Challenges  confronting the

100th Session of the International Labour Conference,1-17 June 2011.

Inefficient growth shares out gains unevenly,

thereby eroding social cohesion

q Income inequality has risen in most countries, with incomes at the very top running away from average incomes. In developed economies, income inequalities have translated into wealth inequalities and may undermine social mobility in the coming years – the very basis of the social fabric.

q Globally, 80 per cent of the population shares 30 per cent of the world’s wealth.

Between 1990 and 2007, the bottom 20 per cent of the world’s population raised its share of total income up from 1.5 per cent to 2 per cent.

q 3.5 billion persons share as much income as 61 million persons in 2007.

q In the United States, between 1976 and 2007, the income share of the top0.1 per cent more than quadrupled from 2.3 per cent to 12.6 per cent.

q Poverty (at US$1.25 a day) is declining, but very slowly to 1.4 billion people in 2005 from 1.8 billion in 1990; at this rate it would take another 88 years to achieve a world without extreme poverty.

q To halve poverty rates by 2015 relative to 1990 (Millennium Development Goal ) least developed countries (LDCs) would need to double the growth of productive employment (providing income above the poverty threshold) to 7.1 per cent from the current 3 per cent.

75 years will be needed to bridge this gap.

q Some 75–80 per cent of the world’s population has no access to basic social protection.

q Frustrated social aspirations sow the seeds of social and political instability. Many studies have documented the link between high income inequality, social unrest and political instability leading to lower economic growth. 11 Recent events in the Middle East and North Africa are a stark reminder of this. The 2011 World Development Report shows, through survey data, how in two-fifths of responses,

young men identify unemployment and perceived injustice as the major cause of their joining gangs and rebel groups.

The goal of more and better jobs remains a distant reality,

aggravated by the global crisis

q Of the 3 billion people at work today, half are in some form of self-employment mostly by necessity, not by choice.

q Informal employment (as a share of non-agricultural employment) averages over 50 per cent in developing regions.

q The incidence of so-called non-standard employment is on the rise in developed economies – a trend which has continued as economies recover from the global crisis.

q Searching for and not finding a job is the fate of some 205 million persons today as measured by the official definition of unemployment; if we add those who are underemployed and willing to work more, and those discouraged from seeking employment, then unemployment numbers could easily double.

q At 12.6 per cent, the unemployment rate among young women and men is globally 2.5 times the adult rate; rates range from 8.3 to 25.1 per cent across regions.

q Globally child labour is declining, yet in 2008 215 million children are still at work, approximately half in hazardous work; some 12 million persons are estimated to work in conditions of forced labour.

q The ratification of fundamental labour standards has increased by 53 per cent since 1998 to 1,322 at the end of December 2010, equivalent to 90 per cent of the potential total number of ratifications across 183 member States; yet actual application varies widely between member States, enterprises and workplaces.

The goal of more and better jobs remains a distant

reality, aggravated by the global crisis

q Of the 3 billion people at work today, half are in some form of self-employment mostly by necessity, not by choice.

q Informal employment (as a share of non-agricultural employment) averages over 50 per cent in developing regions.

q The incidence of so-called non-standard employment is on the rise in developed economies – a trend which has continued as economies recover from the global crisis.

q Searching for and not finding a job is the fate of some 205 million persons today as measured by the official definition of unemployment; if we add those who are underemployed and willing to work more, and those discouraged from seeking employment, then unemployment numbers could easily double.

q At 12.6 per cent, the unemployment rate among young women and men is globally 2.5 times the adult rate; rates range from 8.3 to 25.1 per cent across regions.

q Globally child labour is declining, yet in 2008 215 million children are still at work, approximately half in hazardous work; some 12 million persons are estimated to work in conditions of forced labour.

q The ratification of fundamental labour standards has increased by 53 per cent since 1998 to 1,322 at the end of December 2010, equivalent to 90 per cent of the potential total number of ratifications across 183 member States; yet actual application varies widely between member States, enterprises and workplaces.

The economy itself has become more unstable,

affecting sustainable enterprises in the real economy

55. Since 1980, on average a financial crisis has rocked the world every three years.

This has usually been preceded by large capital movements, rising commodity prices, and interest rate hikes. On average, it takes two years for output and 4.8 years for employment to recover to pre-crisis levels. 15

q In developed countries labour productivity increased at twice the rate of wages in the decade to 2009, with similar trends observed in 16 of 21 emerging and developing countries, thereby shrinking the share of wages in total income and weakening global demand.

q Globally, the share of investment in GDP has declined by over 2 percentage points between the mid-1980s and 2009; 16 in other words, rising profits have not resulted in greater investment efforts.

q The share of profits originating from finance, rather than the real economy, rose to 42 per cent in developed countries, up from 25 per cent in the 1980s.

q The share of retained earnings for investment has stayed constant while the share of profits going to the payment of dividends has risen rapidly in developed countries, doubling in the United States to 46 per cent over the period 1980–2008.

q Small enterprises are the main employment machine; yet their priorities are routinely overlooked in policy-making, regulatory arrangements, access to finance, training opportunities, infrastructure investments and other forms of support.

q Finally, there are links between inequalities and unstable economies. The 2008–09 global recession is commonly attributed to rising inequality, stagnating median incomes and abundant credit lavished on potentially insolvent households whose income from work had been stagnating. 18 Beyond the global crisis, higher inequalities entail costs in terms of personal security, imprisonment and deterrence.

At any given rate of growth, high inequality countries need more time to reduce poverty than less unequal ones.

Pervasive and rising income inequalities

57. A large number of countries display rising inequality as measured by the Gini coefficient – about two-thirds of countries with comparable data. 19 In another third, inequality has not increased, or has moderately declined from very high levels. Countries above the line in figure 1 conform to the pattern of rising income inequality between 1980 and 2000. In a typical country, inequality has inched up steadily every year. Overtwo decades this translates into sizable shifts in income distribution in favour of those at the top – with much less for all others.

58. For some years now, what has been happening at the very top of the income distribution has been astonishing. 20 In the United States, for example, the share of income going to the top 10 per cent of the population was below 35 per cent during most of the post-war period, started to increase dramatically in the early 1980s and has now reached 50 per cent – a level last seen in the 1920s. In other words, the top 10 per cent of the population has as much income as the remaining 90 per cent of the population combined. This distance between the top 10 per cent and the rest of the population is not unusual in many countries today.

59. The rise in the share of total income going to the top 10 per cent of the population is overwhelmingly accounted for by what has happened to the earnings of the top 1 per cent and, sliced even more thinly, by what has happened to the top 0.1 per cent of the entire distribution. By 2007, the top 1 per cent in the United States accounted for 23.7 per cent of total income in the country.

Rising wage polarization between

the bottom and the top

60. Comparing the top and bottom 10 per cent of earnings, (the D9/D1 ratio), 21 wage inequality has been rising in 15 countries since 1995, but fallen in only four countries (Belgium, France, 22 Ireland and Japan). On average, the ratio increased from 3.00 in 1995 to 3.23 in 2009 (see figure 2). For developing and emerging economies, a slightly more positive picture emerges with declining wage inequality in 11 countries and risinginequality in five countries with available data. The average D9/D1 ratio is above 10 in these countries, far above that seen in industrialized countries.

Persistent pay inequality between

women and men

63. On average, the shortfall of women’s earnings compared to men’s was 22.9 per cent during the period 2008–09 (figure 4). This is an improvement over the gap observed  in 1995 (26.2 per cent). A positive trend can be observed in 39 out of 48 countries.

Nonetheless, at the current pace of progress it would take more than 75 years to apply the principle of “equal remuneration for work of equal value” promoted in the widely ratified Equal Remuneration Convention, 1951 (No. 100). Women shoulder a disproportionate amount of unpaid care work and tend to work fewer hours than men.

However, even on an hourly basis, women in the European Union earn on average 7.1 per cent less than men. 24 Differences in education or experience can often account for some of the wage differences, but this explanation has lost credibility in view of omen’s educational achievements and the closing of the gender gap in work experience

The world is a highly unequal “country”

64. We live in a highly unequal world where 80 per cent of the world’s population shares 30 per cent of the world’s wealth, with 70 per cent accruing to the top 20 per cent (figure 5). Even more graphically, the wealthiest 61 million (1 per cent of the world’s population) have the same amount of income as the poorest 3.5 billion (56 per cent of the world’s population). If the world were a country it would rank among a few highlyunequal countries (or stand out in the top right hand corner)

Finance squeezes the real economy

65. A clear winner of the unsustainable globalization we are witnessing has been finance. 66. The trend towards the “financialization” of the economy has a number of consequences. The share of profits originating from finance, rather than from the real economy, rose to 42 per cent in developed countries in 2007, up from 25 per cent in the 1980s. The weight of finance in the economy suggests that its role has “morphed” from servicing the financial intermediary needs of the real economy into a main driver of the economy pursuing its own development.

67. Another indication is the distribution of enterprise profits, especially the share going to the payment of dividends, which has doubled in the United States to 46 per cent in the period 1980–2008, from 23 per cent during the period 1946–79. Conversely, the share of retained earnings (for investment) has stayed constant over the same period at 18 per cent of profits (after taxes). A similar trend is observed in Europe.

68. A third consequence is the declining share of investment as a percentage of GDP, especially in developed countries. The trend is depicted in figure 6.

69. The share of growth going to investment has declined in developed countries (by 3 percentage points over the period) while it has increased in the more recent period in emerging and developing countries. Less investment implies fewer jobs, especially of the type accessible to the bottom 90 per cent of the working-age population.

70. Conversely, more dividend payments and high to very high pay packages in the financial industry contribute to the skewed income distribution documented above. 71. A fourth consequence is a decline in entrepreneurship and new business formation linked to the distortions attributed to an oversized financial sector.

Wages lagging behind labour productivity growth

72. Globally, the relationship between labour productivity and wages has considerably weakened in the past decade. 73. Labour productivity is running ahead of wage increases in a large number of countries. In developed countries labour productivity grew by 10.3 per cent over the past decade, roughly twice as fast as wages (figure 7). ILO estimates show that in 16 of a sample of 21 emerging and developing countries, a similar pattern prevails. 74. Overall, 17 out of 24 countries with data going back to the early 1980s registered a falling wage share, although with substantial cross-country variation. A close look at the data reveals that structural changes in the economy – such as a shift towards more capital-intensive sectors – are not the main cause behind the decline in wage shares.

Rather, the downward trend has been caused by falling wage shares within sectors.

75. The decoupling of wage growth from productivity growth implies a falling wage share, with direct implications for aggregate demand globally. When the shortfall in wages is met through debt-fuelled consumption, this can lead to an unsustainable build-up of household debt; this was one of the proximate causes of the global crisis.

A slow rise in wage employment

76. Today, 3 billion persons get up every working day to go to work. That is two in every three persons aged 15 to 64 years in the world. The world’s labour force grew by 496 million in the decade to 2009. The increase will reach 357 million in the decade to 2020, with some 57 per cent aged 15–39 years.

77. The growth in the labour force can be disaggregated into growth in wage employment and in own-account and contributing family work. The latter is mainly work done within households such as on small, often subsistence family farms and in the urban informal economies of the developing world. Wage employment expanded by 322 million between 1999 and 2009, reaching 50 per cent of total employment, while the number of own-account workers and contributing family workers increased by 146 million. Women’s share in such work has declined more rapidly than men’s.

78. Historically, the share of wage employment in total employment rises with per capita income. As economies diversify out of agriculture and the size of the informal economy falls, the share of own-account workers and contributing family members tends to decline. It remains the case that in 2009, 50 per cent of workers around the world – an estimated 1.53 billion – were in own-account and contributing family work, down modestly from 53.5 per cent in 1999.

79. At this rate, how long would it take to reduce the share of own-account work in the world to the more or less 20 per cent share that currently exists in developed countries?

About 100 years!

80. Nor is the shift away from own-account and contributing family workhomogeneous across regions. The regions with the largest shares of own-account workers and contributing family work saw the least progress in terms of a shift towards wage employment. In South Asia, 100 million more workers were own-account workers and contributing family members in 2009 than in 1999, with wage employment accounting for 30 per cent of total employment growth. In sub-Saharan Africa, more than 64 per cent of the region’s growth in employment over the period was in own-account and contributing family work.

81.  women are disproportionately engaged in own-account and contributing family work. In sub-Saharan Africa, only around 15 per cent of women are in wage employment, versus 29 per cent of men.

Persistent informal employment

82. In the developing world, whether in paid jobs or in own-account work, over the past ten years, the majority of these 496 million workers have been absorbed into the informal economy. In a sample of 12 emerging and developing countries shown in figure 10, the share of informal employment in non-agricultural employment was 57 per cent. On average, one third of informal employment is in wage employment and two-thirds in own-account work.

83. Casual day labourers in developing countries often have the lowest earnings of any tatus of employment – and no job security whatsoever. Their numbers are also increasing . For the countries in the sample 28 many more are above the line, showing that there has been an increase over time in the share of casual wage labour in total employment.

84. Casual or precarious wage employment is by no means confined to developing countries. In Europe eight employed persons in ten are in wage employment. However, increased flexibility in recent years has contributed to a greater diversification of employment status, resulting in an increase in non-permanent, non-full-time forms of employment. In recent years, approximately 22 per cent of employees have some type of non-standard employment contract (or no contract at all). In the prime-age group (25–49 years), about 72.5 per cent of workers could not find permanent jobs and are in involuntarily temporary employment. .

There are insufficient jobs for all

working adults seeking one

100. The standard indicator here is the level of unemployment. That it remains stubbornly high is bad enough; worse still is the fact that it hides a broader indication of labour underutilization – time-related underemployment, a measure of those who are in fact “employed” but for far fewer hours than they would wish to be. when the unemployment rate is added to the rate of time-related underemployment, a greater indication of labour underutilization than just unemployment is the result and is often far greater.

101. A broad measure of unemployment (the unemployed plus underemployed plus persons not currently actively looking for work but available and wanting to work, as defined by the United States Bureau for Labor Statistics), gives an average for 27 countries of 16 per cent in 2009 (third quarter) as compared to 8.9 per cent for the conventional ILO definition of unemployment.

102. The deficit in employment opportunities is nowhere greater than for young people. Their unemployment rate is always a multiple of adult unemployment rates, but it is particularly pronounced today. As figure 14 shows, youth unemployment is highest in the very regions where social unrest has recently erupted. It would be hard to consider this to be a coincidence.

Declining trade union membership

and collective bargaining

103. Trade union membership is on the decline in many countries, mostly as a result of public policies and multiple changes in employment. Nevertheless trade unions remain significant actors. Of a sample of 26 developed countries, trade union membership averaged 30.7 per cent of all employed in 2007, down from 34 per cent in 2000. The range varies from 8 per cent in France to 75 per cent in Sweden, with a median at 23 per cent .  However, median collective bargaining coverage was much higher at 62 per cent in 2007 104. In emerging and developing countries, coverage of workers in wage employment by collective agreements tends to be limited (figure 16), averaging 18.6 per cent across 22 countries.

Summary of excerpts from Chapter 2 :Undermining social justice -see

Report I(A): Report of the Director-General – A new era of social justice

at the 100th International Labour Conference (ILC) 1-17 June 2011 in Geneva

http://www.ilo.org/ilc/ILCSessions/100thSession/lang–en/index.htm#a3