Wages in industrial countries to drop, UN labor group warns

The economic crisis is likely to result in wage declines all over the world, with wages dropping faster than production, the International Labor Organization (ILO) said in a report it issued Nov. 28.

In the 20 most industrialized nations wages could fall by 0.5 percent next year, the ILO said in its first ever “Global Wage Report.” The ILO is a UN agency that brings workers, governments and employers together to promote decent standards of living for all.

The report also says there will be minimal wage growth in developing countries and that, in any case, it would be negated by rising food prices. Costs of purchasing rice and wheat are fueling the rapid food price hikes sweeping the developing world.

The report found that all over the world as productivity has risen in recent years, wage growth has lagged behind. Rising productivity was measured, for the report’s purposes, by an increase in gross domestic product (GDP).

On average, every dollar that workers added to a nation’s GDP resulted in only 75 cents more in real wages. The report noted, however, that in countries with higher rates of unionization, the wage increase was 87 cents for every dollar increase in GDP.

Parts of the report have worrisome implications for American workers.

“In a recession wages tend to become overly responsive and fall faster than the GDP,” the document said. This is bad news for U.S. workers in light of the Nov. 25 announcement by the Commerce Department that gross domestic product shrank by 0.5 percent in the third quarter of 2008.

Wage inequality, the report said, widened worldwide and will continue to get worse. The largest gaps between rich and poor came in countries hit by severe economic crisis, Argentina, for example, South Korea, Thailand and former socialist countries such as Bulgaria, Poland and Hungary.

Although the report said the gender pay gap worldwide seems to be narrowing slightly, it pointed out that women workers, especially in developing nations, are part of an informal, non-wage economy. For this reason, it is noted in the document, actual gaps in wages between men and women are almost always underestimated.

“A major challenge for the future is to ensure men and women doing work that is different but of equal value” are paid equally, the ILO said, adding, “Indeed, there appears to be an increasing pay gap between men and women engaged in similar work, especially in professional and executive-level jobs and in skilled trades.”

The ILO report recommended two steps that it says will both close pay gaps and minimize the impact of the recession on workers: Raise minimum wages worldwide and expand across the board rights for workers.

The report noted that although minimum wage hikes have taken place around the world during the first seven years of this decade, there has, for all practical purposes, been no significant expansion of the percentages of workers in countries who have collective bargaining rights.

In the United States, for example, only 16 percent of workers are included in collective bargaining agreements.

In Asia “it is usually below 15 percent” of all potentially covered workers “and often below 5 percent.” In 13 European nations, contracts protect more than 70 percent of workers.

In former socialist countries, however, including Poland and Slovakia, less than half are covered and in Lithuania and Latvia 15 percent are covered. In Latin America, only Argentina, Bolivia and Uruguay have more than 70 percent of workers covered by contracts. In El Salvador, Mexico, Nicaragua, Brazil, Chile, Colombia and Peru less than 8 percent are covered.