The International Labor Organization recently published its Global Wage Report 2014/15. The report looks at global trends in wages and income inequality and its findings are far from positive for working people in the developed world.
The ILO summarizes its findings as follows:
Wage growth around the world slowed in 2013 to 2.0 per cent, compared to 2.2 per cent in 2012, and has yet to catch up to the pre-crisis rates of about 3.0 per cent . . . .
Even this modest growth in global wages was driven almost entirely by emerging G20 economies, where wages increased by 6.7 per cent in 2012 and 5.9 per cent in 2013.
By contrast, average wage growth in developed economies had fluctuated around 1 per cent per year since 2006 and then slowed further in 2012 and 2013 to only 0.1 per cent and 0.2 per cent respectively.
“Wage growth has slowed to almost zero for the developed economies as a group in the last two years, with actual declines in wages in some,” said Sandra Polaski, the ILO’s Deputy Director-General for Policy. “This has weighed on overall economic performance, leading to sluggish household demand in most of these economies and the increasing risk of deflation in the Eurozone,” she added.
As Figure 7 from the report makes clear, the wage slowdown in the developed world is not due to a slowdown in productivity, or output per worker. The fact is that workers contribute far more in production than they receive in compensation. The growing gap between the two helps to explain the recent explosion in corporate profits.
Figure 9 lets us look at productivity-compensation trends in several different individual developed countries. The figure includes two different ways of measuring compensation. The blue dots measure worker compensation adjusted for changes in consumer prices. The red dots measure worker compensation adjusted for changes in the prices of both consumer and non-consumer goods and services. In general, the blue dots provide a more accurate picture of worker purchasing power and well-being.
If earnings and productivity grew at the same rate, the different national blue dots would all be on the 45 degree line. If a nation’s productivity grew faster then its compensation over the period then its blue dot would fall below the 45 degree line. If its compensation grew faster than its productivity, then its blue dot would be above the line.
Looking just at the big-3–the U.S., Japan, and Germany–we see that the U.S. recorded the highest rate of productivity growth over the period, followed by Japan, with Germany last. But the rise in worker compensation fell short of the growth in productivity in all three countries, with the largest gap in Japan.
The gap between productivity and compensation in most of the developed world also helps to explain the decline in labor’s share of national income. As illustrated in Figure 10 below, the share of GDP going to workers in the form of wages and benefits, despite some fluctuations, declined in all the selected countries over the period 1991 to 2013. In the U.S., the adjusted labor income share fell from approximately 61% to 56% over the period.
The ILO report does offer suggestions for improving worker well-being, including higher minimum wage and stronger union protection laws, as well as better funded social programs. These all deserve our support. However, there are real forces opposing these reforms and ongoing initiatives to promote greater freedom of movement for large corporations, such as the Transpacific Partnership free trade agreement, only strengthen these forces. Said differently we need a broader agenda for change if we are to defend majority living and working conditions, one that directly challenges contemporary globalization dynamics.
An important victory, as reported by Fortune magazine, a business-oriented publication.
San Francisco Passes First-Ever Retail Worker ‘Bill of Rights’
Just in time for Black Friday and the holiday shopping season, the measure —aimed at giving retail staffers more predictable schedules and access to extra hours —will make the worker-friendly city even friendlier.
|Hours before retail employees punch in for their stores’ hectic Thanksgiving and Black Friday shifts, the San Francisco Board of Supervisors approved new protections for the city’s retail workers.
The supervisors voted unanimously on Tuesday afternoon in favor of measures aimed at giving retail staffers more predictable schedules and access to extra hours. The ordinances will require businesses to post workers’ schedules at least two weeks in advance. Workers will receive compensation for last-minute schedule changes, “on-call” hours, and instances in which they’re sent home before completing their assigned shifts.
Businesses must also offer existing part-time workers additional hours before hiring new employees, and they are required to give part-timers and full-timers equal access to scheduling and time-off requests. The legislation will apply to retail chains with 20 or more locations nationally or worldwide and that have at least 20 employees in San Francisco under one management system. David Chiu, president of the Board of Supervisors, told Fortune on Tuesday that the proposal will affect approximately 5% of the city’s workforce.
The San Francisco Chamber of Commerce has opposed the bill, arguing that it is too onerous for business owners. In particular, the Chamber has taken issue with the limits the new requirements will impose on employers’ staffing decisions.
Now that it has board approval, the proposal just needs the signature of Mayor Ed Lee, a Democrat, to become law. Even if the mayor rejects the legislation, which is unlikely, the measure has enough support among the city’s supervisors to override a veto.
While the action San Francisco is set to take on workers’ behalf is the first of its kind, one aspect of the legislation has precedent. Last year, voters in SeaTac, Wash. approved a measure that requires companies to offer more hours to part-time workers before they hire new employees. They voted for it as part of a ballot initiative to increase the minimum wage to $15 per hour, one of the nation’s highest rates.
If San Francisco’s retail worker bill becomes law, it will make a city already known as worker-friendly even more so. Earlier this month, 59% of voters cast ballots in favor of increasing San Francisco’s current minimum wage of $10.74 to $15 by 2017.
San Francisco’s proposal takes sharp aim at employers’ tendency to schedule workers’ hours with little notice—a practice especially prevalent in retail. Earlier this year, University of Chicago professors found that employers determined the work schedules of about half of young adults without employee input, which resulted in part-time schedules that fluctuated between 17 and 28 hours per week. Forty-seven percent of employees ages 26 to 32 who work part time receive one week or less in advance notice of the hours they’re expected to work, according to the Bureau of Labor Statistics.
Congress attempted to tackle this issue at the federal level in July when they proposed legislation that would give retail workers more predictable hours. “Workers need scheduling predictability so they can arrange for child care, pick up kids from school, or take an elderly parent to the doctor,” co-sponsor Representative George Miller, a Democrat from California, said at the time. But the “Schedules that Work” bill has gone nowhere since it was introduced.
Government tax and spending programs can help reduce inequality—unfortunately US policies leave a lot to be desired.
One of the most common measures of income inequality is the gini index. The index runs from zero to one, with higher values signifying greater inequality.
The following two charts come from a Christian Science Monitor infographic on myths about inequality. The first shows that while income inequality, as measured by the gini coefficient, is high in the US, it is higher in nine other countries.
The second shows the degree to which tax and assistance programs do actually lower rates of income inequality. It also shows that U.S. programs perform relatively poorly; using this adjusted measure, the U.S. trails only Chile for the dubious distinction of having the highest rate of income inequality.
President Obama had hoped that recent signs of economic strength would benefit Democrats in the recently completed election. While it is true that job creation has picked up, the unemployment rate is falling, and growth is stronger, the reality is that most Americans have not enjoyed any real gains during this so-called expansionary period.
The following two charts highlight this on the national level. The first shows how income gains made during the expansion period have been divided between the top 1% and everyone else. There is not a lot to say except that there is not a lot of sharing going on.
The second shows trends in real median household net worth. While declines in median net worth are not surprising in a recession, what is noteworthy is that median net worth has continued to decline during this expansion. Adjusted for inflation the average household is poorer now than in 1989.
Oregon provides a good example of state trends. The chart below shows that the poverty rate in Oregon is actually higher now than it was during the recession.
The poverty rate for children is even higher. In 2013, 21.6 percent of all Oregon children lived in families in poverty.
And, not surprisingly, communities of color experience poverty rates far higher than non-hispanic whites.
Electing Republicans will certainly not improve things, but it is hard to blame people for feeling that the Democratic Party has abandoned them.
More promising is movement building to directly advance community interests. One example: voters in five states passed measures to boost minimum wages. Another was the successful effort in Richmond, California to elect progressives to the city council over candidates heavily supported by Chevron, which hoped to dominate the council and overcome popular opposition to its environmental and health and safety policies.
You know things are serious when leading mainstream economists and established international organizations continually revise downward their estimates for future growth.
The chart below shows successive Congressional Budget Committee estimates of the U.S. growth potential beginning in 2007 and the actual growth trend. Every year the estimates have been reduced and actual growth remains far below the estimated potential.
The following chart comes from the IMF. It shows a steady downward revision in predicted growth for so-called emerging market countries.
As the IMF says: ” This feature of repeated downward revisions to future growth is unique to the current downturn. In the past, we expected growth to bounce back (and it did). This time seems different.”
The lack of serious policy discussions by leading political and business leaders about causes and responses is far from reassuring.
Iceland continues to experiment with new ways to promote majority living standards. See here for a discussion of the country’s unorthodox response to the 2008 global financial collapse.
According to the Icelandic Grapevine, a bill has been submitted to the Icelandic parliament that would shorten the workweek. More specifically, it would change the definition of a full time workweek to 35 hours instead of the current 40 and the full workday to 7 hours rather than the current 8.
As the Grapevine reports:
The bill points out that other countries which have shorter full time work weeks, such as Denmark, Spain, Belgium, Holland and Norway, actually experience higher levels of productivity. At the same time, Iceland ranked poorly in a recent OECD report on the balance between work and rest, with Iceland coming out in 27th place out of 36 countries.
The bill also points out that a recent Swedish initiative to shorten the full time work day to six hours has been going well, with some Icelanders calling for the idea to be taken up here. In addition, the bill also cites gender studies expert Thomas Brorsen Smidt’s proposal to shorten it even further, to four hours.
Although it is not easy to establish a clear relationship between work hours and productivity, as noted above there is reason to believe that the relationship may be inverse. In other words, the shorter the workweek the more productive we are.
There is certainly a significant variation among countries in the length of the workweek as the following information from the U.S. Bureau of Labor Statistics shows:
In 2011 the average annual hours worked per employed person in the U.S. was 1758. The number for French workers was 1476. It was 1411 for German workers. Assuming a 40 hour workweek, the average US worker had a work year more than two months longer than the average German worker. It is also worth noting that while all the countries that reported data for the entire period 1979 to 2011 showed reductions in work time, the reduction was the smallest in the U.S.
It would certainly be nice, for many reasons, if someone in the U.S. Congress followed the lead of Iceland and introduced a bill to reduce work time in the U.S.
Our media celebrates the dynamism of our leading technology companies. The message is that our world would be better if only other businesses could replicate their practices.
Not surprisingly, it is their products not their labor practices that draws the most attention. Unfortunately, many of the firms on the cutting edge of technology also tend to be leaders in fashioning the most alienating and exploitative labor practices.
Samsung, the leading Korean technology company and Apple’s main competitor, is no better. Samsung has used all means possible to keep its operations non-union.
The following is the beginning of an interview with Sunyoung Kim, the chair of the Samsung Electronics Service Union, about the union’s recent victory, becoming the first recognized union in the company’s 76 year history. The interviewer is Dae-Han Song, the International Strategy Center’s Policy and Research Coordinator.
Sunyoung Kim: We started the union because of the harsh working conditions. Sometimes, we might work twelve to thirteen hours a day, and still not make the minimum wage. You might come to work on Saturday or Sunday from 8:00 to 6:00 PM and come out on the minus. Why? Because you didn’t get paid, but you still had to pay for lunch and gas. You even had to pay for your own training from Samsung. In addition, our work is dangerous, whether it is installing air-conditioning, or climbing a wall, or working with live electricity. Despite these dangers, the company doesn’t provide any safety equipment. We have to wear neckties even when working with moving parts. They force us to wear dress shoes even when working on a roof in the rain, just for the sake of maintaining a clean and professional image.
Dae-Han Song: How can a person work 12 to 13 hours a day and not even get paid the minimum wage?
Sunyoung Kim: It’s a system based on commission. There is no base pay. You are basically a freelancer. You come in to work, and if there is work you work if there is not then you just stay in the office. However, while a real freelancer can decide whether or not to show up to the office, we have a specified clock in and clock out time. When there is work, we just keep working. In the summer, there’s a lot of work: air conditioning, refrigerators. So, we just keep on working until everything is done. Not only is working such long hours exhausting, it is also exhausting doing so in the summer heat. Sometimes you don’t get home until 12:00 AM and can’t even rest on the weekends. That’s when we make our money that carry us through the fall, winter, spring when there is little work. In these off seasons we might sometimes just get one or two calls in a day and since we get paid by commission, if we don’t work, we don’t get paid.
Federal Reserve Board survey data on wealth certainly imply that it is getting harder and harder to succeed in our economy.
Steve Roth has created some great charts using this data, which is based on surveys done every three years beginning in 1989. The chart below looks at the median real (or inflation adjusted) household net worth by the age of the head of household. Each line shows the real net worth of a household headed by the relevant age group. In other words it allows us to compare the real net worth of a representative household headed by a 35-44 year old in 1989 with the real net worth of a similarly representative household headed by a person of the same age range in 2013. We are not looking at the fortunes of the same household as its head ages, but rather at households at different periods to see how age cohorts have fared over time.
The chart shows that households, with the exception of those headed by people 65 years and older, were worse off in 2013 than they were in 1989. For example, the representative household headed by someone 35-44 had far less wealth in 2013 than the representative household headed by someone from the same age range had in 1989.
The following chart makes it easier to see such trends by focusing on changes over the period 1989 to 2013.
When a line falls below 100 it means that the representative household in the specific age grouping was poorer that year than it was in 1989. It is striking that many household groupings grew poorer over the decade of the 2000s, years before the 2008 crisis, when our economy was supposed to be the envy of the world.
The growth in inequality might be one reason this immiseration has been missed. While the representative household defined by the age of its head might be growing poorer over time, a small number of households in each group might be enjoying ever greater riches, thus possibly confusing people about the nature majority experience.
The next chart looks at changes over time in the mean: median ratio for the different household groupings. The greater the ratio, the more inequality within the household grouping. Inequality within all household groupings, except those headed by someone 75 years or more, has grown over time. The real standout is the household grouping headed by those 35-44 years of age; while the income of the typical household has been falling (see the chart above), some of its members have really been hitting it rich (as illustrated in the chart below).
In sum, while wealth does grow with age, trends strongly suggest that the American experience is moving in reverse. Households with similar aged heads are growing poorer not richer over time.
As workers battle to raise the minimum wage it is nice to see more evidence that raising the minimum wage helps low wage workers and state economies.
Thirteen states raised their respective minimum wages in 2014: AZ, CA, CT, FL, MO, MT, NJ, NY, OH, OR, RI, VT, and WA. Elise Gould, an economist at the Economic Policy Institute, compared labor market changes in these thirteen states with changes in the rest of the states from the first half of 2013 to the first half of 2014.
Economic analyst Jared Bernstein summarizes the results as follows:
Elise compares the 10th percentile [lowest earners] wage growth among these thirteen states that increased their minimums with the rest that did not. The results are the first two bars in the figure below.
Real wages for low-wage workers rose by just about 1% over the past year in the states that raised their minimum wages, and were flat (down 0.1%) in the other states.
OK, but did those increases bite into employment growth, as opponents typically insist must be the case? Not according to the other two sets of bars. They show that payroll employment growth was slightly faster in states that raised, and the decline in unemployment, slightly greater.
In short, raising the minimum wage did boost the earnings of those at the bottom of the income distribution. Moreover, workers in states that raised the minimum wage also enjoyed greater employment growth and a greater decline in unemployment than did workers in states that did not.