
The "World Wage Level Report 2022-2023: The Impact of Inflation and COVID-19 on Wages and Purchasing Power," as the document is called, shows that in the first half of 2022, monthly wages worldwide were decreased in real terms to minus 0.9% – for the first time in this century, real wage growth worldwide has been negative.
“In 2022, the gap between labor productivity and real wages will be the largest in over 20 years. Labor productivity has been strongly positive for many years, but incomes have stagnated as governments refuse to curb corporate greed, and in many countries the rights to collective bargaining and freedom of association are weakened... The world must no longer tolerate economic policies that is dictated by discredited academic theory of those economists and politicians who refuse to face reality. The world needs a new social contract, at the center of which are jobs and decent pay."
This was stated by the Secretary General of the International Labor Confederation, Luca Visentini, categorically denying the theories launched by some economists and central bankers that wages cause inflation and therefore their growth should be limited.
Estimates among advanced G20 real wages in the first half of 2022 fell to minus 2.2%, while real wages in emerging market G20 countries rose 0.8%, which is 2.6% less than in 2019, the year before the COVID-19 pandemic.
“The multiple global crises we are facing have led to a decline in real wages. This has put tens of millions of workers in dire straits as they face increasing insecurity," said ILO Director-General Gilbert F. Hungbo.
"Income inequality and poverty will increase if the purchasing power of the lowest paid workers is not maintained. In addition, much-needed post-pandemic recovery may be at risk. This could fuel further social unrest around the world and undermine the goal of achieving prosperity and peace for all.”
The cost-of-living crisis adds to the significant wage losses for workers and their families during the COVID-19 crisis, which in many countries has had the greatest impact on low-income groups.
The report shows that rising inflation is having a greater impact on the cost of living for people on low incomes. This is because they spend most of their disposable income on essential goods and services, which generally experience higher price increases than non-essentials.
The report states that inflation also reduces the purchasing power of minimum wages. Estimates show that despite nominal adjustments, accelerating price inflation is rapidly reducing the real value of minimum wages in many countries for which data are available.
According to the analysis, there is an urgent need to implement well-designed policy measures to help preserve the purchasing power and living standards of wage workers and their families.
Adequate adaptation of minimum wage rates could be an effective tool given that 90% of ILO Member States have minimum wage systems in place. Strong tripartite social dialogue and collective bargaining can also help achieve adequate wage adjustments in times of crisis.
Other policies that can ease the impact of the cost-of-living crisis on households include measures targeted at specific groups, such as providing low-income households with vouchers to help them purchase essential goods, or reducing the value added tax on these goods to reduce the burden that inflation places on households while helping to bring down inflation.
"We need to pay special attention to workers at the middle and bottom of the wage scale. Combating the deterioration in real wages can help sustain economic growth, which in turn can help restore employment levels seen before the pandemic. This can be an effective way to reduce the probability of recessions in all countries and regions", stated Rosalia Vázquez-Álvarez, one of the authors of the report.
The report, which includes regional and country data, shows that in the first half of 2022, inflation rose proportionally faster in high-income countries than in low- and middle-income countries, resulting in the following regional trends in real wages:
- In the European Union, where job preservation schemes and wage subsidies have largely protected employment and wage levels during the pandemic, real wage growth has picked up to 1.3% in 2021 and has fallen to minus 2.4% in the first half of 2022;
- In Eastern Europe, real wage growth has slowed to 4.0% in 2020 and 3.3% in 2021, falling to minus 3.3% in the first half of 2022;
- In North America (Canada and the United States), average real wage growth fell to zero in 2021 and fell to minus 3.2% in the first half of 2022;
- In Latin America and the Caribbean, real wage growth has slowed to minus 1.4% in 2021 and to minus 1.7% in the first half of 2022;
- In Asia and the Pacific, real wage growth rose to 3.5% in 2021 and slowed in the first half of 2022 to 1.3%. When China is excluded from the calculations – given the country's heavy weight in the region – real wage growth increased by much less – 0.3% in 2021 and 0.7% in the first half of 2022;
- In Central and West Asia, real wage growth rose strongly to 12.4% in 2021, but slowed to 2.5% in the first half of 2022;
- In Africa, data points to a drop in real wage growth to minus 1.4% in 2021 and a drop to minus 0.5% in the first half of 2022;
- In Arab countries, wage trends are tentative, but estimates point to low wage growth of 0.5% in 2021 and 1.2% in 2022.
