The Director-General of the International LabourOrganization (ILO) called for a *Global Jobs Pact* toforestall a *prolonged and severe* jobs crisis that would lead to amassive increase in unemployment and working poverty.
The appeal followed a high-level, tripartite discussion at the ILOGoverning Body Monday, during which International Monetary Fund ManagingDirector Dominique Strauss-Kahn said increased cooperation between theIMF and the ILO was crucial in addressing the global economic crisis.
The high-level meeting also heard remarks by Mr. Guy Ryder, GeneralSecretary of the International Trade Union Confederation (ITUC); Mr.Alexander Shokhin, President of the Russian Union of Industrialists andEntrepreneurs; Jonathan Shaw, Minister for Disabled People and for theSouth East of the UK Department for Work and Pensions.
ILO Director-General Juan Somavia described international coordinationto tackle the crisis as weak, and said *the financial, trade,economic, employment and social roots of the global crisis areinterlinked and so must be the policy responses*. This is a mostimportant message ahead of the G20 Summit to be held in London nextweek.
The discussion was based on a study by the ILO*s InternationalInstitute for Labour Studies entitled The Financial and Economic Crisis:A Decent Work Response, that said that demographic projections suggestthat nearly 90 million net new jobs would be needed over 2009-10 toabsorb new entrants in the labour market and avoid a prolonged jobs gap.In earlier financial crises, the labour market recovered only 4 to 5years after the economic recovery, the study said.
"We need to implement a coherent and coordinated job-orientedrecovery strategy, based on sustainable enterprises, as soon aspossible," Mr. Somavia said. "If stimulus efforts are delayed thejobs crisis will be prolonged and severe and employment may only startto recover as from 2011."
The study by the ILO Institute examined current rescue efforts in 32countries, including all members of the G20. It said that while the IMFhad called for stimulus plans in the order of 2 per cent of GDP inresponse to the crisis, stimulus plans stand on average at 1.7 percent.The study also illustrates that stimulus as a percentage of GDP foradvanced economies - at 1.3 percent--is less than half that allocatedby developing and emerging economies.
The ILO survey also found that the stimulus packages lean heavilytoward financial bailouts and tax cuts instead of job creation andsocial protection and noted that on average, fiscal stimulus packagesfor the real economy are five times smaller than financial bailoutpackages.
"Only half of the countries examined have announced labour marketinitiatives and among those, the resources allocated to these measuresare relatively limited," said Raymond Torres, Director of the ILOInstitute, adding that social policy measures represent, on average, 9.2 percent of the total fiscal packages. In the case of labour marketmeasures, the figure is 1.8 percent.
The report also says that infrastructure programmes do not adequatelytake into account the need to reinforce the existing capacity ofbusinesses and skills supply - so that part of the infrastructurespending may result in higher prices, rather than higher production andjobs; some tax cuts will end in higher savings rather than higherdemand, output and jobs; and little is done to help youth and othervulnerable groups.
The measures moreover involve only limited social dialogue withemployers and unions and lack coordination across countries. Involvingsocial partners would help improve the design of the measures and helprestore confidence.
"The global crisis requires global solutions," emphasized the ILODirector-General. Lack of coordination diminishes the overall effect ofthe stimulus measures, making each individual country reluctant to movefaster than its trading partners and aggravating the recession. Thestudy also says trade protectionism would further depress world demandand wage deflation or weaker workers* rights would not only aggravatethe global crisis, but be perceived as unfair and aggravate the socialcrisis.
"The measures have also often failed to tackle the structuralimbalances that lie behind the crisis," Mr. Somavia said.
"Responsesto the crisis must not be piecemeal in nature and rolled outtemporarily, only to revert back to 'business as usual' as soon aspossible. Moving ahead with the Decent Work Agenda is crucial tosupporting the economic recovery, averting labour market and socialcrises and promoting social cohesion."
By coming together around a Global Jobs Pact, ILO constituents couldmake an important contribution to global policy coherence on theseissues. Such a Pact could ensure that stimulus measures moreeffectively tackle the transmission mechanisms of the crisis, namely thecredit crunch, the rapid deterioration in domestic demand conditions andthe recession in external markets, addressing key factors that nurturedthe crisis while building the foundation for a more sustainable economy.
The forthcoming International Labour Conference in June this year willfocus on tackling the Global Jobs Pact.
Showing posts with label ILO. Show all posts
Showing posts with label ILO. Show all posts
Wednesday, March 25, 2009
Tuesday, March 10, 2009
ILO Warns Economic Crisis Could Generate Up To 22 Million More Unemployed Women In 2009, Jeopardize Equality Gains At Work And At Home
The economic crisis is expected to increase the number of unemployed women by up to 22 million in 2009, the International Labour Office (ILO) says in its annual Global Employment Trends for Women report (GET) 1/ adding that the global jobs crisis is expected to worsen sharply with the deepening of the recession in 2009.
At the same time, the ILO also said that the global economic crisis would place new hurdles in the path toward sustainable and socially equitable growth making decent work for women increasingly more difficult, and called for “creative solutions” to address the gender gap.
The ILO issued the Global Employment Trends for Women in the run up to this year’s annual International Women*s Day, which was marked on March 6 at the ILO in Geneva.
The Global Employment Trends report indicates that of the 3 billion people employed around the world in 2008, 1.2 billion were women (40.4 per cent). It said that in 2009, the global unemployment rate for women could reach 7.4 per cent, compared to 7.0 per cent for men.
The report says that the gender impact of the economic crisis in terms of unemployment rates is expected to be more detrimental for females than for males in most regions of the world and most clearly in Latin America and the Caribbean.
It adds that the only regions where unemployment rates are expected to be less detrimental for women are East Asia, the developed economies and the non- EU South Eastern Europe and CIS which had narrower gender gaps in terms of job opportunities prior to the current economic crisis.
The labour market projections for 2009 show deterioration in global labour markets for both women and men. The ILO projects that the global unemployment rate could reach between 6.3 per cent and 7.1 per cent, with a corresponding female unemployment rate ranging from 6.5 to 7.4 per cent (compared to 6.1 per cent to 7.0 per cent for men). This would result in an increase of between 24 million and 52 million people unemployed worldwide, of which from 10 million to 22 million would be women.
At the same time, the ILO also projects that the global vulnerable employment rate 2/ would range from 50.5 to 54.7 per cent for women in 2009, and 47.2 and 51.8 per cent for men, indicating that while the burden of vulnerability is still greater for women, the crisis is pushing more men into vulnerable employment compared to 2007.
Policy implications and measures
”Women’s lower employment rates, weaker control over property and resources, concentration in informal and vulnerable forms of employment with lower earnings, and less social protection, all place women in a weaker position than men to weather crises,” said ILO Bureau for Gender Equality Director Jane Hodges, adding that “women may cope by engaging in working longer hours or by taking multiple low-income jobsbut still having to maintain unpaid care commitments.”
ILO Director-General Juan Somavia said that gender equality should be a key principle in any policy response, as the effects of the economic and financial crisis go beyond the scope of women in the world of work and have an impact on the overall stability of society, considering the various roles that women play.
In a statement issued for International Women’s Day, Mr. Somavia said, “Gender inequality in the world of work has long been with us - but it is likely that it will be exacerbated by the crisis. In times of economic upheaval, women often experience the negative consequences more rapidly and are slower to enjoy the benefits of recovery. And already before the crisis, the majority of working women were in the informaleconomy with lower earnings and less social protection.”
Mr. Somavia cited a number of policy measures that could help rebalance the burden placed on women and address the impact of globalization, such as sustainable and quality jobs open to both men and women, broader social protection including unemployment benefits and insurance schemes that recognize women’s vulnerable position in the labour market, and social dialogue with the active inclusion of women in decision-making processes.
Download the full paper here
Download ILO's statement here
At the same time, the ILO also said that the global economic crisis would place new hurdles in the path toward sustainable and socially equitable growth making decent work for women increasingly more difficult, and called for “creative solutions” to address the gender gap.
The ILO issued the Global Employment Trends for Women in the run up to this year’s annual International Women*s Day, which was marked on March 6 at the ILO in Geneva.
The Global Employment Trends report indicates that of the 3 billion people employed around the world in 2008, 1.2 billion were women (40.4 per cent). It said that in 2009, the global unemployment rate for women could reach 7.4 per cent, compared to 7.0 per cent for men.
The report says that the gender impact of the economic crisis in terms of unemployment rates is expected to be more detrimental for females than for males in most regions of the world and most clearly in Latin America and the Caribbean.
It adds that the only regions where unemployment rates are expected to be less detrimental for women are East Asia, the developed economies and the non- EU South Eastern Europe and CIS which had narrower gender gaps in terms of job opportunities prior to the current economic crisis.
The labour market projections for 2009 show deterioration in global labour markets for both women and men. The ILO projects that the global unemployment rate could reach between 6.3 per cent and 7.1 per cent, with a corresponding female unemployment rate ranging from 6.5 to 7.4 per cent (compared to 6.1 per cent to 7.0 per cent for men). This would result in an increase of between 24 million and 52 million people unemployed worldwide, of which from 10 million to 22 million would be women.
At the same time, the ILO also projects that the global vulnerable employment rate 2/ would range from 50.5 to 54.7 per cent for women in 2009, and 47.2 and 51.8 per cent for men, indicating that while the burden of vulnerability is still greater for women, the crisis is pushing more men into vulnerable employment compared to 2007.
Policy implications and measures
”Women’s lower employment rates, weaker control over property and resources, concentration in informal and vulnerable forms of employment with lower earnings, and less social protection, all place women in a weaker position than men to weather crises,” said ILO Bureau for Gender Equality Director Jane Hodges, adding that “women may cope by engaging in working longer hours or by taking multiple low-income jobsbut still having to maintain unpaid care commitments.”
ILO Director-General Juan Somavia said that gender equality should be a key principle in any policy response, as the effects of the economic and financial crisis go beyond the scope of women in the world of work and have an impact on the overall stability of society, considering the various roles that women play.
In a statement issued for International Women’s Day, Mr. Somavia said, “Gender inequality in the world of work has long been with us - but it is likely that it will be exacerbated by the crisis. In times of economic upheaval, women often experience the negative consequences more rapidly and are slower to enjoy the benefits of recovery. And already before the crisis, the majority of working women were in the informaleconomy with lower earnings and less social protection.”
Mr. Somavia cited a number of policy measures that could help rebalance the burden placed on women and address the impact of globalization, such as sustainable and quality jobs open to both men and women, broader social protection including unemployment benefits and insurance schemes that recognize women’s vulnerable position in the labour market, and social dialogue with the active inclusion of women in decision-making processes.
Download the full paper here
Download ILO's statement here
Monday, March 02, 2009
Economic Crisis Response Must Support Jobs, Smes, Vulnerable Sector, ILO Meeting Concludes
Delegates representing workers, employers and ministries of finance, planning and labour from Asia and the Pacific suggested policies and measures to be urgently put in place to mitigate the expected severe impact of the global financial and economic crisis on economies in the region, and to stimulate a more rapid, more equitable and sustainable recovery.
Delegates from 11 countries participated in a three-day, high-level regional forum in Manila, called to analyse the global downturn and identify critical policy responses and practical measures. Officials from the Asian Development Bank (ADB), the World Bank, the International Monetary Fund (IMF), other UN agencies, academics and foreign diplomats also attended.
Of concern for countries were sectors dependent on exports and remittances and the knock on effect of decline to other economic sectors and to the most vulnerable and poorest. Potential loss of jobs and threats to decent work affecting many millions in the region was the central preoccupation of forum participants. Capacity to address this through stimulus packages was particularly worrying in countries with limited fiscal space or reserves to call upon.
An effective response to the unfolding large scale crisis requires a global financial system guaranteeing stability, security and fairness for all. Participants highlighted that governmental and international action had to be coordinated and coherent. Economic stimulus packages needed to be comprehensive and target job preservation and creation and social protection as central to sustainable recovery and growth.
Practical measures called for included:
- Protecting and supporting decent jobs;
- Collective bargaining and social dialogue particularly in negotiating flexible hours, wages, temporary lay-offs and severance packages;
- Rolling out quickly infrastructure and labour-intensive public works projects, to keep men and women in work, particularly those retrenched;- Enterprise support measures including access to credit to focus particularly on small and medium sized enterprises (SMEs) and entrepreneurs.
- Targeting support to specific sectors such as the rural andagricultural economy, and for vulnerable groups of workers - international and internal migrants, informal sector workers, women and young people;
- International and regional support to include funding for developing countries and easing of conditionality in funding from international financial institutions: The ILO to help mobilise development partners and actors to support the above priority measures, to strengthen regional co-operation in responding to the crisis and reduce barriers to trade and commerce, and to build capacities for national, regional and international policy coherence for growth, employment and decent work.
”A strong message came from the meeting that national, regional and international responses must be coherent and coordinated, and that they must take into account social factors as well as economic factors,” said Sachiko Yamamoto, ILO Regional Director for Asia and the Pacific.”The crisis is severe and we haven*t seen the worst of it. The poorest and most vulnerable could be severely hit by its brutality as it spreads. To be effective, we must ensure that assistance reaches all levels of society and economies.”
”This is the first major crisis in the era of globalization and it needs a global response; the ILO has an important role to play in developing that response,” she added. “The decent work agenda and social dialogue in particular, has never been more important. We must keep talking and not compound our problems by relinquishing gains that have been made, such as the minimum wage and fundamental rights andstandards.”
The high-level forum, “Responding to the Economic Crisis – Coherent Policies for Growth, Employment and Decent Work in Asia and the Pacific,” was convened by the International Labour Organization to discuss the effect the crisis is having on countries and their workers.
The forum was organized with the collaboration of the ADB and the Department of Labour and Employment of the Philippines, and with the support of the Government of Norway. It is one of a series of regional events whose outcomes feed into a high-level meeting on the economic crisis, called by the ILO’s Governing Body.
The global meeting involving international financial organizations and the UN system will take place at the ILO in Geneva on March 23, 2009.
Delegates from 11 countries participated in a three-day, high-level regional forum in Manila, called to analyse the global downturn and identify critical policy responses and practical measures. Officials from the Asian Development Bank (ADB), the World Bank, the International Monetary Fund (IMF), other UN agencies, academics and foreign diplomats also attended.
Of concern for countries were sectors dependent on exports and remittances and the knock on effect of decline to other economic sectors and to the most vulnerable and poorest. Potential loss of jobs and threats to decent work affecting many millions in the region was the central preoccupation of forum participants. Capacity to address this through stimulus packages was particularly worrying in countries with limited fiscal space or reserves to call upon.
An effective response to the unfolding large scale crisis requires a global financial system guaranteeing stability, security and fairness for all. Participants highlighted that governmental and international action had to be coordinated and coherent. Economic stimulus packages needed to be comprehensive and target job preservation and creation and social protection as central to sustainable recovery and growth.
Practical measures called for included:
- Protecting and supporting decent jobs;
- Collective bargaining and social dialogue particularly in negotiating flexible hours, wages, temporary lay-offs and severance packages;
- Rolling out quickly infrastructure and labour-intensive public works projects, to keep men and women in work, particularly those retrenched;- Enterprise support measures including access to credit to focus particularly on small and medium sized enterprises (SMEs) and entrepreneurs.
- Targeting support to specific sectors such as the rural andagricultural economy, and for vulnerable groups of workers - international and internal migrants, informal sector workers, women and young people;
- International and regional support to include funding for developing countries and easing of conditionality in funding from international financial institutions: The ILO to help mobilise development partners and actors to support the above priority measures, to strengthen regional co-operation in responding to the crisis and reduce barriers to trade and commerce, and to build capacities for national, regional and international policy coherence for growth, employment and decent work.
”A strong message came from the meeting that national, regional and international responses must be coherent and coordinated, and that they must take into account social factors as well as economic factors,” said Sachiko Yamamoto, ILO Regional Director for Asia and the Pacific.”The crisis is severe and we haven*t seen the worst of it. The poorest and most vulnerable could be severely hit by its brutality as it spreads. To be effective, we must ensure that assistance reaches all levels of society and economies.”
”This is the first major crisis in the era of globalization and it needs a global response; the ILO has an important role to play in developing that response,” she added. “The decent work agenda and social dialogue in particular, has never been more important. We must keep talking and not compound our problems by relinquishing gains that have been made, such as the minimum wage and fundamental rights andstandards.”
The high-level forum, “Responding to the Economic Crisis – Coherent Policies for Growth, Employment and Decent Work in Asia and the Pacific,” was convened by the International Labour Organization to discuss the effect the crisis is having on countries and their workers.
The forum was organized with the collaboration of the ADB and the Department of Labour and Employment of the Philippines, and with the support of the Government of Norway. It is one of a series of regional events whose outcomes feed into a high-level meeting on the economic crisis, called by the ILO’s Governing Body.
The global meeting involving international financial organizations and the UN system will take place at the ILO in Geneva on March 23, 2009.
Friday, February 13, 2009
Asia-Pacific’s Responses To Global Economic Crisis To Be Discussed At High Level Forum In Manila
MANILA-- Ministers of labor and finance, senior UN and government officials, workers and employers representatives from throughout Asia and the Pacific are due to meet in Manila next week to discuss responses to the current economic crisis.
More than 11 countries are expected to attend the regional forum, entitled “Responding to the Economic Crisis - Coherent Policies for Growth, Employment and Decent Work in Asia and the Pacific”.
Other senior officials expected to attend include Mr. Jomo Kwame Sundaram, UN Assistant Secretary-General for Economic Development, and Ms. Ursula Schaefer-Preuss, Vice-President, Knowledge Management and Sustainable Development, Asian Development Bank.
To assist discussions at the forum, a report, “The fallout in Asia: Assessing labor market impacts and national policy responses to the global financial crisis,” has been compiled by the ILO’s Regional Office for Asia and the Pacific.
This forum is one of a series of similar regional events that will feed into a high level meeting on the economic crisis called by the ILO’s Governing Body, which will take place in Geneva on March 23.
The High-level Regional Forum is being convened by the ILO in collaboration with the Asian Development Bank and the Department of Labor and Employment of the Philippines, with financial support from the Government of Norway.
More than 11 countries are expected to attend the regional forum, entitled “Responding to the Economic Crisis - Coherent Policies for Growth, Employment and Decent Work in Asia and the Pacific”.
Other senior officials expected to attend include Mr. Jomo Kwame Sundaram, UN Assistant Secretary-General for Economic Development, and Ms. Ursula Schaefer-Preuss, Vice-President, Knowledge Management and Sustainable Development, Asian Development Bank.
To assist discussions at the forum, a report, “The fallout in Asia: Assessing labor market impacts and national policy responses to the global financial crisis,” has been compiled by the ILO’s Regional Office for Asia and the Pacific.
This forum is one of a series of similar regional events that will feed into a high level meeting on the economic crisis called by the ILO’s Governing Body, which will take place in Geneva on March 23.
The High-level Regional Forum is being convened by the ILO in collaboration with the Asian Development Bank and the Department of Labor and Employment of the Philippines, with financial support from the Government of Norway.
Thursday, January 29, 2009
Interview with Steven Kapsos, ILO Labour Economist on the Global Employment Trends Report
What are the trends and projections for South-East Asia in particular the Philippines based on the Global Employment Trends Report?
STEVEN KAPSOS: The ILO has developed three scenarios based on labour market data available to date which illustrate that the regional unemployment rate for South-East Asia and the Pacific (which includes the Philippines) could increase from 5.5 per cent in 2007 to between 6.0 and 6.4 per cent in 2009. This would represent an increase of 2 to 3 million unemployed people in the region.
The number of working poor and workers in vulnerable employment (lacking benefits and without a safety net to guard against loss of incomes during economic hardship) also appears to be on the rise in this region. In addition to the 45 million workers in the region living with their families in extreme poverty (US$1.25 per person per day), an additional 23 million are living only marginally above the poverty line and are in danger of becoming poor if the right action is not taken.
What is the impact of the global economic crisis on employment trends in the Philippines and other Asian countries?
STEVEN KAPSOS: Economic growth in the Philippines has shown a sharp decline from 7.2 per cent in 2007 to 4.2-4.5 per cent in 2008 and is expected to fall further to 2.3-3.4 per cent in 2009. We haven't yet seen large increase in unemployment in the Philippines, but the crisis is also likely to affect workers in other ways that are somewhat more difficult to measure, such as declining hours of work (an increase in part-time work), pressure for lower wages and less job security.
Based on the report, the three Asian regions which included the Philippines accounted for 57 per cent of global employment creation in 2008 as compared to low global creation in developed economies, what are the reasons for such trends?
STEVEN KAPSOS: Much of this is due to demographic trends - Asia is a very young region with relatively rapid population and labour force growth.
The employment rate in the Philippines based on the Labour Force Survey showed an increasing pattern amidst the global financial crisis, what can you say about the trend when other countries have decreasing employment?
Date Employment rate (%)
January 2008 92.6
April 2008 92.0
July 2008 92.6
October 2008 93.2
STEVEN KAPSOS: The issue in the region is not so much employment creation, but rather whether good quality jobs are being created - for instance jobs that pay a decent wage that opens the way to a better future and allows workers and their families to escape poverty and jobs that allow economies to move to higher value production. It is important to remember that Asia still has a large share of workers in vulnerable employment - an estimated 60 per cent of the workforce and more than 400 million workers living with their families in extreme poverty.
In the Philippines, there were about 10.5 million informal sector operators identified in the 2008 while the Global Employment Trends projected an increase in vulnerable employment, what do you think are the factors for such increase? What are possible actions to be taken to protect those in vulnerable situations?
STEVEN KAPSOS: Direct transfer payments and spending on health care can be effective ways of ensuring that people are able to continue spending and consuming, which will support growth. Loans to small and medium-sized enterprises, which employ most workers in the region and which are being hard hit by problems accessing credit, are another good tool for policymakers to consider. Longer term, increased investment in education and training can help to ensure that workers have up-to-date skills that will be in demand when the recovery begins to take shape.
What is the ILO doing amidst the global financial crisis which has now become a global job crisis?
STEVEN KAPSOS: The ILO, in collaboration with the Asian Development Bank is organizing a High-Level regional Forum in Manila, 18-20 February 2009 on “Responding to the Economic Crisis- Coherent policies for Growth, Employment and Decent work in Asia and the Pacific”. The aim is to promote policy dialogue between regional and international experts and policy makers from governments, business and labour on concrete steps to counter the economic and social consequences’ of the crisis.
Do you think the Philippine economy is safe from the global crunch with large foreign exchange reserves and fiscal surplus?
STEVEN KAPSOS: Growth in the Philippines is slowing, which is likely to have adverse impacts on the labour market and, more directly, on people's lives and livelihoods. Large reserves and a fiscal surplus provide space for addressing the problems of the crisis, but policymakers should not be complacent. Appropriate policies must be designed and implemented. It is important to identify ways to create jobs amidst the crisis and to ensure that the poor and most vulnerable do not slip further behind. This will help to ensure that a recovery occurs sooner rather than later.
What is the worst scenario especially for a country like the Philippines with large level of remittances?
STEVEN KAPSOS: A prolonged crisis could result in a negative cycle of declining demand, falling output and rising joblessness and poverty. But we feel that if appropriate action is taken and there is international coordination, this outcome can be avoided. It is important to ask what the impact will be on migrant workers, as they are important in both receiving countries, where they often perform vital jobs in the economy and in their home countries such as the Philippines, which benefit from remittances. Migrant workers may be at risk if rising unemployment puts pressure on policymakers to try to free up jobs for nationals. Migrant workers should not be used as a political football. This would not only be harmful to them - it would also be harmful to the firms where they work as they may have difficulties finding appropriately qualified workers to replace migrants that have acquired skills over time.
What are the necessary steps or measures for Asian countries like the Philippines now that the whole world is confronting this economic crisis?
STEVEN KAPSOS:
1) Ensure that the patient survives - that credit markets are unfrozen so that business and lending can resume. A lot of progress has been made on this front.
2) Give the patient the appropriate medicine - monetary and fiscal stimulus, with an explicit goal in fiscal stimulus packages of creating employment, improving labour market outcomes and protecting the poor and vulnerable.
3) Begin to rehabilitate the patient for the long-run - focus on building skills and education of the workforce so that they are able to run once the race starts again.
What are your projections for 2009 based on the Global Employment Trends globally and locally for the Philippines? Do you think we could ever survive this economic crisis?
STEVEN KAPSOS: Most certainly yes, if we act quickly and bring in the right policies. We may not be able to prevent the onset of the crisis but to a large extent how quickly we get out of it, and in what sort of shape, is in our hands.
Do you think it is possible to achieve decent work amidst the crisis when people are unemployed or have no other choice but to settle for whatever jobs are available?
STEVEN KAPSOS: It may certainly be difficult, but the onset of the crisis - and the way it was created - is producing a fundamental re-evaluation in all countries of the aims and objectives of growth and development. People know that for growth to be sustainable and stable it must be more inclusive. The benefits of progress must trickle down. Jobs that trap people in poverty, rather than releasing them from it, do not allow people or societies to grow economically and socially, or to be competitive in the long term. So the lesson of this crisis is that Decent Work is not an optional luxury, it is essential for stable, equitable growth.
STEVEN KAPSOS: The ILO has developed three scenarios based on labour market data available to date which illustrate that the regional unemployment rate for South-East Asia and the Pacific (which includes the Philippines) could increase from 5.5 per cent in 2007 to between 6.0 and 6.4 per cent in 2009. This would represent an increase of 2 to 3 million unemployed people in the region.
The number of working poor and workers in vulnerable employment (lacking benefits and without a safety net to guard against loss of incomes during economic hardship) also appears to be on the rise in this region. In addition to the 45 million workers in the region living with their families in extreme poverty (US$1.25 per person per day), an additional 23 million are living only marginally above the poverty line and are in danger of becoming poor if the right action is not taken.
What is the impact of the global economic crisis on employment trends in the Philippines and other Asian countries?
STEVEN KAPSOS: Economic growth in the Philippines has shown a sharp decline from 7.2 per cent in 2007 to 4.2-4.5 per cent in 2008 and is expected to fall further to 2.3-3.4 per cent in 2009. We haven't yet seen large increase in unemployment in the Philippines, but the crisis is also likely to affect workers in other ways that are somewhat more difficult to measure, such as declining hours of work (an increase in part-time work), pressure for lower wages and less job security.
Based on the report, the three Asian regions which included the Philippines accounted for 57 per cent of global employment creation in 2008 as compared to low global creation in developed economies, what are the reasons for such trends?
STEVEN KAPSOS: Much of this is due to demographic trends - Asia is a very young region with relatively rapid population and labour force growth.
The employment rate in the Philippines based on the Labour Force Survey showed an increasing pattern amidst the global financial crisis, what can you say about the trend when other countries have decreasing employment?
Date Employment rate (%)
January 2008 92.6
April 2008 92.0
July 2008 92.6
October 2008 93.2
STEVEN KAPSOS: The issue in the region is not so much employment creation, but rather whether good quality jobs are being created - for instance jobs that pay a decent wage that opens the way to a better future and allows workers and their families to escape poverty and jobs that allow economies to move to higher value production. It is important to remember that Asia still has a large share of workers in vulnerable employment - an estimated 60 per cent of the workforce and more than 400 million workers living with their families in extreme poverty.
In the Philippines, there were about 10.5 million informal sector operators identified in the 2008 while the Global Employment Trends projected an increase in vulnerable employment, what do you think are the factors for such increase? What are possible actions to be taken to protect those in vulnerable situations?
STEVEN KAPSOS: Direct transfer payments and spending on health care can be effective ways of ensuring that people are able to continue spending and consuming, which will support growth. Loans to small and medium-sized enterprises, which employ most workers in the region and which are being hard hit by problems accessing credit, are another good tool for policymakers to consider. Longer term, increased investment in education and training can help to ensure that workers have up-to-date skills that will be in demand when the recovery begins to take shape.
What is the ILO doing amidst the global financial crisis which has now become a global job crisis?
STEVEN KAPSOS: The ILO, in collaboration with the Asian Development Bank is organizing a High-Level regional Forum in Manila, 18-20 February 2009 on “Responding to the Economic Crisis- Coherent policies for Growth, Employment and Decent work in Asia and the Pacific”. The aim is to promote policy dialogue between regional and international experts and policy makers from governments, business and labour on concrete steps to counter the economic and social consequences’ of the crisis.
Do you think the Philippine economy is safe from the global crunch with large foreign exchange reserves and fiscal surplus?
STEVEN KAPSOS: Growth in the Philippines is slowing, which is likely to have adverse impacts on the labour market and, more directly, on people's lives and livelihoods. Large reserves and a fiscal surplus provide space for addressing the problems of the crisis, but policymakers should not be complacent. Appropriate policies must be designed and implemented. It is important to identify ways to create jobs amidst the crisis and to ensure that the poor and most vulnerable do not slip further behind. This will help to ensure that a recovery occurs sooner rather than later.
What is the worst scenario especially for a country like the Philippines with large level of remittances?
STEVEN KAPSOS: A prolonged crisis could result in a negative cycle of declining demand, falling output and rising joblessness and poverty. But we feel that if appropriate action is taken and there is international coordination, this outcome can be avoided. It is important to ask what the impact will be on migrant workers, as they are important in both receiving countries, where they often perform vital jobs in the economy and in their home countries such as the Philippines, which benefit from remittances. Migrant workers may be at risk if rising unemployment puts pressure on policymakers to try to free up jobs for nationals. Migrant workers should not be used as a political football. This would not only be harmful to them - it would also be harmful to the firms where they work as they may have difficulties finding appropriately qualified workers to replace migrants that have acquired skills over time.
What are the necessary steps or measures for Asian countries like the Philippines now that the whole world is confronting this economic crisis?
STEVEN KAPSOS:
1) Ensure that the patient survives - that credit markets are unfrozen so that business and lending can resume. A lot of progress has been made on this front.
2) Give the patient the appropriate medicine - monetary and fiscal stimulus, with an explicit goal in fiscal stimulus packages of creating employment, improving labour market outcomes and protecting the poor and vulnerable.
3) Begin to rehabilitate the patient for the long-run - focus on building skills and education of the workforce so that they are able to run once the race starts again.
What are your projections for 2009 based on the Global Employment Trends globally and locally for the Philippines? Do you think we could ever survive this economic crisis?
STEVEN KAPSOS: Most certainly yes, if we act quickly and bring in the right policies. We may not be able to prevent the onset of the crisis but to a large extent how quickly we get out of it, and in what sort of shape, is in our hands.
Do you think it is possible to achieve decent work amidst the crisis when people are unemployed or have no other choice but to settle for whatever jobs are available?
STEVEN KAPSOS: It may certainly be difficult, but the onset of the crisis - and the way it was created - is producing a fundamental re-evaluation in all countries of the aims and objectives of growth and development. People know that for growth to be sustainable and stable it must be more inclusive. The benefits of progress must trickle down. Jobs that trap people in poverty, rather than releasing them from it, do not allow people or societies to grow economically and socially, or to be competitive in the long term. So the lesson of this crisis is that Decent Work is not an optional luxury, it is essential for stable, equitable growth.
Unemployment, working poor and vulnerable employment to increase dramatically due to global economic crisis
MANILA--The global economic crisis is expected to lead to a dramatic increase in the number of people joining the ranks of the unemployed, working poor and those in vulnerable employment, the International Labour Office (ILO) says in its annual Global Employment Trends report.
Based on new developments in the labour market and depending on the timeliness and effectiveness of recovery efforts, the report says global unemployment in 2009 could increase over 2007 by a range of 18 million to 30 million workers, and more than 50 million if the situation continues to deteriorate.
The ILO report also said that in this last scenario some 200 million workers, mostly in developing economies, could be pushed into extreme poverty.
“The ILO message is realistic, not alarmist. We are now facing a global jobs crisis. Many governments are aware and acting, but more decisive and coordinated international action is needed to avert a global social recession. Progress in poverty reduction is unravelling and middle classes worldwide are weakening. The political and security implications are daunting.” said ILO Director-General, Juan Somavia.
“The crisis is underscoring the relevance of the ILO Decent Work Agenda. We find many elements of this Agenda in current measures to promote job creation, deepening and expanding social protection and more use of social dialogue,” Mr. Somavia said. He called on the upcoming meeting of the G-20 on 2 April in London, alongside financial issues, to urgently agree on priority measures to promote productive investments, decent work and social protection objectives, and policy coordination.
Key projections of the GET report
The new report updates a preliminary estimate released last October indicating that the global financial crisis could increase unemployment between 15 to 20 million people by 2009. Its key conclusions are as follows:
· Based on November 2008 IMF forecasts, the global unemployment rate would rise to 6.1 percent in 2009 compared to 5.7 per cent in 2007, resulting in an increase of the number of unemployed by 18 million people in 2009 in comparison with 2007.
· If the economic outlook deteriorates beyond what was envisaged in November 2008, which is likely, the global unemployment rate could rise to 6.5 per cent, corresponding to an increase of the global number of unemployed by 30 million people in comparison with 2007.
· In a current worst case scenario, the global unemployment rate could rise to 7.1 per cent and result in an increase in the global number of unemployed of more than 50 million people.
· The number of working poor - people who are unable to earn enough to lift themselves and their families above the US$2 per person, per day, poverty line, may rise up to 1.4 billion, or 45 percent of all the world’s employed.
· In 2009, the proportion of people in vulnerable employment – either contributing family workers or own-account workers who are less likely to benefit from safety nets that guard against loss of incomes during economic hardship – could rise considerably in the worst case scenario to reach a level of 53 percent of the employed population.
Other findings
The ILO report notes that in 2008, North Africa and the Middle East still had the highest unemployment rates at 10.3 and 9.4 per cent respectively, followed by Central & South Eastern Europe (non EU) & the Commonwealth of Independent States (CIS) at 8.8 per cent, sub-Saharan Africa at 7.9 per cent and Latin America at 7.3 per cent.
The lowest unemployment rate was once again observed in East Asia at 3.8 per cent, followed by South Asia and South-East Asia & the Pacific where respectively 5.4 and 5.7 per cent of the labour force was unemployed in 2008
The report shows that the three Asian regions - South Asia, South-East Asia & the Pacific and East Asia - accounted for 57 per cent of global employment creation in 2008. In the Developed Economies & European Union region, on the other hand, net employment creation in 2008 was negative, minus 900,000 which explains in part the low global employment creation in this year.
Compared with 2007, the largest increase in a regional unemployment rate was observed in the Developed Economies & European Union region, from 5.7 to 6.4 per cent. The number of unemployed in the region jumped by 3.5 million in one year, reaching 32.3 million in 2008.
According to the study, sub-Saharan Africa and South Asia stand out as regions with extremely harsh labour market conditions and with the highest shares of working poor of all regions. Although the trend has been declining over the past ten years, around four fifths of the employed were still classified as working poor in these regions in 2007.
Policy measures
The economic crisis of 2008 has deepened the concern over the social impacts of globalization which the ILO had previously raised. Stressing the need to take measures to support vulnerable groups in the labour market, such as youth and women, the ILO report observes that a huge labour potential remains untapped worldwide. Economic growth and development could be much higher if people are given the chance of a decent job through productive investment and active labour market policies.
“The Decent Work Agenda is an appropriate policy framework to confront the crisis. There is a powerful message that tripartite dialogue with employers and workers organizations should play a central role in addressing the economic crisis, and in developing policy responses,” Mr. Somavia said.
The report lists a number of ILO recommended policy measures being applied by many governments, as discussed by the ILO Governing Body in November of 2008, namely:
i) wider coverage of unemployment benefits and insurance schemes, re-skilling redundant workers and protecting pensions from devastating declines in financial markets;
ii) public investment in infrastructure and housing, community infrastructure and green jobs, including through emergency public works;
iii) support to small and medium enterprises;
iv) social dialogue at enterprise, sectoral and national levels.
If a large number of countries, using their own accumulated reserves, emergency IMF loans and stronger aid mechanisms, put in place coordinated policies in line with the ILO Decent Work Agenda, then the effects of the downturn on enterprises, workers and their families could be cushioned and the recovery better prepared.
Based on new developments in the labour market and depending on the timeliness and effectiveness of recovery efforts, the report says global unemployment in 2009 could increase over 2007 by a range of 18 million to 30 million workers, and more than 50 million if the situation continues to deteriorate.
The ILO report also said that in this last scenario some 200 million workers, mostly in developing economies, could be pushed into extreme poverty.
“The ILO message is realistic, not alarmist. We are now facing a global jobs crisis. Many governments are aware and acting, but more decisive and coordinated international action is needed to avert a global social recession. Progress in poverty reduction is unravelling and middle classes worldwide are weakening. The political and security implications are daunting.” said ILO Director-General, Juan Somavia.
“The crisis is underscoring the relevance of the ILO Decent Work Agenda. We find many elements of this Agenda in current measures to promote job creation, deepening and expanding social protection and more use of social dialogue,” Mr. Somavia said. He called on the upcoming meeting of the G-20 on 2 April in London, alongside financial issues, to urgently agree on priority measures to promote productive investments, decent work and social protection objectives, and policy coordination.
Key projections of the GET report
The new report updates a preliminary estimate released last October indicating that the global financial crisis could increase unemployment between 15 to 20 million people by 2009. Its key conclusions are as follows:
· Based on November 2008 IMF forecasts, the global unemployment rate would rise to 6.1 percent in 2009 compared to 5.7 per cent in 2007, resulting in an increase of the number of unemployed by 18 million people in 2009 in comparison with 2007.
· If the economic outlook deteriorates beyond what was envisaged in November 2008, which is likely, the global unemployment rate could rise to 6.5 per cent, corresponding to an increase of the global number of unemployed by 30 million people in comparison with 2007.
· In a current worst case scenario, the global unemployment rate could rise to 7.1 per cent and result in an increase in the global number of unemployed of more than 50 million people.
· The number of working poor - people who are unable to earn enough to lift themselves and their families above the US$2 per person, per day, poverty line, may rise up to 1.4 billion, or 45 percent of all the world’s employed.
· In 2009, the proportion of people in vulnerable employment – either contributing family workers or own-account workers who are less likely to benefit from safety nets that guard against loss of incomes during economic hardship – could rise considerably in the worst case scenario to reach a level of 53 percent of the employed population.
Other findings
The ILO report notes that in 2008, North Africa and the Middle East still had the highest unemployment rates at 10.3 and 9.4 per cent respectively, followed by Central & South Eastern Europe (non EU) & the Commonwealth of Independent States (CIS) at 8.8 per cent, sub-Saharan Africa at 7.9 per cent and Latin America at 7.3 per cent.
The lowest unemployment rate was once again observed in East Asia at 3.8 per cent, followed by South Asia and South-East Asia & the Pacific where respectively 5.4 and 5.7 per cent of the labour force was unemployed in 2008
The report shows that the three Asian regions - South Asia, South-East Asia & the Pacific and East Asia - accounted for 57 per cent of global employment creation in 2008. In the Developed Economies & European Union region, on the other hand, net employment creation in 2008 was negative, minus 900,000 which explains in part the low global employment creation in this year.
Compared with 2007, the largest increase in a regional unemployment rate was observed in the Developed Economies & European Union region, from 5.7 to 6.4 per cent. The number of unemployed in the region jumped by 3.5 million in one year, reaching 32.3 million in 2008.
According to the study, sub-Saharan Africa and South Asia stand out as regions with extremely harsh labour market conditions and with the highest shares of working poor of all regions. Although the trend has been declining over the past ten years, around four fifths of the employed were still classified as working poor in these regions in 2007.
Policy measures
The economic crisis of 2008 has deepened the concern over the social impacts of globalization which the ILO had previously raised. Stressing the need to take measures to support vulnerable groups in the labour market, such as youth and women, the ILO report observes that a huge labour potential remains untapped worldwide. Economic growth and development could be much higher if people are given the chance of a decent job through productive investment and active labour market policies.
“The Decent Work Agenda is an appropriate policy framework to confront the crisis. There is a powerful message that tripartite dialogue with employers and workers organizations should play a central role in addressing the economic crisis, and in developing policy responses,” Mr. Somavia said.
The report lists a number of ILO recommended policy measures being applied by many governments, as discussed by the ILO Governing Body in November of 2008, namely:
i) wider coverage of unemployment benefits and insurance schemes, re-skilling redundant workers and protecting pensions from devastating declines in financial markets;
ii) public investment in infrastructure and housing, community infrastructure and green jobs, including through emergency public works;
iii) support to small and medium enterprises;
iv) social dialogue at enterprise, sectoral and national levels.
If a large number of countries, using their own accumulated reserves, emergency IMF loans and stronger aid mechanisms, put in place coordinated policies in line with the ILO Decent Work Agenda, then the effects of the downturn on enterprises, workers and their families could be cushioned and the recovery better prepared.
Thursday, December 18, 2008
Statement by Juan Somavia
Director-General of the International Labour Office on the occasion ofInternational Migrants Day 18 December 2008
Today we recognize the 200 million international migrants, 50 per centof whom are women and men migrant workers, who have left their homes andcommunities to find work and better opportunities elsewhere in the worldto support their families and communities. They make huge but oftenunrecognized contributions to growth and development of both their hostcountries and home communities. The principles of the Universal Declaration of Human Rights are wellreflected in the two ILO Conventions on migrant workers - Migration forEmployment Convention, 1949 (No. 97), and the Migrant WorkersConvention, 1975 (No. 143) - as well as in the International Conventionon the Protection of the Rights of all Migrant Workers and TheirFamilies (1990), all landmarks in the international protection ofmigrant workers. Equality of treatment and non-discrimination areuniversal principles enshrined in these instruments which provide thefoundation for a rights based approach to labour migration in aglobalizing world. It is encouraging that 80 countries have ratified oneor more of these instruments.
The current global financial and economic crises have seriousimplications for migrant workers worldwide. Past experience makes uspainfully aware that migrant workers, especially women workers and thosein irregular status, are among the hardest hit and most vulnerableduring crisis situations. While the full impact of the crisis onmigrant workers is yet to unfold, there are reports of direct layoffs,worsening working conditions including wage cuts, increasing returns,and reductions in immigrant intakes. Yet all sectors may not be equallyaffected, and destination countries should assess their labour marketneeds before resorting to general layoffs of migrant workers. It isimportant that migrant workers do not become scapegoats for the currentfinancial and economic crisis.
Source countries are already grappling with the challenges ofemployment creation for their citizens including increasing numbers ofreturn migrants and falling remittances. The integrated strategy fordecent work contained in the 2008 ILO Declaration on Social Justice fora Fair Globalization provides us with a solid foundation in addressingthe current crisis. Availability of decent work opportunities at homewould also pave the way for migration by choice, not by necessity. A growing global mobilization involving, among others, global andregional trade union federations, employers* organizations andnational associations will be critical in advancing migrant workerconcerns.
On this International Migrants Day, the ILO renews its commitment topromote decent work for all women and men migrant workers worldwide inclose collaboration with the United Nations family.
Today we recognize the 200 million international migrants, 50 per centof whom are women and men migrant workers, who have left their homes andcommunities to find work and better opportunities elsewhere in the worldto support their families and communities. They make huge but oftenunrecognized contributions to growth and development of both their hostcountries and home communities. The principles of the Universal Declaration of Human Rights are wellreflected in the two ILO Conventions on migrant workers - Migration forEmployment Convention, 1949 (No. 97), and the Migrant WorkersConvention, 1975 (No. 143) - as well as in the International Conventionon the Protection of the Rights of all Migrant Workers and TheirFamilies (1990), all landmarks in the international protection ofmigrant workers. Equality of treatment and non-discrimination areuniversal principles enshrined in these instruments which provide thefoundation for a rights based approach to labour migration in aglobalizing world. It is encouraging that 80 countries have ratified oneor more of these instruments.
The current global financial and economic crises have seriousimplications for migrant workers worldwide. Past experience makes uspainfully aware that migrant workers, especially women workers and thosein irregular status, are among the hardest hit and most vulnerableduring crisis situations. While the full impact of the crisis onmigrant workers is yet to unfold, there are reports of direct layoffs,worsening working conditions including wage cuts, increasing returns,and reductions in immigrant intakes. Yet all sectors may not be equallyaffected, and destination countries should assess their labour marketneeds before resorting to general layoffs of migrant workers. It isimportant that migrant workers do not become scapegoats for the currentfinancial and economic crisis.
Source countries are already grappling with the challenges ofemployment creation for their citizens including increasing numbers ofreturn migrants and falling remittances. The integrated strategy fordecent work contained in the 2008 ILO Declaration on Social Justice fora Fair Globalization provides us with a solid foundation in addressingthe current crisis. Availability of decent work opportunities at homewould also pave the way for migration by choice, not by necessity. A growing global mobilization involving, among others, global andregional trade union federations, employers* organizations andnational associations will be critical in advancing migrant workerconcerns.
On this International Migrants Day, the ILO renews its commitment topromote decent work for all women and men migrant workers worldwide inclose collaboration with the United Nations family.
Tuesday, December 02, 2008
ILO warns of cuts in real wages for millions of workers in 2009
Declines follow decade in which wages failed to keep pace with economic growth
MANILA--The global economic crisis is expected to lead to painful cuts in the wages of millions of workers worldwide in the coming year, according to a new report published today by the International Labour Office (ILO).
“For the world’s 1.5 billion wage-earners, difficult times lie ahead”, says ILO Director-General Juan Somavia. “Slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of many workers, particularly the low-wage and poorer households. The middle classes will also be seriously affected”.
The report, entitled Global Wage Report 2008/09 */, warns that tensions are likely to intensify over wages.
Based on latest IMF growth figures, the ILO forecasts that the global growth in real wages will at best reach 1.1 per cent in 2009, compared to 1.7 per cent in 2008, but wages are expected to decline in a large number of countries, including major economies. Overall, wage growth in industrialized countries is expected to fall, from 0.8 per cent in 2008 to -0.5 per cent in 2009.
The ILO report shows that this bleak outlook follows a decade in which wages failed to advance in lockstep with economic growth.
According to the report, between 1995 and 2007, each additional 1 per cent in the annual growth of GDP per capita led to on average only a 0.75 per cent increase in annual growth of wages. As a result, in almost three-quarters of countries worldwide the labour share in GDP has declined.
While inflation was low and the global economy grew at a 4.0 per cent annual rate between 2001 and 2007, growth in wages lagged behind, increasing by less than 2 percent per year in half of the world’s countries, the report says.
There were wide regional differences. The growth in real wages was about 1 per cent per year or less in most developed and Latin America countries, but reached 10 per cent or more in China, Russia and a number of other transition countries.
In the Philippines, wage share fell by 2 per cent between the periods of 1995-2000 and 2001-2007 based on the United Nations National Accounts Statistics. At least three possible factors identified causing these trends in most countries are the weakening trade unions, technical progress due to changes in skills and productivity favouring skilled workers only and globalization in particular the presence of low-wage exporters.
The report also shows that since 1995, inequality between the highest and lowest wages has increased in more than two-thirds of the countries surveyed, often reaching socially unsustainable levels. Among developed countries, Germany, Poland and the United States are amongst the countries where the gap between top and bottom wages has increased most rapidly. In other regions, inequality has also increased sharply, particularly in Argentina, China and Thailand.
Some of the countries which have succeeded in reducing wage inequality include France and Spain, as well as Brazil and Indonesia, though in these latter two countries inequality remains at a high level.
The pay gap between genders is still high and closing only very slowly. Although about 80 per cent of the countries for which data are available have seen an increase in the ratio of female to male average wages, the size of change is small and in some cases negligible. In the majority of countries, women’s wages represent on average between 70 per cent and 90 per cent of men’s wages, but it is not uncommon to find much lower ratios in other parts of the world, particularly in Asia.
Jobs and sectors where women prevail are often excluded from the protection of minimum wages laws shown by consistently lower minimum wages for domestic workers. In the Philippines, minimum wages rates for domestic workers are among the lowest minima.
Based on an analysis of major trends in the level and the distribution of wages around the world in recent years, the ILO report shows that while wage growth has lagged behind overall economic growth during upswings, it slowed down more rapidly during economic downswings. According to the report, between 1995 and 2007, for each 1 per cent decline in GDP per capita, average wages fell even further by 1.55 percentage point – a result that points to the possible effects on wages of the current crisis.
“If this pattern were to be followed in the rapidly spreading global downturn it would deepen the recession and delay the recovery”, Mr. Somavia said.
As the reports says, “In this context, governments are encouraged to display a strong commitment towards protecting the purchasing power of wage earners and hence stimulating internal consumption. Firstly, social partners should be encouraged to negotiate ways to prevent a further deterioration in the share of wages relative to the share of profits in GDP. Secondly, minimum wages should effectively protect the most vulnerable workers. Thirdly, minimum wages and wage bargaining should be complemented by public intervention through, for instance, income support measures”.
In the Philippines the regional boards seem to have supplanted firm-level wage bargaining, and companies now simply wait for the annual wage adjustments by the boards rather than negotiate with the workers. Collective bargaining coverage in 2007 or latest year was less than 15 per cent in the Philippines similar to other South-East Asian countries.
The report shows that minimum wage and collective bargaining can be efficiently combined. Higher coverage of collective bargaining ensures that wages are more aligned with economic growth, and also contributes to lower wage inequality. At the same time, effective minimum wages – by providing a wage floor – can reduce wage inequality in the bottom half of the wage distribution, limit low pay, and reduce the gender pay gap.
The ILO study already reports a reactivation of minimum wages around the world in recent years, to reduce social tensions resulting from growing inequalities. Globally, over the period 2001–2007, minimum wages were allowed to rise by an average of 5.7 per cent per year in real terms –contrasting with some previous periods when the real value of the minimum wage had declined – and to increase in proportion to the average wage.
“The legitimacy of globalization and of open economies and societies hinges critically on greater fairness in outcomes. Central to this fairness is the ability of working women and men to obtain a fair share of the wealth they create”, Mr. Somavia said.
__________
Global Wage Report 2008/09: Minimum wages and collective bargaining: Towards policy coherence. ISBN 978-92-121499-1 (print). ISBN 978-92-2-121501-1 (CD-ROM). International Labour Office, Geneva, 2008.
MANILA--The global economic crisis is expected to lead to painful cuts in the wages of millions of workers worldwide in the coming year, according to a new report published today by the International Labour Office (ILO).
“For the world’s 1.5 billion wage-earners, difficult times lie ahead”, says ILO Director-General Juan Somavia. “Slow or negative economic growth, combined with highly volatile food and energy prices, will erode the real wages of many workers, particularly the low-wage and poorer households. The middle classes will also be seriously affected”.
The report, entitled Global Wage Report 2008/09 */, warns that tensions are likely to intensify over wages.
Based on latest IMF growth figures, the ILO forecasts that the global growth in real wages will at best reach 1.1 per cent in 2009, compared to 1.7 per cent in 2008, but wages are expected to decline in a large number of countries, including major economies. Overall, wage growth in industrialized countries is expected to fall, from 0.8 per cent in 2008 to -0.5 per cent in 2009.
The ILO report shows that this bleak outlook follows a decade in which wages failed to advance in lockstep with economic growth.
According to the report, between 1995 and 2007, each additional 1 per cent in the annual growth of GDP per capita led to on average only a 0.75 per cent increase in annual growth of wages. As a result, in almost three-quarters of countries worldwide the labour share in GDP has declined.
While inflation was low and the global economy grew at a 4.0 per cent annual rate between 2001 and 2007, growth in wages lagged behind, increasing by less than 2 percent per year in half of the world’s countries, the report says.
There were wide regional differences. The growth in real wages was about 1 per cent per year or less in most developed and Latin America countries, but reached 10 per cent or more in China, Russia and a number of other transition countries.
In the Philippines, wage share fell by 2 per cent between the periods of 1995-2000 and 2001-2007 based on the United Nations National Accounts Statistics. At least three possible factors identified causing these trends in most countries are the weakening trade unions, technical progress due to changes in skills and productivity favouring skilled workers only and globalization in particular the presence of low-wage exporters.
The report also shows that since 1995, inequality between the highest and lowest wages has increased in more than two-thirds of the countries surveyed, often reaching socially unsustainable levels. Among developed countries, Germany, Poland and the United States are amongst the countries where the gap between top and bottom wages has increased most rapidly. In other regions, inequality has also increased sharply, particularly in Argentina, China and Thailand.
Some of the countries which have succeeded in reducing wage inequality include France and Spain, as well as Brazil and Indonesia, though in these latter two countries inequality remains at a high level.
The pay gap between genders is still high and closing only very slowly. Although about 80 per cent of the countries for which data are available have seen an increase in the ratio of female to male average wages, the size of change is small and in some cases negligible. In the majority of countries, women’s wages represent on average between 70 per cent and 90 per cent of men’s wages, but it is not uncommon to find much lower ratios in other parts of the world, particularly in Asia.
Jobs and sectors where women prevail are often excluded from the protection of minimum wages laws shown by consistently lower minimum wages for domestic workers. In the Philippines, minimum wages rates for domestic workers are among the lowest minima.
Based on an analysis of major trends in the level and the distribution of wages around the world in recent years, the ILO report shows that while wage growth has lagged behind overall economic growth during upswings, it slowed down more rapidly during economic downswings. According to the report, between 1995 and 2007, for each 1 per cent decline in GDP per capita, average wages fell even further by 1.55 percentage point – a result that points to the possible effects on wages of the current crisis.
“If this pattern were to be followed in the rapidly spreading global downturn it would deepen the recession and delay the recovery”, Mr. Somavia said.
As the reports says, “In this context, governments are encouraged to display a strong commitment towards protecting the purchasing power of wage earners and hence stimulating internal consumption. Firstly, social partners should be encouraged to negotiate ways to prevent a further deterioration in the share of wages relative to the share of profits in GDP. Secondly, minimum wages should effectively protect the most vulnerable workers. Thirdly, minimum wages and wage bargaining should be complemented by public intervention through, for instance, income support measures”.
In the Philippines the regional boards seem to have supplanted firm-level wage bargaining, and companies now simply wait for the annual wage adjustments by the boards rather than negotiate with the workers. Collective bargaining coverage in 2007 or latest year was less than 15 per cent in the Philippines similar to other South-East Asian countries.
The report shows that minimum wage and collective bargaining can be efficiently combined. Higher coverage of collective bargaining ensures that wages are more aligned with economic growth, and also contributes to lower wage inequality. At the same time, effective minimum wages – by providing a wage floor – can reduce wage inequality in the bottom half of the wage distribution, limit low pay, and reduce the gender pay gap.
The ILO study already reports a reactivation of minimum wages around the world in recent years, to reduce social tensions resulting from growing inequalities. Globally, over the period 2001–2007, minimum wages were allowed to rise by an average of 5.7 per cent per year in real terms –contrasting with some previous periods when the real value of the minimum wage had declined – and to increase in proportion to the average wage.
“The legitimacy of globalization and of open economies and societies hinges critically on greater fairness in outcomes. Central to this fairness is the ability of working women and men to obtain a fair share of the wealth they create”, Mr. Somavia said.
__________
Global Wage Report 2008/09: Minimum wages and collective bargaining: Towards policy coherence. ISBN 978-92-121499-1 (print). ISBN 978-92-2-121501-1 (CD-ROM). International Labour Office, Geneva, 2008.
What’s ahead for wages in Asia Pacific?
Global Wage Report 2008/9: Minimum wages and collective bargaining – Towards policy coherence
By Sangheon Lee, Co-author ILO Global Wage Report 2008/9
The International Labour Organization’s first report on wages worldwide, the “Global Wage Report 2008/9: Minimum wages and collective bargaining – Towards policy coherence”[1] has found that while wages have grown in the Asia Pacific region they seem to have lagged behind economic and productivity growth. Inequality has also been on the rise and there hasn’t been much progress in closing the gap in pay between women and men. Low coverage of collective bargaining remains a challenge, and the current minimum wage systems leave much room for improvement.
Asia and the Pacific, with the strong influence of China, witnessed relatively solid global economic growth until 2007. The share of people in waged employment (as opposed to working informally or self employed) increased considerably; in East Asia it reached 42.6 per cent in 2006, although this is still below the global average of 46.9 per cent.
This economic growth was accompanied by positive growth in real wages. Between 2001 and 2007 real wages grew at an estimated 1.7 per cent per year (the estimated global average was 1.9 per cent). But although wages grew they still tended to lag behind economic growth. Growth of one percent in GDP per capita in Asia Pacific produced an increase in average wages of only 0.68 per cent. This so-called wage elasticity indicates that increases in labour productivity were not fully reflected in wage rises.
The impact of collective bargaining on wages in Asia Pacific remains very limited. In the overwhelming majority of countries in the region, the proportion of the workforce covered by collective bargaining agreements is less than 15 per cent. In fact the Global Wage Report found that when more workers are covered by such agreements, wage elasticity is higher and economic growth and wage increases are more closely linked.
The relative weakness of collective bargaining has been reflected in the increasing importance attached to minimum wages. Some countries such as China and Viet Nam have witnessed minimum wages growing at more than 8 per cent per year (in real terms), whereas in other countries, such as Thailand, minimum wages actually fell. In some other cases such as India and Pakistan, the minimum wage systems have not functioned as intended.
Asia Pacific was once praised for the way its sustained growth was successfully reducing inequalities. However, this is no longer the case. Most countries in the region for which data is available have seen an increase in wage inequality – the gap between the highest and lowest paid - particularly in China, the Republic of Korea, and Thailand.
The region’s gender pay gap has narrowed, but only very slowly. In a majority of countries women’s wages average 70 to 90 per cent of men’s wages, but it is not uncommon in parts of Asia to find much lower ratios, with women receiving as little as half the wages of their male counterparts.
The outlook for 2008-9 is not bright, particularly in the wake of the global economic downturn. Very difficult times lie ahead for many workers. The report predicts that average real wage growth in Asia Pacific is unlikely to exceed 1.0 per cent (lower than the global estimate of 1.1 per cent), and wages may actually fall in countries with low economic growth. In addition, higher prices threaten to erode the value of earnings, particularly for the low-paid. Consequently, tensions are likely to intensify over wages, and the workplace may become more vulnerable to wage-related disputes, compounded by the pressure of job cuts.
What can be done? The scale of challenge is huge and there is no easy solution. Much of the public debate (led by central banks and international financial institutions) has been tightly focused on keeping wage increases low to avoid a wage–price spiral or to overcome economic recession. While this is important, it should be embedded in the broader policy objective of maintaining people’s purchasing power in the face of difficult economic circumstances.
Firstly, workers and employers organizations’ should be encouraged to negotiate. The share of workers wages in GDP has been falling while the returns on capital have been rising. This pattern of rising inequality cannot continue.
Secondly, minimum wage levels should be increased wherever possible to protect the most vulnerable workers.
Thirdly, minimum wages and wage bargaining should be complemented by income support measures, such as food subsidies and cash transfers.
By Sangheon Lee, Co-author ILO Global Wage Report 2008/9
The International Labour Organization’s first report on wages worldwide, the “Global Wage Report 2008/9: Minimum wages and collective bargaining – Towards policy coherence”[1] has found that while wages have grown in the Asia Pacific region they seem to have lagged behind economic and productivity growth. Inequality has also been on the rise and there hasn’t been much progress in closing the gap in pay between women and men. Low coverage of collective bargaining remains a challenge, and the current minimum wage systems leave much room for improvement.
Asia and the Pacific, with the strong influence of China, witnessed relatively solid global economic growth until 2007. The share of people in waged employment (as opposed to working informally or self employed) increased considerably; in East Asia it reached 42.6 per cent in 2006, although this is still below the global average of 46.9 per cent.
This economic growth was accompanied by positive growth in real wages. Between 2001 and 2007 real wages grew at an estimated 1.7 per cent per year (the estimated global average was 1.9 per cent). But although wages grew they still tended to lag behind economic growth. Growth of one percent in GDP per capita in Asia Pacific produced an increase in average wages of only 0.68 per cent. This so-called wage elasticity indicates that increases in labour productivity were not fully reflected in wage rises.
The impact of collective bargaining on wages in Asia Pacific remains very limited. In the overwhelming majority of countries in the region, the proportion of the workforce covered by collective bargaining agreements is less than 15 per cent. In fact the Global Wage Report found that when more workers are covered by such agreements, wage elasticity is higher and economic growth and wage increases are more closely linked.
The relative weakness of collective bargaining has been reflected in the increasing importance attached to minimum wages. Some countries such as China and Viet Nam have witnessed minimum wages growing at more than 8 per cent per year (in real terms), whereas in other countries, such as Thailand, minimum wages actually fell. In some other cases such as India and Pakistan, the minimum wage systems have not functioned as intended.
Asia Pacific was once praised for the way its sustained growth was successfully reducing inequalities. However, this is no longer the case. Most countries in the region for which data is available have seen an increase in wage inequality – the gap between the highest and lowest paid - particularly in China, the Republic of Korea, and Thailand.
The region’s gender pay gap has narrowed, but only very slowly. In a majority of countries women’s wages average 70 to 90 per cent of men’s wages, but it is not uncommon in parts of Asia to find much lower ratios, with women receiving as little as half the wages of their male counterparts.
The outlook for 2008-9 is not bright, particularly in the wake of the global economic downturn. Very difficult times lie ahead for many workers. The report predicts that average real wage growth in Asia Pacific is unlikely to exceed 1.0 per cent (lower than the global estimate of 1.1 per cent), and wages may actually fall in countries with low economic growth. In addition, higher prices threaten to erode the value of earnings, particularly for the low-paid. Consequently, tensions are likely to intensify over wages, and the workplace may become more vulnerable to wage-related disputes, compounded by the pressure of job cuts.
What can be done? The scale of challenge is huge and there is no easy solution. Much of the public debate (led by central banks and international financial institutions) has been tightly focused on keeping wage increases low to avoid a wage–price spiral or to overcome economic recession. While this is important, it should be embedded in the broader policy objective of maintaining people’s purchasing power in the face of difficult economic circumstances.
Firstly, workers and employers organizations’ should be encouraged to negotiate. The share of workers wages in GDP has been falling while the returns on capital have been rising. This pattern of rising inequality cannot continue.
Secondly, minimum wage levels should be increased wherever possible to protect the most vulnerable workers.
Thirdly, minimum wages and wage bargaining should be complemented by income support measures, such as food subsidies and cash transfers.
Monday, October 27, 2008
Restoring Trust: Time to Rescue the Real Economy
By Juan Somavia
Director General of the ILO
GENEVA - The current crisis has hit the financial sector hard.
But what about people and the real economy?
Though we don't know how long and how serious the financial
crisis will be, we do know that if we fail to act decisively, the impact
on the lives, working conditions and hopes of millions of people will be
strong, global and systemic.
The current search for better financial regulation and a global
surveillance mechanism of checks and balances is a welcome step. But we
must reach beyond the financial system. This is not simply a crisis on
Wall Street; it is a crisis on all streets.
We need an economic rescue plan for working people and the real
economy, with rules and policies that deliver decent work and productive
enterprises. We must better link productivity to salaries and growth to
employment. People must have trust that the economy is working for
them.
This message is urgent. The International Labour Organization
has completed a first estimate of how this crisis is going to impact the
day-to-day lives of people at all levels of society.
We project that world unemployment could increase by 20 million
by the end of 2009-surpassing the 200 million mark of global unemployed
for the first time. People working in such sectors as construction,
automotive, tourism, finance, services and real estate will be hit
hardest first.
What*s more, the number of working poor living on less than a
dollar a day could rise by some 40 million-and those living on two
dollars a day could rise by more than 100 million.
And grim as these numbers are, they could prove to be
underestimates if the effect of the current economic contraction and
looming recession are not quickly confronted.
Above all, we must focus on people, on enterprise, on the real
economy. What does that mean? Four things:
First, get credit flowing. Emergency measures have been and are
being taken.
Second, support those who are most vulnerable. That means a
variety of measures including pension protection, unemployment insurance
and credit for small and medium enterprises, which are a primary source
of jobs today.
Third, decisive public policies and smart regulation that
rewards hard work and enterprise once again. We are battered by the
whirlwind of a financial system that lost its moral compass. We have
to come back to the basic legitimate function of finance, which is to
promote the real economy-to lend so that entrepreneurs can invest,
innovate, produce jobs and products. Let*s get back to what finance
is meant to do - to finance the real economy.
Fourth, and critically, we must address the underlying
challenges. Long before the current financial crisis, we were already
in a crisis of massive global poverty and growing social inequality,
rising informality and precarious work-a process of globalization that
had brought considerable benefits but for many had become unbalanced,
unfair and unsustainable.
We need to get the balance right and concentrate on rescuing
people and production. It*s about saving the real economy.
Let*s remember that people judge their lives and their futures
mainly through their life at work. Now more than ever, we must focus on
making sure the policies and support are in place to meet people*s
core demand for a fair chance at a decent job.
In order to keep economies and societies open, relevant
international organizations must come together to develop a new
multilateral framework for a fair and sustainable globalization.
Trade talks are stalled, financial markets are on the brink,
climate change continues, any reconstruction will have to find ways to
integrate financial, economic, social, labor and environmental policies
within a sustainable development approach.
We cannot respond to the sub-prime crisis with sub-prime
policies. This is the time to think and act in bold and innovative ways
to confront the huge challenges before us.
Director General of the ILO
GENEVA - The current crisis has hit the financial sector hard.
But what about people and the real economy?
Though we don't know how long and how serious the financial
crisis will be, we do know that if we fail to act decisively, the impact
on the lives, working conditions and hopes of millions of people will be
strong, global and systemic.
The current search for better financial regulation and a global
surveillance mechanism of checks and balances is a welcome step. But we
must reach beyond the financial system. This is not simply a crisis on
Wall Street; it is a crisis on all streets.
We need an economic rescue plan for working people and the real
economy, with rules and policies that deliver decent work and productive
enterprises. We must better link productivity to salaries and growth to
employment. People must have trust that the economy is working for
them.
This message is urgent. The International Labour Organization
has completed a first estimate of how this crisis is going to impact the
day-to-day lives of people at all levels of society.
We project that world unemployment could increase by 20 million
by the end of 2009-surpassing the 200 million mark of global unemployed
for the first time. People working in such sectors as construction,
automotive, tourism, finance, services and real estate will be hit
hardest first.
What*s more, the number of working poor living on less than a
dollar a day could rise by some 40 million-and those living on two
dollars a day could rise by more than 100 million.
And grim as these numbers are, they could prove to be
underestimates if the effect of the current economic contraction and
looming recession are not quickly confronted.
Above all, we must focus on people, on enterprise, on the real
economy. What does that mean? Four things:
First, get credit flowing. Emergency measures have been and are
being taken.
Second, support those who are most vulnerable. That means a
variety of measures including pension protection, unemployment insurance
and credit for small and medium enterprises, which are a primary source
of jobs today.
Third, decisive public policies and smart regulation that
rewards hard work and enterprise once again. We are battered by the
whirlwind of a financial system that lost its moral compass. We have
to come back to the basic legitimate function of finance, which is to
promote the real economy-to lend so that entrepreneurs can invest,
innovate, produce jobs and products. Let*s get back to what finance
is meant to do - to finance the real economy.
Fourth, and critically, we must address the underlying
challenges. Long before the current financial crisis, we were already
in a crisis of massive global poverty and growing social inequality,
rising informality and precarious work-a process of globalization that
had brought considerable benefits but for many had become unbalanced,
unfair and unsustainable.
We need to get the balance right and concentrate on rescuing
people and production. It*s about saving the real economy.
Let*s remember that people judge their lives and their futures
mainly through their life at work. Now more than ever, we must focus on
making sure the policies and support are in place to meet people*s
core demand for a fair chance at a decent job.
In order to keep economies and societies open, relevant
international organizations must come together to develop a new
multilateral framework for a fair and sustainable globalization.
Trade talks are stalled, financial markets are on the brink,
climate change continues, any reconstruction will have to find ways to
integrate financial, economic, social, labor and environmental policies
within a sustainable development approach.
We cannot respond to the sub-prime crisis with sub-prime
policies. This is the time to think and act in bold and innovative ways
to confront the huge challenges before us.
Thursday, October 23, 2008
Executive Summary: World of Work Report 2008
1
The fi nancial crisis is hitting the world of work…
Th e fi nancial crisis which developed over the past year and erupted last August represents
one of the most signifi cant threats to the world economy in modern history. Th e credit
crunch and collapse of stock markets are starting to aff ect fi rms’ investment decisions as
well as workers’ incomes and jobs. Several major developed economies have practically
entered into recession and unemployment is on the rise. Economic growth in emerging
economies and developing countries has slowed down, in some cases signifi cantly.
Ongoing attempts to overcome the fi nancial crisis are of course welcome and, in principle,
should help avoid another Great Depression. Important as rescue packages are, however,
it is crucial to address the structural dimensions of the crisis as well. As this World
of Work Report shows, the widening of income inequalities that occurred before the crisis
is especially instructive in this respect.
… and happens in the face of income inequalities
which are widening…
While the costs of the fi nancial rescue packages will be borne by all, the benefi ts of the
earlier expansionary period were unevenly shared.
Between the early 1990s and the mid-2000s, in about two thirds of the countries for
which data exist, the total income of high-income households expanded faster than was
the case for their low-income counterparts (Chapter 1). Similar trends have occurred when
looking at other dimensions of income inequality such as labour income vis-à-vis profi ts,
or top wages vis-à-vis wages of low-paid workers. In 51 out of the 73 countries for which
data are available, the share of wages in total income declined over the past two decades.
Likewise, during the same period, the income gap between the top and bottom 10 per cent
of wage earners increased in 70 per cent of the countries for which data are available.
Th is was a period of relatively rapid economic growth and strong job creation. In
2007, world employment was almost one third higher than in 1990. In short, the gains
from the expansionary period which ended in 2007 benefi ted more high-income groups
than their medium- and low-income counterparts.
… at a pace which has probably been excessive
Wider income inequality can be helpful. It can signal stronger rewards to work eff ort,
innovation and skill development. Th is, in turn, will improve economic prospects for all,
rich and poor. Conversely, an overly compressed income diff erential may aff ect job prospects
– for instance because the labour market is not suffi ciently attractive to would-be
workers. Too little income inequality may also weaken the incentive to take risk or invest
in human capital, thereby adversely aff ecting economic growth prospects.
However, there are instances where wider income inequality is both socially harmful
and economically problematic.
Th ere is evidence that social confl ict grows when inequalities are perceived to be rising
excessively. Social support for pro-growth policies will be eroded if low-income groups and
the middle class believe that such policies do little to improve their situation or that of
their children, while benefi ting high-income groups. Surveys suggest a declining tolerance
among respondents vis-à-vis growing inequality.
Th e report also shows that, prior to the fi nancial crisis, there were already signs that
observed trends in income inequality might not be sustainable. In the face of strong wage
moderation, workers and their families became increasingly indebted in order to fund
their housing investment decisions – and sometimes consumption decisions as well. Th is
has sustained domestic demand and economic growth in some countries, and was made
possible by fi nancial innovations. However, the crisis has underlined the limits to this
growth model.
It is therefore crucial for policy makers to ensure that income inequality does not rise
excessively. At the same time, any action in this area should take into account the need
for sustaining employment. But the report shows that it is possible to fulfi l both employment
and equity objectives.
Inequality patterns refl ect, fi rst, a process of fi nancial globalization
which has intensifi ed economic instability…
Chapter 2 of the report shows that fi nancial globalization – caused by deregulation of
international capital fl ows – has been a major driver of income inequality.
Th e expectation was that fi nancial globalization would help improve the allocation
of savings and thus stimulate economic growth, while also relaxing credit constraints and
improve income prospects of low-income groups.
Yet, fi nancial globalization has failed to contribute to the enhancement of global
productivity and employment growth. Moreover, fi nancial globalization has intensi-
fi ed economic instability. In the 1990s, systemic banking crises were ten times more
frequent than was the case at the end of the turbulent 1970s. Such increased instability
typically comes at a steep cost to low-income groups. Earlier experiences suggest
that the job losses entailed by systemic fi nancial crisis have been especially strong, with
long lasting eff ects on vulnerable groups. Unemployment can also be expected to rise
as a result of the investment slump and this may further intensity income inequalities.
Moreover, there is evidence that fi nancial globalization has reinforced the downward
trend in the wage share recorded in most countries. On the other hand, fi nancial globalization
has exercised a disciplining eff ect on macroeconomic policies, in both developed
and emerging countries.
Th erefore, the policy requirement is neither fi nancial deregulation nor isolation.
There are several possible policy options to achieve this "mid-road". What matters is
that governments take into account the social impacts of each of the options. A cautious
approach to fi nancial globalization is especially important in countries where fi nancial markets
are not suffi ciently developed and where supervision mechanisms are weak, as is the
case in many developing countries. But in all countries, it is crucial to reinforce prudential regulation so as to reduce irresponsible risk-taking on the part of certain fi nancial actors.
Indeed, there is a "moral hazard" problem in that these actors grasp all the gains from irresponsible
fi nancial positions, while the losses from such operations are partly shift ed to
society and taxpayers. Th ere is also a role for coordinated action among countries.
…second, steep increases in executive pay
de-linked from fi rm performance…
Developments in global corporate governance have also contributed to perceptions of
excessive income inequality. A key development has been the use of so-called "performance
pay systems" for chief executive managers and directors.
Th e result has been a steep increase in executive pay. In the United States for example,
between 2003 and 2007, executive managers’ pay grew in real terms by a total of 45%,
compared with a real pay increase of 15% in the case of the average executive, and less
than 3% for the average American worker. Hence, by 2007, the average executive manager
in the 15 largest US fi rms earned more than 500 times the average employee in the
United States, compared with over 300 times in 2003. Similar patterns can be observed
in other countries such as Australia, Germany, Hong Kong (China), the Netherlands and
South Africa.
Importantly, empirical studies show only very moderate, if any, eff ects of these systems
on company performance. Moreover, large country variations exist, with some countries
displaying virtually no relation between performance-pay and company profi ts. Th ough
more research is clearly needed in this area, a plausible explanation behind observed trends
is that executives are in a dominant bargaining position with respect to company owners,
something which is facilitated by the institutional set-up.
Altogether, evidence suggests that developments in executive pay may have been both
inequality-enhancing and economically ineffi cient. Th is suggests a role for policy action.
In this regard, several options are being considered at present but it is too early to assess
the pros and cons of each of them.
… third, institutional change and weaker redistribution policies
Domestic labour, social and tax policies too have contributed to observed outcomes. Labour
institutions continue to play a redistributive role in the majority of countries under analysis,
despite the decline in trade union density documented in Chapter 3. In particular,
high trade union density, a more coordinated collective bargaining structure, and greater
coverage of collective bargaining agreements tend to be associated with lower inequality.
However, it is diffi cult for these institutions to counteract the global trends arising from
globalization. Overall, it seems that the bargaining position of employees has weakened,
even in countries where labour markets have been tight.
Another important factor has been the rising incidence of non-standard employment
observed over the past 15 years or so in the majority of countries (Chapter 4). Indeed,
non-standard jobs pay signifi cantly less than their standard counterparts. More fundamentally,
the changing employment patterns may have also contributed to weakening the
bargaining position of workers, especially the low-skilled.
Finally, taxation has become less progressive in the vast majority of countries and thus
less able to redistribute the gains from economic growth. Th is refl ects a cut in taxes on
high incomes (Chapter 5). Between 1993 and 2007, the average corporate tax rate (for all
countries for which data exist) was cut by 10 percentage points. In the case of top personal
income tax rates, the cut was of 3 percentage points over the same period. Chapter 5 also
shows that declining tax progressivity has generally not been off set by social policy.
Cutting taxes on high incomes or profi ts can be justifi ed on economic effi ciency
grounds. Th ey may even meet equity objectives in certain cases – the lift ing-all-boats effect. However there are other cases where such tax cuts produce sub-optimal results,
even when considering effi ciency-equity tradeoff s. Likewise, stronger social protection, if
well designed, can serve employment objectives. Th e report gives examples of such policies
among countries at diff erent levels of economic development. Th e use of conditional cash
benefi ts provides an interesting innovation in this respect.
It is therefore time to move ahead with the Decent Work Agenda.
But evidence presented in this World of Work Report shows that, if policy makers are
concerned about excessive inequalities in their country while also sustaining employment,
they have at their disposal an eff ective tool. Chapter 6 shows that countries that have relatively
strong tripartite institutions, well-designed labour regulations and social protection,
and respect for basic workers’ rights do well, not only in terms of employment but
also with respect to limiting the trend increase in income inequalities. Indeed, this is the
essence of the Decent Work Agenda.
Moving ahead with the Agenda would help address the social consequences of the
fi nancial crisis. Together with a reform of the fi nancial architecture, it would also contribute
to achieve a more balanced, sustainable economy.
Raymond Torres
Director
International Institute for Labour Studies
The fi nancial crisis is hitting the world of work…
Th e fi nancial crisis which developed over the past year and erupted last August represents
one of the most signifi cant threats to the world economy in modern history. Th e credit
crunch and collapse of stock markets are starting to aff ect fi rms’ investment decisions as
well as workers’ incomes and jobs. Several major developed economies have practically
entered into recession and unemployment is on the rise. Economic growth in emerging
economies and developing countries has slowed down, in some cases signifi cantly.
Ongoing attempts to overcome the fi nancial crisis are of course welcome and, in principle,
should help avoid another Great Depression. Important as rescue packages are, however,
it is crucial to address the structural dimensions of the crisis as well. As this World
of Work Report shows, the widening of income inequalities that occurred before the crisis
is especially instructive in this respect.
… and happens in the face of income inequalities
which are widening…
While the costs of the fi nancial rescue packages will be borne by all, the benefi ts of the
earlier expansionary period were unevenly shared.
Between the early 1990s and the mid-2000s, in about two thirds of the countries for
which data exist, the total income of high-income households expanded faster than was
the case for their low-income counterparts (Chapter 1). Similar trends have occurred when
looking at other dimensions of income inequality such as labour income vis-à-vis profi ts,
or top wages vis-à-vis wages of low-paid workers. In 51 out of the 73 countries for which
data are available, the share of wages in total income declined over the past two decades.
Likewise, during the same period, the income gap between the top and bottom 10 per cent
of wage earners increased in 70 per cent of the countries for which data are available.
Th is was a period of relatively rapid economic growth and strong job creation. In
2007, world employment was almost one third higher than in 1990. In short, the gains
from the expansionary period which ended in 2007 benefi ted more high-income groups
than their medium- and low-income counterparts.
… at a pace which has probably been excessive
Wider income inequality can be helpful. It can signal stronger rewards to work eff ort,
innovation and skill development. Th is, in turn, will improve economic prospects for all,
rich and poor. Conversely, an overly compressed income diff erential may aff ect job prospects
– for instance because the labour market is not suffi ciently attractive to would-be
workers. Too little income inequality may also weaken the incentive to take risk or invest
in human capital, thereby adversely aff ecting economic growth prospects.
However, there are instances where wider income inequality is both socially harmful
and economically problematic.
Th ere is evidence that social confl ict grows when inequalities are perceived to be rising
excessively. Social support for pro-growth policies will be eroded if low-income groups and
the middle class believe that such policies do little to improve their situation or that of
their children, while benefi ting high-income groups. Surveys suggest a declining tolerance
among respondents vis-à-vis growing inequality.
Th e report also shows that, prior to the fi nancial crisis, there were already signs that
observed trends in income inequality might not be sustainable. In the face of strong wage
moderation, workers and their families became increasingly indebted in order to fund
their housing investment decisions – and sometimes consumption decisions as well. Th is
has sustained domestic demand and economic growth in some countries, and was made
possible by fi nancial innovations. However, the crisis has underlined the limits to this
growth model.
It is therefore crucial for policy makers to ensure that income inequality does not rise
excessively. At the same time, any action in this area should take into account the need
for sustaining employment. But the report shows that it is possible to fulfi l both employment
and equity objectives.
Inequality patterns refl ect, fi rst, a process of fi nancial globalization
which has intensifi ed economic instability…
Chapter 2 of the report shows that fi nancial globalization – caused by deregulation of
international capital fl ows – has been a major driver of income inequality.
Th e expectation was that fi nancial globalization would help improve the allocation
of savings and thus stimulate economic growth, while also relaxing credit constraints and
improve income prospects of low-income groups.
Yet, fi nancial globalization has failed to contribute to the enhancement of global
productivity and employment growth. Moreover, fi nancial globalization has intensi-
fi ed economic instability. In the 1990s, systemic banking crises were ten times more
frequent than was the case at the end of the turbulent 1970s. Such increased instability
typically comes at a steep cost to low-income groups. Earlier experiences suggest
that the job losses entailed by systemic fi nancial crisis have been especially strong, with
long lasting eff ects on vulnerable groups. Unemployment can also be expected to rise
as a result of the investment slump and this may further intensity income inequalities.
Moreover, there is evidence that fi nancial globalization has reinforced the downward
trend in the wage share recorded in most countries. On the other hand, fi nancial globalization
has exercised a disciplining eff ect on macroeconomic policies, in both developed
and emerging countries.
Th erefore, the policy requirement is neither fi nancial deregulation nor isolation.
There are several possible policy options to achieve this "mid-road". What matters is
that governments take into account the social impacts of each of the options. A cautious
approach to fi nancial globalization is especially important in countries where fi nancial markets
are not suffi ciently developed and where supervision mechanisms are weak, as is the
case in many developing countries. But in all countries, it is crucial to reinforce prudential regulation so as to reduce irresponsible risk-taking on the part of certain fi nancial actors.
Indeed, there is a "moral hazard" problem in that these actors grasp all the gains from irresponsible
fi nancial positions, while the losses from such operations are partly shift ed to
society and taxpayers. Th ere is also a role for coordinated action among countries.
…second, steep increases in executive pay
de-linked from fi rm performance…
Developments in global corporate governance have also contributed to perceptions of
excessive income inequality. A key development has been the use of so-called "performance
pay systems" for chief executive managers and directors.
Th e result has been a steep increase in executive pay. In the United States for example,
between 2003 and 2007, executive managers’ pay grew in real terms by a total of 45%,
compared with a real pay increase of 15% in the case of the average executive, and less
than 3% for the average American worker. Hence, by 2007, the average executive manager
in the 15 largest US fi rms earned more than 500 times the average employee in the
United States, compared with over 300 times in 2003. Similar patterns can be observed
in other countries such as Australia, Germany, Hong Kong (China), the Netherlands and
South Africa.
Importantly, empirical studies show only very moderate, if any, eff ects of these systems
on company performance. Moreover, large country variations exist, with some countries
displaying virtually no relation between performance-pay and company profi ts. Th ough
more research is clearly needed in this area, a plausible explanation behind observed trends
is that executives are in a dominant bargaining position with respect to company owners,
something which is facilitated by the institutional set-up.
Altogether, evidence suggests that developments in executive pay may have been both
inequality-enhancing and economically ineffi cient. Th is suggests a role for policy action.
In this regard, several options are being considered at present but it is too early to assess
the pros and cons of each of them.
… third, institutional change and weaker redistribution policies
Domestic labour, social and tax policies too have contributed to observed outcomes. Labour
institutions continue to play a redistributive role in the majority of countries under analysis,
despite the decline in trade union density documented in Chapter 3. In particular,
high trade union density, a more coordinated collective bargaining structure, and greater
coverage of collective bargaining agreements tend to be associated with lower inequality.
However, it is diffi cult for these institutions to counteract the global trends arising from
globalization. Overall, it seems that the bargaining position of employees has weakened,
even in countries where labour markets have been tight.
Another important factor has been the rising incidence of non-standard employment
observed over the past 15 years or so in the majority of countries (Chapter 4). Indeed,
non-standard jobs pay signifi cantly less than their standard counterparts. More fundamentally,
the changing employment patterns may have also contributed to weakening the
bargaining position of workers, especially the low-skilled.
Finally, taxation has become less progressive in the vast majority of countries and thus
less able to redistribute the gains from economic growth. Th is refl ects a cut in taxes on
high incomes (Chapter 5). Between 1993 and 2007, the average corporate tax rate (for all
countries for which data exist) was cut by 10 percentage points. In the case of top personal
income tax rates, the cut was of 3 percentage points over the same period. Chapter 5 also
shows that declining tax progressivity has generally not been off set by social policy.
Cutting taxes on high incomes or profi ts can be justifi ed on economic effi ciency
grounds. Th ey may even meet equity objectives in certain cases – the lift ing-all-boats effect. However there are other cases where such tax cuts produce sub-optimal results,
even when considering effi ciency-equity tradeoff s. Likewise, stronger social protection, if
well designed, can serve employment objectives. Th e report gives examples of such policies
among countries at diff erent levels of economic development. Th e use of conditional cash
benefi ts provides an interesting innovation in this respect.
It is therefore time to move ahead with the Decent Work Agenda.
But evidence presented in this World of Work Report shows that, if policy makers are
concerned about excessive inequalities in their country while also sustaining employment,
they have at their disposal an eff ective tool. Chapter 6 shows that countries that have relatively
strong tripartite institutions, well-designed labour regulations and social protection,
and respect for basic workers’ rights do well, not only in terms of employment but
also with respect to limiting the trend increase in income inequalities. Indeed, this is the
essence of the Decent Work Agenda.
Moving ahead with the Agenda would help address the social consequences of the
fi nancial crisis. Together with a reform of the fi nancial architecture, it would also contribute
to achieve a more balanced, sustainable economy.
Raymond Torres
Director
International Institute for Labour Studies
World Of Work Report 2008: Global Income Inequality Gap is Vast and Growing
MANILA (ILO News) - Despite strong economic growth that produced millions of new jobs since the early 1990s, income inequality grewdramatically in most regions of the world and is expected to increasedue to the current global financial crisis, according to a new studypublished today by the research arm of the International LabourOrganization.
The new report, entitled World of Work Report 2008: Incomeinequalities in the age of financial globalization */ produced by theILO*s International Institute for Labour Studies also notes that amajor share of the cost of the financial and economic crisis will beborne by hundreds of millions of people who haven*t shared in thebenefits of recent growth.
In Asia and the Pacific, modest declines in income inequalityoccurred only in Cambodia and the Philippines, where income inequalityremains nonetheless among the highest in the region. The Philippines hasestimated income inequality of 52 in 1990s but decreased to 50 in 2000. However, this is the highest in Asia and the Pacific region where 0 iscomplete equality and 100 is complete inequality. Singapore, Thailandand Cambodia are estimated below 50. China, Viet Nam, India and Laosare estimated below 40 but no decline in income inequality. China andLaos even recorded substantial increases in income inequality over theperiod 1990-2000.
From a longer-term perspective, the benefits of financialdevelopment outweigh its costs, in terms of both inequality and jobcreation. *It took two to seven years for individual countries in Asiathat have been hit by a financial crisis to recover to pre-crisislevels. Indonesia, Malaysia, the Republic of Korea, Thailand and thePhilippines are among the five hardest hit countries between 1997 and1998. For Asian countries like the Philippines, the trend after thecrisis has been a decrease in labour force participation, formalemployment rates fell taking years to recover and poverty has fallencontinuously,* said Linda Wirth, Director of the ILO SubregionalOffice for South-East Asia and the Pacific based in Manila.
"We see crisis as an opportunity to review and learn. Policies and social protection systems in place can do and have aneffect on a country*s ability to cope. It is important to design andimplement labour and product market policies to prepare countries toadjust quickly," said Wirth.
"This report shows conclusively that the gap between richerand poorer households widened since the 1990s," said Raymond Torres, Director of the ILOis International Institute for Labour Studiesresponsible for the report.
"This reflects the impact of financialglobalization and a weaker ability of domestic policies to enhance theincome position of the middle class and low-income groups. The presentglobal financial crisis is bound to make matters worse unless long-termstructural reforms are adopted."
The report notes that while a certain degree of incomeinequality is useful in rewarding effort, talent and innovation, hugedifferences can be counter-productive and damaging for most economies, adding that "rising income inequality represents a danger to thesocial fabric as well as economic efficiency when it becomesexcessive."
The report marks the most comprehensive study to date of globalincome inequalities by the Institute, and examined wages and growth inmore than 70 developed and developing countries. It calls for longerterm action to put the global economy on a more balanced track,including promotion of the ILO's Decent Work Agenda to link economic,labour and social policies to boost employment and improve incomes andincome distribution.
The report says that as global employment rose by 30 per centbetween the early 1990s and 2007, the income gap between richer andpoorer households widened significantly at the same time. What*s more,compared with earlier expansionary periods, workers obtained a smallershare of the fruits of economic growth as the share of wages in nationalincome declined in the vast majority of countries for which data wasavailable.
"The ongoing global economic slowdown is affecting low-incomegroups disproportionately", the report says. "This development comesafter a long expansionary phase where income inequality was already onthe rise in the majority of countries."
Among its other conclusions, the report says:
* Employment growth has also occurred alongside a redistributionof income away from labour. In 51 out of 73 countries for which data areavailable, the share of wages in total income declined over the past twodecades. The largest decline in the share of wages in GDP took place inLatin America and the Caribbean (-13 percentage points), followed byAsia and the Pacific (-10 percentage points) and the Advanced Economies(-9 percentage points).
* In countries with unregulated financial innovation, workers andtheir families became increasingly indebted in order to fund housinginvestment and consumption. With stagnant wages, this was key to sustaindomestic demand. However the crisis has underlined the limits to thisgrowth model.
* Between 1990 and 2005, approximately two thirds of the countriesexperienced an increase in income inequality. The incomes of richerhouseholds have increased relative to those of the middle class andpoorer households.
* Likewise, during the same period, the income gap between the topand bottom 10 per cent of wage earners increased in 70 per cent of thecountries for which data are available.
* The gap in income inequality is also widening - at an increasingpace - between top executives and the average employee. For example, inthe United States in 2007, the chief executive officers (CEOs) of the 15largest companies earned 520 times more than the average worker. This isup from 360 times more in 2003. Similar patterns, though from lowerlevels of executive pay, have been registered in Australia, Germany,Hong Kong (China), the Netherlands and South Africa.
Noting that prospects are for a continuing increase in incomeinequality in the course of the present economic situation, the reportalso added that excessive income inequalities could be associated withhigher crime rates, lower life-expectancy, and in the case of the poorcountries malnutrition and an increased likelihood of children beingtaken out of school in order to work.
*Already now, there are widespread perceptions in manycountries that globalization does not work to the advantage of themajority of the population*, the report says. *The policy challengeis therefore to ensure adequate incentives to work, learn and invest,while also avoiding socially-harmful and economically-inefficient incomeinequalities.*
The new report, entitled World of Work Report 2008: Incomeinequalities in the age of financial globalization */ produced by theILO*s International Institute for Labour Studies also notes that amajor share of the cost of the financial and economic crisis will beborne by hundreds of millions of people who haven*t shared in thebenefits of recent growth.
In Asia and the Pacific, modest declines in income inequalityoccurred only in Cambodia and the Philippines, where income inequalityremains nonetheless among the highest in the region. The Philippines hasestimated income inequality of 52 in 1990s but decreased to 50 in 2000. However, this is the highest in Asia and the Pacific region where 0 iscomplete equality and 100 is complete inequality. Singapore, Thailandand Cambodia are estimated below 50. China, Viet Nam, India and Laosare estimated below 40 but no decline in income inequality. China andLaos even recorded substantial increases in income inequality over theperiod 1990-2000.
From a longer-term perspective, the benefits of financialdevelopment outweigh its costs, in terms of both inequality and jobcreation. *It took two to seven years for individual countries in Asiathat have been hit by a financial crisis to recover to pre-crisislevels. Indonesia, Malaysia, the Republic of Korea, Thailand and thePhilippines are among the five hardest hit countries between 1997 and1998. For Asian countries like the Philippines, the trend after thecrisis has been a decrease in labour force participation, formalemployment rates fell taking years to recover and poverty has fallencontinuously,* said Linda Wirth, Director of the ILO SubregionalOffice for South-East Asia and the Pacific based in Manila.
"We see crisis as an opportunity to review and learn. Policies and social protection systems in place can do and have aneffect on a country*s ability to cope. It is important to design andimplement labour and product market policies to prepare countries toadjust quickly," said Wirth.
"This report shows conclusively that the gap between richerand poorer households widened since the 1990s," said Raymond Torres, Director of the ILOis International Institute for Labour Studiesresponsible for the report.
"This reflects the impact of financialglobalization and a weaker ability of domestic policies to enhance theincome position of the middle class and low-income groups. The presentglobal financial crisis is bound to make matters worse unless long-termstructural reforms are adopted."
The report notes that while a certain degree of incomeinequality is useful in rewarding effort, talent and innovation, hugedifferences can be counter-productive and damaging for most economies, adding that "rising income inequality represents a danger to thesocial fabric as well as economic efficiency when it becomesexcessive."
The report marks the most comprehensive study to date of globalincome inequalities by the Institute, and examined wages and growth inmore than 70 developed and developing countries. It calls for longerterm action to put the global economy on a more balanced track,including promotion of the ILO's Decent Work Agenda to link economic,labour and social policies to boost employment and improve incomes andincome distribution.
The report says that as global employment rose by 30 per centbetween the early 1990s and 2007, the income gap between richer andpoorer households widened significantly at the same time. What*s more,compared with earlier expansionary periods, workers obtained a smallershare of the fruits of economic growth as the share of wages in nationalincome declined in the vast majority of countries for which data wasavailable.
"The ongoing global economic slowdown is affecting low-incomegroups disproportionately", the report says. "This development comesafter a long expansionary phase where income inequality was already onthe rise in the majority of countries."
Among its other conclusions, the report says:
* Employment growth has also occurred alongside a redistributionof income away from labour. In 51 out of 73 countries for which data areavailable, the share of wages in total income declined over the past twodecades. The largest decline in the share of wages in GDP took place inLatin America and the Caribbean (-13 percentage points), followed byAsia and the Pacific (-10 percentage points) and the Advanced Economies(-9 percentage points).
* In countries with unregulated financial innovation, workers andtheir families became increasingly indebted in order to fund housinginvestment and consumption. With stagnant wages, this was key to sustaindomestic demand. However the crisis has underlined the limits to thisgrowth model.
* Between 1990 and 2005, approximately two thirds of the countriesexperienced an increase in income inequality. The incomes of richerhouseholds have increased relative to those of the middle class andpoorer households.
* Likewise, during the same period, the income gap between the topand bottom 10 per cent of wage earners increased in 70 per cent of thecountries for which data are available.
* The gap in income inequality is also widening - at an increasingpace - between top executives and the average employee. For example, inthe United States in 2007, the chief executive officers (CEOs) of the 15largest companies earned 520 times more than the average worker. This isup from 360 times more in 2003. Similar patterns, though from lowerlevels of executive pay, have been registered in Australia, Germany,Hong Kong (China), the Netherlands and South Africa.
Noting that prospects are for a continuing increase in incomeinequality in the course of the present economic situation, the reportalso added that excessive income inequalities could be associated withhigher crime rates, lower life-expectancy, and in the case of the poorcountries malnutrition and an increased likelihood of children beingtaken out of school in order to work.
*Already now, there are widespread perceptions in manycountries that globalization does not work to the advantage of themajority of the population*, the report says. *The policy challengeis therefore to ensure adequate incentives to work, learn and invest,while also avoiding socially-harmful and economically-inefficient incomeinequalities.*
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