Covid crisis fuels global wage inequality

The Covid-19 crisis has led to a worsening of wage inequality around the world, which will be only partly offset by state subsidies and current minimum wage policies, the International Labour Organization warned on Wednesday.

The UN agency, publishing its biennial report on trends in global wages, said the level or growth rate of average wages had fallen in two-thirds of the countries it could track in the first half of 2020, with lower paid workers — disproportionately women — most affected by a loss of working hours.

In the remaining third of countries — including Brazil, Canada, France, Italy and the US — an increase in average wages was the result not of pay rising, but of large numbers of low-paid workers losing their jobs or leaving the labour market.

“The growth in inequality created by the Covid-19 crisis threatens a legacy of poverty and social and economic instability that would be devastating,” said Guy Ryder, the ILO’s director-general.

In the European countries for which data were available, the ILO found that without the payment of wage subsidies, workers would have lost 6.5 per cent of their total wages between the first and second quarters of 2020. But the lowest paid workers would have lost 17.3 per cent of their pay — with their share of the total wage bill falling from 27 per cent to 23 per cent.

Inequality had also risen on another measure — the share of the total wage bill earned by the top 10 per cent compared with that earned by the bottom 10 per cent — with the biggest increase seen in Ireland, Portugal and Spain.

Temporary wage subsidies put in place by governments have helped limit the rise in inequality, but in the 10 countries for which figures were available, they would offset only 40 per cent of the total loss in wages, the ILO said.

Although there are no detailed data yet for other countries, the ILO said inequality was also likely to have risen in emerging economies, where it was clear that informal workers had been hard hit.

The pandemic’s impact on global earnings follows a long period of slow wage growth across the world. The ILO said global real wage growth had fluctuated between 1.6 per cent and 2.2 per cent in the four years before the onset of the virus — but that excluding China, it was in a much lower range of 0.9 to 1.6 per cent. In the past two years, wages had also grown at a slower rate than productivity, which meant that the share of global output paid to workers as earnings had been falling.

Minimum wage policies could help to lessen wage inequality, depending on their design and coverage, the ILO said — although it acknowledged that sharp increases in the minimum wage might be “difficult or risky” in some countries in the near term, given the risk of job losses.

Most countries have a statutory wage floor, but at present, out of an estimated 327m workers paid at or below their local rate, 266m are paid below the legal minimum. This is partly because many countries exclude agricultural and domestic workers from their coverage; and partly because of the large numbers working informally where the rules are not enforced.

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Source: Economy - ft.com