BEERG Perspective: ILO Global Wage Report – a...

Introduction

Anyone under 50 will have little knowledge of inflation. For the past 30 years, inflation has been non-existent. Which meant, for the most part, that pay bargaining fell below the radar. But, suddenly, and with a vengeance, inflation is back, at least for now. Pay talks have become difficult as workers and their unions push for deals that protect them against cost-of-living increases. 

We asked our former colleague, Robbie Gilbert, who knows all about rampant inflation in the UK in the 1970s and 80s from his time at the heart of the British government as a senior ministerial adviser, for his thoughts on where we are today.

Robbie Gilbert writes: These are challenging times for managers who handle pay setting: unprecedented in anyone’s experience, anywhere - even for those of us who have been involved since the 1970s. Back then, in a country like Britain, the consumer prices index was running at over 20% a year, and excessive pay settlements were truly a driver of high inflation. But for those who are sitting down and prepared the strategies for pay development in the coming 12 months the circumstances are even more uncertain and the likelihood of satisfying expectations poorer. 

As a new publication from the ILO, Global Wage Report 2022-2023, points out, today we are confronted with several overlapping crises: the legacy of the Covid-19 pandemic, which may not be over yet; the war in Ukraine, which definitely isn’t over; and the rise in the cost of living that began in 2021 and intensified during 2022 across countries and regions throughout the world.  Economic forecasts were sharply cut back as 2022 progressed, and the report notes that “for many people 2023 will feel like a recession,” even if economic growth remains positive. 

Setting pay that keeps workers on board, when the market for many skilled people remains tight, is not going to be easy.

The ILO document highlights public policy implications, notably on minimum wage provisions, which form part of the backdrop in many jurisdictions. Any hikes in statutory minima may influence general expectations, and will definitely impact differentials. 

The paper also sets out the trends, short and long-term, in pay development – both across regional and other groupings, such as the G20 states, as well as in a range of individual countries. That range, though wide, is by no means comprehensive. Some of the groupings, too, are rather opaque or anachronistic. (Does ‘Eastern Europe’ include some that should really be in ‘EU’ today?) Yet it is still offers a helpful source of information for corporate pay strategists at a time of great uncertainty. 

The Big Picture

On economic growth, the Report notes that the International Monetary Fund lowered its projection for global growth during 2022 from the 3.6 per cent forecast in April 2022 to 3.2 per cent in July; and in October they forecast that global growth would slow down by between 2 and 2.7 per cent during 2023. 

Yet labour markets remain tight: indeed in high-income countries, employment levels had bounced back (in some cases exceeded) those observed before the pandemic by the second quarter of 2022. In middle- and low-income countries, employment levels remained at about 2 per cent below the pre-pandemic level – but employment in the informal economy was rising faster than in the formal economy. 

Turning to the critical issue of inflation rates, the ILO expresses concern that price pressures in the last two quarters of 2022 were “quite stubborn” despite a tightening of monetary policy across the world. Looking to the future, IMF projections suggested that inflation would reach 8.8 per cent globally by the end of 2022, declining to 6.5 per cent in 2023 and 4.1 per cent in 2024. “Unless wages and other types of labour income are adjusted to inflation, the living standards of many workers and their families are likely to decline.”

Wage levels have been falling. For the first time since the ILO started these biennial reports fifteen years ago, they estimate that, right across the globe, monthly wages actually fell in the first half of last year by almost 1% (1.4% if China is excluded): and among the G20 countries which account for 60% of the world’s wage employees, the fall was 2.2%. In many large countries that erosion came on top of a significant loss of pay experienced during the Covid-19 years, particularly for low-paid employees who lost their jobs in greater numbers than the higher paid, who benefitted more from special support measures.

Regional Wage Trends

It should be noted that there has been a positive recovery in pay over some of these geographies since June last year, but the ILO data set out here still casts useful light on variations from region to region.

Real Pay in The Long-Term

The paper also looks at real wage growth across all the G20 countries over the years since 2008. Over that timescale, it is perhaps unsurprising to find that real monthly wages in China rose by 260%, though no other emerging G20 nation has shown a rise of more than 40%. For the advanced G20 countries the comparable rise across the last 15 years was less than 10%.

In four countries real wages fell between 2008 and 2022: Mexico, Japan, Italy and the United Kingdom. The revival of industrial action in pursuit of pay rises surely reflects this experience.

Pay and productivity

The report goes some way towards accepting that pay growth cannot happen without productivity growth (“Productivity growth is a key factor in achieving real wage growth”), but its main emphasis on this topic is to emphasise a disconnect between productivity and pay growth. This dates back to 2008 for 52 high-income countries, and in some cases to the early 1980s. The gap is widening. “In fact, 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 12.6 percentage points above wage growth.

Inflation hits low-wage earners harder

Turning to what is surely the greatest pressure on pay in early 2023, the report says that, in 100 countries studied, prices of food, housing and transport had all risen more than the general Consumer Prices Index.  Rising inflation impacts lower-income households more than others because they spend a higher proportion of their income on such essentials. The report further notes that people in poorer countries have not had the same help in the shape of subsidies and job retention programmes during Covid-19 that wealthier countries were able to provide.

Public Policy Proposals

Minimum Wage adjustments Minimum wages, the paper notes, can protect low-paid workers against hefty losses of purchasing power at times of high inflation. 90 per cent of ILO Member States have minimum wage systems in place. Minimum wages must be adjusted regularly “to take into account the needs of workers and their families, along with economic factors. This adjustment process should be undertaken with the full participation of the social partners and involve evidence-based social dialogue, in line with the Minimum Wage Fixing Convention, 1970 (No. 131)”. 

In real terms, the value has fallen in various countries including Australia, Bulgaria, Korea, Spain, South Africa, Sri Lanka, USA and the UK. (NB the UK has recently raised minimum wage levels by around 10%, an indication of the potential appeal of such moves to national lawmakers.) 

Social dialogue The ILO adds that “strong social dialogue, including collective bargaining, can be instrumental in achieving wage adjustments during a crisis.”

Gender pay gaps Despite close examination of gender pay data, the report found no general trend over recent years. In some countries the gap worsened, but in others it improved. However, the paper argues that, “given that the gender pay gap remains persistently high across countries and regions, greater efforts are required to tackle gender inequalities in the labour market.” Among specific proposals it recommends “implementing legal frameworks and policies to increase pay transparency at the enterprise level with a view to eliminating pay discrimination.” This is a view which the EU Commission has already adopted in its recent proposals. 

Other measures The report also highlights various measures that governments have used or could consider, including: 

• means-tested vouchers provided to low-income households to enable them to buy essential goods, 
• general interventions aimed at reducing the cost of living for all households, such as the (often temporary) reduction of indirect taxation on goods and services,
•  providing  households with energy vouchers to help them cope with the current energy crisis,
• cuts to value added tax to reduce, and mitigate the burden of, inflation, 
• windfall taxes on oil and gas companies to help pay for these measures.

In framing their policies, and mandates for negotiators, managers will want to keep an eye on whether and how far such policies have been adopted in relevant countries. And also have regard to  whether and how far lack of any action may be “fuelling further social unrest”, as the ILO puts it.

The full ILO report is accessible HERE It includes a short executive summary.

BEERG COMMENT:

Managing pay and strategy across a range of geographies demands a wide range of data. To be of real use, that has to be up-to-date. Reports from international organisations generally emerge too slowly to be of much help. Inevitably, some of the data here is incomplete and already dated. 

But at a time when reputable authorities have repeatedly been forced to revisit and drastically revise their forecasts, and in an area where reliable sources are limited, some of the information and analysis in this new paper may be worth the attention of those grappling with pay strategy and labour relations management in these troubled and uncertain times.