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ORIGINAL FRENCH ARTICLE: La crise a considérablement ralenti la croissance des salaires

by Clotilde Mathieu

Global wage growth dramatically slowed down by the crisis

Translated Thursday 23 December 2010, by Isabelle Métral and reviewed by Isabelle Métral

According to the International Labour Organization, wages rose by 0.7% in 2009 against 2.2% in 2007 globally. Wage gaps have likewise widened.

“The recession has been a disaster not just for the millions of people that lost their jobs; it has also hit those who have kept their jobs but whose purchasing power and even general welfare have significantly decreased.”

So claims Juan Somavia, general manager of the International Labour Bureau after reading the report on wages in 115 countries published last Wednesday by the ILO. According to the report, the global financial and economic crisis has resulted in a “dramatic” slowing down of the growth rate of real wages – i.e. taking inflation into account- all over the world: rate growth fell from 2.2% in 2007 to 1.6% in 2009. If the growth rate declines, it remains positive partly on account of China, the ILB observes. The average wage rose by 13% in 2009 in the Middle Kingdom. But leaving China out reduces growth to a mere 0.7%. It is even negative in a quarter of the countries polled in 2008, and in 20% of them in 2009. The bearish tendencies for wages is particularly pronounced in the so-called “advanced” economies: France, Germany, the US.

In those countries, salaries declined by 0.5% on an average in 2008 (against a 0.8% rise in 2007). This decline occurred after a decade of wage "moderation". Despite the very modest 0.6% rise in 2009, the bearish tendency seems set to continue. “What is likely is that parallel to the persistence of a high unemployment rate, the pressure exerted on wages will continue or even get worse over the next years. Which would mean that the full impact of the economic crisis on wages still lies ahead."

Parallel to this, the wage freeze has also aggravated wage inequality within each country. The gap between rich and poor has widened. The proportion of ill-paid workers has increased in more than two thirds of these countries. The actual prospect of rising to better-paid jobs remains dim. On the contrary the risk of finding oneself holding low-paid jobs remains high.

According to the ILB, disparities between rich and poor may “dangerously aggravate social tensions, especially if certain groups of individuals consider that they paid a high price during the crisis while the benefits of the previous period of expansion were unequally distributed.” That unequal distribution has “provoked a decline in global demand whereas tremendous needs have not yet been met.” To counter the effects of those inequalities and keep up consumption, countries have increased the household debt or developed their economies through exports. But the crisis has shown that this model is “not sustainable on a long-term basis”, the ILO explains. Its economists call for more equitable wage policies and specify that “the rhythm of the recovery will depend at least partly on the household capacity to use their wages to consume more.”

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