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ILO: Growing International Inequality

By Michael Cebon | October 31, 2008

The International Labour Organisation (ILO) has just released its 2008 World of Work report, subtitled “Income Inequalities in the Age of Financial Globalization”.

The report’s major finding is that despite record economic growth in many of the world’s countries, the wealth which is being created is failing to “trickle down” to the majority of the population, leading to widening gaps between the rich and poor.

For example, the report points out that in most countries where there is available data, wages as a share of national income has been declining:

In 51 out of 73 countries for which data are available, the share of wages in total income declined over the past two decades. The largest decline in the share of wages in GDP took place in Latin America and the Caribbean (-13 points), followed by Asia and the Pacific (-10 points) and the Advanced Economies (-9 points).

The story is the same in Australia, where since 1975 (the end of the Whitlam Government) corporations have been taking a bigger and bigger share of GDP at the expense of wages:

Australia: Corporate Profits vs Wages as a share of GDP

The report also finds that in 70% of all countries, the income gap between the top and bottom 10 per cent of wage earners increased between 1990 and 2005.  The most staggering statistic is that

in the United States in 2007, the chief executive officers (CEOs) of the 15 largest companies earned 500 times more than the average worker. This is up from 360 times more in 2003.

Five hundred times more!

So what’s responsible for this growth in inequality?  While the report identifies a number of factors, it singles out financial globalisation as a particularly powerful cause:

Financial globalization has also led to a depression of the share of wages in GDP, reinforcing the downward trend recorded in most countries, . . . over and above any trend decline in the wage share that may have resulted from sectoral shifts, rising labour demand elasticities from trade openness or changes in labour market regulations and institutions. There is empirical evidence that financial globalization has led to an increase in income inequality, owing both to a trend increase in financial assets (relative to GDP) and to a growing incidence of crises.

The report concludes that “there are widespread perceptions in many countries that globalization does not work to the advantage of the majority of the population.”

Topics: Global Inequality, Globalisation & Work | Comments Off

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