Wage growth around the world has decelerated since 2012, falling from 2.5 per cent to 1.7 per cent in 2015, its lowest level in four years.
In much of the period following the 2008/09 financial crisis, wage growth was propelled by relatively strong wage growth in developing countries and regions. More recently, however, this trend has slowed or reversed.
“In an economic context in which lower demand leads to lower prices (or deflation), falling wages could be the source of great concern, as it could add further pressure to deflation.”
Deborah Greenfield, ILO Deputy Director-General for Policy
“Faster wage growth in the US and Germany explain an important part of these trends. It is as yet unclear whether such an encouraging development will be sustained into the future , as developed countries are faced with growing economic, social and political uncertainty,” said Deborah Greenfield, ILO Deputy Director-General for Policy.
The report, Wage Inequality in the Workplace, notes vast differences between regions among developing economies. For example, in 2015, wage growth remained at a relatively robust 4.0 per cent in Asia and the Pacific, declined to 3.4 per cent in Central and Western Asia, and is tentatively estimated at 2.1 per cent in the Arab States and at 2.0 per cent in Africa. In 2015, real wages fell by 1.3 per cent in Latin America and the Caribbean and by 5.2 per cent in Eastern Europe.
Wage inequality gets steep at the top
The report also takes a look at wage distribution within countries. In most countries wages climb gradually across most of the wage distribution and then jump sharply for the top 10 per cent and, even more, for the highest-paid one per cent of employees.
In Europe, the top 10 per cent of best paid employees take on average 25.5 per cent of the total wages paid to all employees in their respective countries, which is almost as much as what the lowest-paid 50 per cent get (29.1 per cent).
Wage inequality is even steeper for women. While the overall hourly gender pay gap for Europe is about 20 per cent, the gender pay gap in the top one per cent of wage earners reaches about 45 per cent.
Role of wage inequalities between and within enterprises
For the first time the report looks at wage distribution within enterprises. It analyses the extent to which overall wage inequality is the result of wage inequalities between enterprises and wage inequalities within enterprises.
Inequality between enterprises tends to be larger in developing than in developed countries. While in developed countries the average wages of the top 10 per cent of enterprises tend to be two to five times as high as those of the bottom 10 per cent, this ratio goes up to eight in Vietnam and even 12 in South Africa.
“On average, in 22 European countries, inequality within enterprises accounts for 42 per cent of total wage inequality, while the rest is due to inequality between enterprises,” said Rosalia Vazquez-Alvarez, ILO economist and one of the authors of the report.
When comparing the wages of individuals to the average wage of the enterprises in which they work, the report found that in Europe about 80 per cent are paid less than the average of the enterprise in which they work.
“The extent of wage inequality within enterprises – and its contribution to total wage inequality – is quite large, which indicates the importance of enterprise-level wage policies in reducing overall inequality,” Greenfield said.
The report highlights policies that can be used and adapted to country circumstances to reduce excessive wage inequality between and within enterprises. Minimum wages and collective bargaining play an important role in this context.