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Resource centre on India's rural distress
 
 

For better wage policies

A direct outcome of the global economic crisis has been a decline in the rate of growth of wages across the world, barring Asia and Latin America. A study by the International Labour Organisation, Global Wage Report 2010-11: Wage policies in times of crisis, highlights this reality and points to the need for countries to put in place proper social and labour market policies to protect an increasingly vulnerable workforce. The study, based on wage data from 115 countries and territories, covering 94 per cent of the world's 1.4 billion wage-earners, shows a decline in growth rate in monthly wages — from 2.8 per cent in the pre-crisis 2007 to 1.6 per cent in 2009. This coupled with the increases in unemployment since 2007 (from 117.8 million to 206.7 million in 2009) has important economic and social implications. Given the importance of wages in sustaining consumption, and in turn aggregate demand for goods and services, it is necessary that measures are in place to ensure that the growth rates in wages do not go on a further downward spiral. Prolonged wage decreases will result in extending the recessionary trend and delay the onset of recovery. The ILO's finding that the prevalence of low-paid work is correlated with low levels of education, among other variables, is a timely reminder for policy makers that social policies are vital for creating a better paid workforce.

Given the important link between wage rates and the overall performance of an economy, the ILO report's suggestions for better collective bargaining, higher compliance with minimum wage norms, and income-support measures merit serious consideration, particularly in economies where such support structures are poor. The observation that the connection between wages and productivity was “more apparent in countries where collective bargaining covers more than 30 per cent of employees,” and that such countries have “significantly less wage inequality” further strengthens the need for effective collective bargaining mechanisms in countries that are witnessing the paradoxical situation of high economic growth rates, low wages, and a growing informal workforce. The other important policy measure suggested by the report, namely the use of realistic and enforceable minimum wages, which are particularly weak in developing countries, would be a meaningful intervention in addressing the rising inequalities that accompany economic crisis. The larger message from the second global wage report is that the present crisis can be converted into an opportunity to provide a better deal for the world's workforce.