fair and inclusive wage systems · senior economist conditions of work ... based on ilo global wage...
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Patrick Belser
Senior Economist
Conditions of Work and Employment (TRAVAIL)
Social Protection Sector
International Labour Office
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%
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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.
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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).
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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)
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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”
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
The challenge: striking a balance in a
difficult macroeconomic
environment
Source: IMF, World Economic Outlook, 2012
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
Compile and publish wage statistics
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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)
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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)
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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.
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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.
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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.
Conditions of Work and Employment (TRAVAIL) Social Protection 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.
Conditions of Work and Employment (TRAVAIL) Social Protection Sector
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)