Search­ing the po­lit­i­cal roots of fall­ing wage growth

Shanghai Daily - - FRONT PAGE - Jay­ati Ghosh

IT’S now of­fi­cial: Work­ers around the world are fall­ing be­hind. The In­ter­na­tional La­bor Or­ga­ni­za­tion’s (ILO) lat­est Global Wage Re­port finds that, ex­clud­ing China, real (in­fla­tion-ad­justed) wages grew at an an­nual rate of just 1.1 per­cent in 2017, down from 1.8 per­cent in 2016. That is the slow­est pace since 2008.

In the ad­vanced G20 economies, av­er­age real wages grew by a mere 0.4 per­cent in 2017, com­pared to 1.7 per­cent in 2015.

In emerg­ing mar­kets, av­er­age wage growth in 2017, at 4.3 per­cent, was faster than in the ad­vanced G20 economies, but still slower than the pre­vi­ous year. Asia en­joyed the fastest real wage growth.

More­over, the ILO re­port finds that the gap be­tween wage growth and la­bor pro­duc­tiv­ity re­mained wide in 2017. In many coun­tries, la­bor’s share of na­tional in­come is still below the lev­els of the early 1990s.

That raises an ob­vi­ous ques­tion: Given the global out­put re­cov­ery of re­cent years, why have con­di­tions for work­ers in most parts of the world not im­proved com­men­su­rately?

Nei­ther of the usual sus­pects, trade and tech­nol­ogy, is en­tirely to blame. To be sure, large la­bor-sur­plus economies’ deep­en­ing in­te­gra­tion into the global mar­ket, to­gether with in­creased re­liance on au­to­ma­tion and ar­ti­fi­cial in­tel­li­gence, has weak­ened work­ers’ bar­gain­ing power and shifted la­bor de­mand into very spe­cific and lim­ited sec­tors. But these fac­tors alone do not ex­plain the lack of ma­te­rial progress for most work­ers.

The real rea­son work­ers are get­ting a raw deal is not so much eco­nomic as in­sti­tu­tional and po­lit­i­cal. From coun­try to coun­try, leg­is­la­tion and court judg­ments are in­creas­ingly tram­pling on long-rec­og­nized la­bor rights.

For ex­am­ple, gov­ern­ments fo­cused solely on im­prov­ing “la­bor-mar­ket flex­i­bil­ity” have pur­sued poli­cies that priv­i­lege em­ploy­ers’ in­ter­ests over those of work­ers, not least by un­der­cut­ting work­ers’ abil­ity to or­ga­nize. An ob­ses­sion with fis­cal con­sol­i­da­tion and aus­ter­ity has pre­vented the kind of so­cial spend­ing that could ex­pand pub­lic em­ploy­ment and im­prove work­ers’ con­di­tions. And the cur­rent reg­u­la­tory en­vi­ron­ment in­creas­ingly al­lows for large cor­po­ra­tions to wield power with­out ac­count­abil­ity, re­sult­ing in higher mo­nop­oly rents and greater bar­gain­ing power.

In short, ne­olib­er­al­ism’s in­tel­lec­tual cap­ture of eco­nomic pol­i­cy­mak­ing across a wide range of coun­tries is re­sult­ing in the ex­clu­sion of most wage earn­ers from the gains of eco­nomic growth. But this was not in­evitable. China, after all, has achieved rapid wage growth, and the share of na­tional in­come ac­cru­ing to la­bor is ris­ing.

China’s suc­cess may vin­di­cate a model ad­vanced by the late No­bel lau­re­ate econ­o­mist W. Arthur Lewis, which ex­plains how em­ploy­ment in new, more pro­duc­tive sec­tors can ab­sorb sur­plus la­bor and push up wages over all. But, more to the point, China has aug­mented this ef­fect through sys­tem­atic state poli­cies de­signed to im­prove la­bor con­di­tions.

As a re­sult, the av­er­age nom­i­nal min­i­mum wage in China nearly dou­bled be­tween 2011 and 2018, and wages for work­ers in state-owned en­ter­prises rose even faster. At the same time, the gov­ern­ment has ex­panded other forms of so­cial pro­tec­tions for work­ers, all while pur­su­ing in­dus­trial poli­cies geared to­ward boost­ing in­no­va­tion and pro­duc­tiv­ity growth, thus mov­ing the coun­try up the global value chain.

If China can buck the trend of de­clin­ing wage growth, other coun­tries can, too. For­tu­nately, the ILO and the United Na­tions Con­fer­ence on Trade and De­vel­op­ment have be­gun to put more sen­si­ble poli­cies back on the agenda, as have some politi­cians in the US, the United King­dom, and else­where. But en­sur­ing that the econ­omy serves the bulk of so­ci­ety will re­quire a much big­ger push across the board.

Jay­ati Ghosh is pro­fes­sor of Eco­nomics at Jawa­har­lal Nehru Univer­sity in New Delhi, ex­ec­u­tive sec­re­tary of In­ter­na­tional De­vel­op­ment Eco­nomics As­so­ciates, and a mem­ber of the In­de­pen­dent Com­mis­sion for the Re­form of In­ter­na­tional Cor­po­rate Tax­a­tion. Copy­right: Project Syn­di­cate, 2018. www. project-syn­di­

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