Wage
share among labour class is part of functional distribution of National
income in an economy. A higher wage share according to various
empirical studies could lead to increase in domestic demand which has
positive effect on economic growth in terms of productivity and
employment.
Sustainable Development Goal 8 aims at
Promoting inclusive and sustainable economic growth, employment and
decent work for all. Fair Income from productive activities and
employment is part of decent work. In recent years labour shares have
seen a downward trend globally with important negative consequences on
economies.
According to research, improvements in
macroeconomic performance may not translate into commensurate
improvements in personal incomes of households if there is declining
labour share. Socially it will lead to income inequality and
politically erodes support for market-oriented economic policies or for
globalization. According to ILO, at macroeconomic level, declining
trends in labour shares negatively affect the main macroeconomic
aggregates, namely household consumption, private sector investment, net
exports and government consumption.
Causes for Falling Wages
Mainstream economics consider
globalization and technological progress as the key factors behind the
declining wage share. Thus continuing regional and global integration
and automation will increase the pressure on the falling wage share.
Some other studies of political economy concentrate on institutional and
social factors for the declining wage rate. To them weakening of the
bargaining power of workers since 1980’s is responsible for falling
wages.
Globalisation, technological progress and
deregulated financial markets give employers various options which
exploit workers. Companies have option to move to low-cost countries,
substitute labour with capital and invest in different options like real
or financial assets internationally.
Again reduced market competition,
welfare-state retrenchment, weaker income security and rising
unemployment have pushed down wages share all over the world.
In advanced economies, labour income
shares started showing downward trend in the 1980s, reaching their
lowest level prior to the global financial crisis of 2008–09, and have
not recovered materially since. Among most emerging market and
developing economies labour shares have also declined since the early
1990s.
Declining Labour shares and inequality
According to ILO estimates of the
distribution of labour income shows that pay inequality remains
persistent in the area of employment. ILO findings indicate that 10 per
cent of workers receive 48.9 per cent of total global pay, while the
lowest-paid 50 per cent of workers receive just 6.4 per cent of global
pay.
Again findings of ILO indicate that poor
countries tend to have much higher levels of pay inequality. In
Sub-Saharan Africa, the bottom 50 per cent of workers earn only 3.3 per
cent of labour income, compared to the European Union, where the same
group receives 22.9 per cent of the total income paid to workers. In
South Africa labour share in GDP has also declined since 1993 leading to
a decline in their real income.
Recommendations
Commitment to sustainable development
goals specifically Goal 8 requires efforts to curb a downward trend in
labour share. Declining labour share has an effect on global demand
and employment. This affects economic growth and pushes the economy
towards recession. Government and International organizations have to
make efforts to curb this downward trend.
National and International efforts are
needed to contain present decline in labour share. National efforts in
the form of policy actions by government through amendments in wage and
income policy, social security policy, Labour market reforms are
recommended. Labour market reforms will strengthen the bargaining power
of workers through empowerment. Sweden is a good example of such
effort. Swedish workers have a strong bargaining position. In Sweden,
real wages of workers have increased by 60 per cent over the last two
decades. This has been combined with the highest employment rate in the
EU. In Sweden globalization, technological progress and free trade is
regarded as opportunities.
The writer is a lecturer at Mount Kenya University Kigali
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