Global Wage Inequality: Game Changer

By Samantha Plesser

On November 23 and 24, 2013, the German Federal Ministry for Economic Cooperation and the Dutch Ministry of Foreign Affairs convened a Living Wage Conference in Berlin. It brought together businesses, international organizations, and trade unions. At the completion of the conference, all attending members signed a declaration of intent that seeks to implement both living wages and better working conditions in developing countries, particularly in Asia.

These disparate organizations gathered together to sign this document for extremely different reasons. NGOs and nonprofits wanted a commitment from large corporations and governments that exploitation of workers would no longer occur. However, for the first time in history, corporate and government interests were aligned with humanitarian ones. It was not an awakening of compassion toward workers’ rights from corporations. Instead they realized that it makes economical sense for them to provide their employees with a living wage.

The first part of the conference was devoted mainly to opening remarks, the second on why implementing a living wage would benefit business owners (as well as their employees.) Daniel Vaughan Whitehead, manager of wages and income policy at the International Labour Organization, stated that the lack of inspection of working conditions by any statutory authority was directly correlated to poor worker performance, inefficient production, and disloyal workers.

It is statistically proven that employees with a living wage tend to perform higher and faster quality work, have better employee morale, and are less subject to disciplinary infractions. Thus, the slight loss that a multibillion-dollar company expends when increasing the salaries of its employees is balanced by the performance of its employees.

The issue of human rights became important to all stakeholders for different reasons. NGOs were concerned because of the human rights infractions themselves, whereas corporate owners, concerned with their public image, pointed out case studies where violence had erupted in their factories, resulting in death and violenceand leading to massive public relations campaigns to save their images.

Furthermore, wealth inequality is now a global issue affecting both developing countries and first world economies. It has been almost six years since the 2008 recession. Even so, at the end of 2013, 837 million workers were either below or just above the poverty line in emerging G20 countries. In advanced G20 economies, the stagnation in wages reflects a widening gap between growth in wages and labor productivity (between rich and poor). Additionally, youth unemployment recently declined, but still remains at a historically high level.

Even before the signing of the Living Wage Declaration, most Asian countries had statutory mandates in place concerning employee working conditions and wage laws. Despite this, employers continued to exploit their workers, coming up with creative ways to circumvent the law, including the creation of false pay stubs, “under the table” bargains with government officials to make sure wage laws were not enforceable, and the hiring of private “police protection” by employers to monitor employee working conditions.

Employees, in dire need of work and without the power of collective bargaining or trade unions, have no recourse. In developed countries like the United States and the United Kingdom, they are intentionally classified as volunteers instead of regular employees so they don’t receive health benefits, are charged for uniforms they are required to wear for work, and are not paid overtime.

The most rational argument presented at the Conference surrounding raising the living wage workers was based on simple economics. Increasing the wage of low-income workers so that they have a small amount of discretionary income is documented to have a proportionately larger stimulating effect on the global economy.

Thus, policy interventions to support consumption demand are necessary to reverse the current self-reinforcing cycle of slow growth, low job creation, and low investment. The effectiveness of these policies would increase substantially if taken collectively and in a coordinated manner. The Conference was the first step in a series of international actions to improve working and living conditions in developing countries, and support global economic growth.



Samantha Plesser is an editorial assistant at World Policy Journal.

[Photo courtesy of U.S. News and NYTimes]

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