Global growth in real wages slowed dramatically in 2008 as a result of the economic crisis.
Wages are expected to drop even further this year despite some signs of an economic recovery, the International Labour Organization (ILO) reports.
“The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early. Wage deflation deprives national economies of much needed demand and seriously affects confidence”, said Manuela Tomei, Director, ILO Conditions of Work and Employment Programme and lead author of the study.
Consumption accounts for seventy percent of the U.S. economy and has been the engine of growth for almost thirty years. A continued decline in real wages will further depress consumption at a time when U.S. consumers are already tapped out on credit, business investment is stagnate, unemployment is expected to rise to over 10% and banks remain reluctant to make loans.
If real wages continue to decline economists worry that the 3.5% increase in GDP last quarter, driven by federal stimulus spending including the cash for clunkers program and the homeowners tax credit, will not be sustainable.
In this context Milwaukee County Executive and Republican candidate for Governor Scott Walker's pledge to cut wages if elected would undermine any possibility of economic recovery in Wisconsin.
The ILO adopted a Global Jobs Pact at the International Labour Conference in June that calls for measures to maintain employment and avoid the damaging consequences of deflationary wage spirals and worsening working conditions.
The update of the Global Wage Report says “the picture on wages is likely to get worse in 2009” regardless of other economic indicators suggesting an economic rebound. The report notes that in half of the 35 countries for which figures are available, real monthly wages fell in the first quarter of 2009 compared to their average of 2008, often due to cuts in hours worked.
The current deterioration in wages follows a decade of wage moderation before the global economic crisis. The report says that years of stagnating wages relative to productivity gains – together with growing inequalities – have contributed to the crisis by limiting the ability of many households to increase consumption other than through debt.
“In the future, restoring the link between productivity growth and wage increases is essential for economic and social sustainability. Companies should be able to achieve competitiveness through rising productivity rather than by cutting labour costs, and workers should have sufficient bargaining position to defend their wages. This will go a long way towards addressing income inequalities”, Ms. Tomei said.
The report also concludes that excessive bonuses, unrelated to actual performance, contributed to the crisis by distorting incentives in the financial sector and promoting short-term risk taking.
Showing posts with label hourly wages. Show all posts
Showing posts with label hourly wages. Show all posts
Wednesday, November 4, 2009
Wednesday, March 5, 2008
Official unemployment rate masks the real rate of unemployment
David Leonhardt, a New York Times economics writer, explains in his column that the official unemployment rate hides the much higher "real" rate of unemployment.
Thirteen percent of prime-age males in the U.S. are not working, a post-World War II high that acts as an anchor on hourly wages and compensation.
"...the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.
Even prime-age women, who flooded into the work force in the 1970s and 1980s, aren’t working at quite the same rate they were when this decade began. About 27 percent of them don’t hold a job today, up from 25 percent in early 2000.
There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.
If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.
The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.
Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads. (Men who have dropped out of the labor force actually do less housework on average than working women, according to Harley Frazis and Jay Stewart of the Bureau of Labor Statistics.)
Instead, these nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well. West Virginia, a mining state, is a great example. It may have a record-low unemployment rate, but it has also had an enormous rise in the number of out-of-work men.
These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately. With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power. Since 2003, total compensation, including the value of health insurance and other benefits, has failed to keep pace with inflation for most workers, according to Jared Bernstein of the Economic Policy Institute.
Thirteen percent of prime-age males in the U.S. are not working, a post-World War II high that acts as an anchor on hourly wages and compensation.
"...the average unemployment rate in this decade, just above 5 percent, has been lower than in any decade since the 1960s. Yet the percentage of prime-age men (those 25 to 54 years old) who are not working has been higher than in any decade since World War II. In January, almost 13 percent of prime-age men did not hold a job, up from 11 percent in 1998, 11 percent in 1988, 9 percent in 1978 and just 6 percent in 1968.
Even prime-age women, who flooded into the work force in the 1970s and 1980s, aren’t working at quite the same rate they were when this decade began. About 27 percent of them don’t hold a job today, up from 25 percent in early 2000.
There are only two possible explanations for this bizarre combination of a falling employment rate and a falling unemployment rate. The first is that there has been a big increase in the number of people not working purely by their own choice. You can think of them as the self-unemployed. They include retirees, as well as stay-at-home parents, people caring for aging parents and others doing unpaid work.
If growth in this group were the reason for the confusing statistics, we wouldn’t need to worry. It would be perfectly fair to say that unemployment was historically low.
The second possible explanation — a jump in the number of people who aren’t working, who aren’t actively looking but who would, in fact, like to find a good job — is less comforting. It also appears to be the more accurate explanation.
Various studies have shown that the new nonemployed are not mainly dot-com millionaires or stay-at-home dads. (Men who have dropped out of the labor force actually do less housework on average than working women, according to Harley Frazis and Jay Stewart of the Bureau of Labor Statistics.)
Instead, these nonemployed workers tend to be those who have been left behind by the economic changes of the last generation. Their jobs have been replaced by technology or have gone overseas, and they can no longer find work that pays as well. West Virginia, a mining state, is a great example. It may have a record-low unemployment rate, but it has also had an enormous rise in the number of out-of-work men.
These nonemployed remain a distinct minority of the population. But the growth in their numbers is one reason that overall wage growth has been so weak lately. With such a large pool of people who aren’t employed — but willing to work for the right price — those who do have jobs find themselves with less bargaining power. Since 2003, total compensation, including the value of health insurance and other benefits, has failed to keep pace with inflation for most workers, according to Jared Bernstein of the Economic Policy Institute.
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