Recovery Demands Increase in Labour’s Share
The just-released 2011 ILO World of Work Report is a must read for progressive economists.
Released on the eve of the G-20 meetings, the report underlines the gravity of the current global employment situation and warns of the need to put job creation first if we are to avoid a very extended period of high unemployment and rising incidence of precarious work. It emphatically calls for demand side measures to create jobs, along with job friendly labour market policies.
Most important is the theoretical argument and the empirical research which underlies the report. It argues – based on a great deal of new empirical researchÂ – that the way out of the jobs crisis lies in RAISING wages, especially in the economies with large trade surpluses. Moreover,Â Chapter 2 documentsÂ the large shift in income from labour to capital in the decade leading up to the crisis, which is mainly attributed to the rising GDP share of financial profits in the advanced economies.
The rise in the profitÂ share was not accompanied by a rise in real economy job creating capital investment, but rather by increased dividend payouts and accumulation of surplus cash in financial assets. Replicating Jim Stanford’sÂ important work on the Canadian case, they find that the main drivers of real investment are on the demand side, and thatÂ pro capital policies have not yielded results.
It is argued that higher wages might in fact boost real investment by sustaining and increasing effective global demand and helping resolve global trade imbalances.
In an accompanying editorial, Raymond Torres writes,
“It is time to reconsider “wage moderation” policies. Over the past two decades, the majority of countries have witnessed a decline in the share of income accruing to labour …Nor has wage moderation translated into higher real investment: between 200 and 2009, more than 83% of countries experienced an increase in the share of profits in GDP, but those profits were used increasingly to pay dividends rather than invest. And there is no clear evidence that wage moderation has boosted employment.”
At pages 62-63, it is argued that collective bargaining and minimum wages can help raise the labour share without negatively impacting on employment.