Global wages fall in 2022 in real terms for first time on record, says ILO

Global wages have fallen in real terms this year for the first time since comparable records began, the International Labour Organization said on Wednesday, arguing there was scant evidence of pay pressures stoking inflation.

The UN agency’s annual report on pay showed that global monthly average wages in the first half of 2022 were 0.9 per cent lower in real terms than a year earlier, marking the first outright fall in worldwide living standards in the 15 years for which the ILO has published data.

The drop was steepest in the developed world, where inflation picked up earlier. The ILO said that among G20 economies, which account for about 60 per cent of the world’s waged employees, real wages had fallen 2.2 per cent year on year in advanced economies. Across G20 emerging economies, wage growth slowed but remained positive at 0.8 per cent — but this was in large part due to China’s resilience, with other major countries such as Brazil hit hard.

Rosalia Vazquez-Alvarez, the report’s lead author, said that with inflation still stubbornly high, despite aggressive action from central banks, global wages were also likely to fall in real terms over 2022 as a whole.

“Labour’s share [of global income] is declining,” she said, noting that productivity growth, measured in terms of output per worker, had in 2022 outstripped wage growth by the biggest margin since 1999.

The ILO said that where productivity was now outpacing pay, governments could do more to protect workers from the cost of living crisis — in particular by mandating higher minimum wages — without running the risk of driving inflation up further.

“There would appear to be scope in many countries for increasing wages without fear of generating a wage-price spiral,” the report said.

The ILO also noted that the latest erosion of real wages was compounding the losses many workers had incurred during the pandemic, and the longer-term stagnation in living standards in a few countries, including the UK, one of four G20 economies where wages are still lower in real terms than they were in 2008, when the global financial crisis hit.

Central bankers have been watching wage developments closely, because they are concerned that high inflation will become entrenched if workers demand pay rises to match rising living costs, spurring companies to keep increasing their prices as their wage bill grows.

Even though wages are lagging behind inflation, they are rising in nominal terms at a pace unprecedented in many countries, and that many central bankers see as incompatible with their inflation targets.

Bank of England governor Andrew Bailey said on Tuesday that UK pay awards, at around 6.5 per cent, were “well above where you’d expect . . . in any normal situation”. While they were not out of line with the BoE’s forecasts, given the current circumstances, “that’s not to say I like it”, he said, while adding that pay settlements should be structured in ways that gave more protection to the lowest paid.

Philip Lane, chief economist at the European Central Bank, said in a blog post last week that even if high wage growth put upward pressure on inflation over the next two or three years, this would not necessarily lead to any lasting change in wage dynamics, after an initial “catch-up phase”.

But he also said eurozone wage growth looked set to accelerate, underlining the need for the ECB to bring inflation back to target swiftly so that people did not come to see high inflation as normal and behave accordingly.