Later today, the International Labor Organization will release a sweeping report on global wages. I’ve got a copy and here is the upshot: wages declined in most countries, inequality increase and, thank you very much, a lot of that can be blamed on the wonders of so-called "free trade".
The ILO is an arm of the United Nations. Its mission is "promoting decent work for all." What’s interesting about this report is that it explores the reality-based world, not the fantasy-based world. In the reality-based world, we deal with actual facts. In the fantasy-based world–that is the world populated by the political, academic and just plain wacky proponents of so-called "free trade" and the so-called "free market"–ideology and Economics 101 text books substitute for facts.
And this report serves up some pesky facts. Here are the three pieces:
Over the period 2001–07, inflation was low and the global economy grew at 4.0 per cent per year in real terms. The growth in wages, however, lagged behind overall economic performance. According to our estimates, real wages only grew by an estimated 1.9 per cent during 2001–07…
And:
The slow growth in wages was accompanied by a decline in the share of GDP distributed to wages compared with profits. We estimate that every additional 1 per cent of annual growth of GDP has been associated on average with a 0.05 per cent decrease in the wage share.
And here is the beaut:
We also found that the wage share has declined faster in countries with a higher openness to international trade, possibly because openness places a lid on wage demands based on a fear of losing jobs to imports. Inequality among workers has also increased. Overall, more than two-thirds of the countries included in our sample experienced increases in wage inequality. This was both because top wages took off in some countries and because bottom wages fell relative to median wages in many other countries.
So, what does the reality-based world tell us? Economies grew worldwide (there were exceptions). In two-thirds of the countries, wage inequality grew. And, no surprise, the share of wages that workers got from the growth in the economies declined FASTER in countries that pursued so-called "free trade". (If I knew how to post fancy graphs, I’d do it…instead, you can look at the whole thing here).
None of this is truly surprising if you live in the reality-based world. It has been obvious for some time that "liberalization" and so-called "free trade" have failed to bring prosperity. The relative "closed" economy in the era between 1946-1973 vastly outperformed the "open" economy since then. If you just chose Latin America as an example, the past 25 years have been a disaster in terms of growth–the period where "liberalization" and so-called "free trade" have been the religious-like mantra of the economic "experts". Not for nothing, the change in governments in Latin and South America over the past five years has come, largely, because the people–not the elites–have chosen fact-based reality over fantasy-based beliefs.
The other topic this report explores is collective bargaining. Not surprisingly:
…It seems that in the presence of significant collective bargaining coverage, real wages are much more strongly connected to
economic growth.
And:
The contribution of trade unions to the reduction in wage inequality is a well-established empirical finding. Recent
economic studies have increasingly recognized that collective bargaining has a positive effect on wages without much negative impact on the overall employment or economic performances.[emphasis added]
That last point is really important to remember. The fantasy-based world–the Chamber of Commerce, the Republican Party, a whole set of economists", some pundits and, unfortunately, a few Democrats–argue that oh, my god, if we have unions, the economy will suffer.
Sad to say, that in the reality-based world, it ain’t so, as this global report shows. The report argues for stronger collective bargaining to try to eliminate global inequality.
