fair and inclusive wage systems · senior economist conditions of work ... based on ilo global wage...

Patrick Belser

Senior Economist

Conditions of Work and Employment (TRAVAIL)

Social Protection Sector

International Labour Office

[email protected]

Fair and inclusive wage

systems

Conditions of Work and Employment (TRAVAIL) Social Protection Sector

In North Africa, more than 50% of

workers are wage-earners

Source: ILO, KILM

All Wage and salaried workers

1998 2008

World 44% 48%

Developed 84% 86%

Eastern Europe and CIS 77% 78%

East Asia 36% 45%

Southeast Asia & Pacific 33% 36%

South Asia 18% 21%

Latin America & caribbean 62% 63%

Middle East 50% 62%

North Africa 46% 54%

Sub-Saharan Africa 18% 25%

About 1.5 billion

people

AFRICA:

About 100 million people

Wage and salaried workers in 2008 by sex

Male Female

World 49% 47%

Developed 84% 89%

Eastern Europe and CIS 77% 80%

East Asia 49% 41%

Southeast Asia & Pacific 39% 33%

South Asia 24% 15%

Latin America & caribbean 62% 66%

Middle East 65% 53%

North Africa 57% 46%

Sub-Saharan Africa 31% 17%


Wages in the long run

Differences in productivity across countries explain two-

thirds of the variations in average wages across countries.

The rest is largely explained by wage policies.

Source: Lüebker (2011) based on ILO Global Wage Database 2010/11 and World Bank (World Development Indicators).

Note: Labour productivity refers to GDP in 2005 PPP USD per person employed; data are for 2009 or the latest available

observation from any given country that is included in the ILO’s Global Wage Database. Yearly wages are estimated as 12 x

average monthly wages. For most countries, wage data refer to the formal sector only.


The economic argument for

balanced wage policies

When labour costs increase too fast relative to productivity,

there is a risk that the country will lose external

competitiveness and that investment will dry up.

Source: calculated from Eurostat (real unit labour costs is defined as compensation per

employee in current prices divided by GDP in current prices per total employment).


The economic argument for

balanced wage policies

When productivity increases faster than wages, this may

increase the competitiveness of export sectors and attract

foreign investment, but internal consumption will stagnate.

Labour Compensation/GDP


Wages and social stability

“When a situation arises where a large proportion of people

feel left behind, with little prospect of catching up, the risk

of social and political tensions increases” (ILO Global

Wage Report 2010/11)


The ILO and the social role of

wages The Preamble of the ILO Constitution considers that “universal and

lasting peace can only be established if it is based upon social

justice” and calls for the “provision of an adequate living wage”

The 2008 ILO Declaration on Social

Justice for a Fair Globalization promotes

“policies in regards to wages and

earnings, hours and other conditions of

work, designed to ensure a just share of

the fruits of progress to all and a

minimum living wage to all employed

and in need of such protection”


The challenge: striking a balance in a

difficult macroeconomic

environment

Source: IMF, World Economic Outlook, 2012


1. Compile and publish wage

statistics

Convention No.63 concerning Statistics of Wages and Hours of Work (1938) considered that “all Members of the Organisation should compile statistics of average earnings and hours actually worked” and “publish the data”

Later, Convention No.63 was revised and wages statistics became part of the ILO Labour Statistics Convention No.160 (1985) which broadens the scope beyond wages but encourages Members to produce statistics on average earning, the wage structure and distribution, as well as labour cost


Compile and publish wage statistics


2. Use minimum wages for social

protection

In 1928 the ILO adopted the Minimum Wage-Fixing Machinery

Convention No.26, which commits ratifying Member States to

fix minimum rates of wages for workers employed in trades

where there is no “effective regulation of wages by collective

agreement and wages are exceptionally low” (103

Ratifications: Egypt, 1960; Libya: 1966; Morocco: 1958;

Tunisia: 1957)

In 1970, the ILO adopted the Minimum Wage Fixing

Convention No.131 which provides more general protection to

wage earners against “unduly low wages” and calls for “a

system of minimum wages which covers all groups of wage

earners whose terms of employment are such that coverage

would be appropriate” (51 Ratifications: Egypt, 1976; Libya:

1971)


Use minimum wages for social

protection

Some important principles:

the involvement of representatives organisations of

employers’ and workers’ as well as persons representing

the general interest

an approach which balances: (a) the needs of workers

and their families; and (b) economic factors, including

productivity.

Regular adjustments in the minimum wage to take

account of changes in the cost of living and other

economic conditions (productivity)


3. Promote inclusive collective

bargaining

In periods of economic growth, wage growth tends to

lag behind the growth in labour productivity when

collective agreements cover less than 30% of wage-

earners. This usually results in a decline in the share

of GDP going to workers.

In crisis times, collective bargaining can facilitate

adjustment, allowing workers and employers to

negotiate a trade-off between wages, working time,

and employment. In Germany, social partners

negotiated short-time work: less hours and lower pay

in exchange for an employment guarantee.


Promote inclusive collective

bargaining But collective bargaining can also dis-function and there

are many challenges to promote sound industrial

relations and effective social dialogue.

Particular questions relate to trade union membership,

the level of decentralization of collective bargaining, the

degree of coordination across the different levels, trade

union strategies, as well as the indicators used for wage

bargaining.

It is recommended that productivity indicators be used

in wage negotiations.


4. Adopt coherent public sector pay

The erosion of public sector pay is a major factor

behind low work morale, difficulty to attract and retain

staff, and the spread of corrupt practices. This

undermines the effective delivery of services, and

can leads to social conflicts and strikes.

On the contrary, when public employees are paid

more than in the private sector, this can lead to

“queuing” for public sector jobs and low labour supply

to the private sector.


Adopt coherent public sector pay

The distribution of nonwage benefits is often a root

cause of inequality in total remuneration. This occurs

when Governments respond to pressures and threats

of industrial action by awarding special allowances,

in-kind benefits or bonuses to specific groups of

employees.

More often than not, this practice introduces

opaqueness and arbitrariness into the pay system,

which triggers further crisis and strikes, as competing

groups claim similar benefits.


5. Ensure policy coherence

Minimum wage fixing should constitute one element in a

policy designed to overcome poverty and to ensure the

satisfaction of the needs of workers and their families.

The challenge is to ensure a coherent system in which

both welfare institutions and wage policies are

developed to secure a minimum level of income for poor

households.

Other elements include “In-work benefits” (tax credits)

for low paid workers or income transfer measures like

“Bolsa familia” (Brazil)

fair and inclusive wage systems · senior economist conditions of work ... based on ilo global wage...

Documents