Today is May Day, also known as International Workers’ Day and, in some countries, Labour Day. Across the world, it will be marked with speeches, marches, parades and the occasional demonstration.
But while this traditional celebration of human labour gets under way, it seems not all is well in the world of work. Throughout developed countries and beyond, there are grumblings that workers have not shared fully in the recovery from the economic crisis, that the rich are getting richer while ordinary working people are not and that “the system” is failing to deliver the rising living standards that millions had come to see as their birth-right.
Some observers date the downward pressure on employee earnings to before the 2007-2008 crisis; indeed, there are claims that the great post-war upswing in living standards ground to a halt in the mid-Seventies, at least in Britain and the US. Others believe the current malaise is a passing problem and that normal service will shortly be resumed in terms of a brisk return to rising real pay for working people.
Real pay has been squeezed
So where does reality lie?
One problem in answering that question is that at least four different subjects have become mixed up. The first is real pay, employee salaries after inflation is taken into account. The second is the wage share of gross domestic product (GDP), the amount of the national cake devoted to the employee payroll as opposed to earmarked for profits.
All are linked, but each is distinct.
Working out real pay is relatively straightforward. The inflation rate is deducted from the figure for growth in average earnings (assuming average earnings are growing) and the figure that is left is the increase in real pay.
Or decrease, in the case of the UK in the five years 2009-2013. As with the United States, UK policy was set to maintain maximum employment rather than to protect real earnings, so more people were in work than would otherwise be the case but their spending power was reduced.
In its most recent Global Wage Report, the International Labour Organisation (ILO) had this to say: “In a majority of countries across the world, wage growth in recent decades has lagged behind the growth of labour productivity, leading to a fall in the labour share of GDP.”
Productivity is the key
The causes, it added, probably included globalisation, skills-based technology and weaker institutions such as trade unions.
In terms of wage inequality, the ILO said: “It is a well-established fact that during recent decades wage inequality has increased in many countries around the world.” It added that “the real estate and financial sectors are over-represented among top-paid workers”.
Wage growth, said the ILO, has been sluggish for most of this decade, and not only in the developed world. It noted that the Group of 20 leading economies – which included both western countries and emerging giants such as China and India – saw average real-wage growth slow from 6.6 per cent in 2012 to 2.5 per cent in 2015.
So yes, some of the grumbling may well be justified. But ultimately, the key to higher earnings is increased productivity. As the Nobel Prize-winning economist Paul Krugman put it: “Productivity isn't everything, but, in the long run, it is almost everything. A country's ability to improve its standard of living over time depends almost entirely on its ability to raise its output per worker.”