Our key takeaway: The evidence indicates that, for the first time in the twenty-first century, real wage growth has fallen to negative values. According to the ILO, the cumulative impacts of the COVID-19 pandemic and the recent cost-of-living crisis are hitting workers and their families hard, and the impacts are especially severe for lower-income workers. While the ILO primarily offers policy recommendations for governments, its findings carry significant implications for companies as well: these real wage hits will be felt by workers in their operations and wider value chains. When fed into companies’ human rights due diligence, these latest figures may have implications in terms of assessing salient risks and prioritising measures around living wage.
The International Labour Organization (ILO) published its Global Wage Report 2022-23: The Impact of Inflation and COVID-19 on Wages and Purchasing Power (November 2022), which tracks the evolution of real total wage bills (gross wages paid by employers) from 2019 to 2022:
- The cost-of-living crisis is global: The report unpacks the impacts of recent widespread inflation and the economic slowdown resulting from the war in Ukraine and the global energy crisis. It finds that, on the basis of available evidence for 2022, rising inflation “is causing real wage growth to dip into negative figures in many countries, reducing the purchasing power of the middle class and hitting low-income groups particularly hard.” Global monthly wages fell in real terms to minus 0.9% in the first half of 2022 (or minus 1.4%, if China is excluded from the data). The ILO concludes that “nominal wages in many countries have not been adjusted sufficiently in the first half of 2022 to offset the rise in the cost of living.”
- Wages aren’t meeting the cost of living: The recent erosion of real wages follows significant losses in the total wage bill for workers and their families during COVID-19 crisis. The report estimates that the decrease in the total wage bill is “equivalent to four weeks of wages in 2020 and two weeks in 2021, implying a cumulative loss of six weeks of wages over these two years.” The report explains further that this decline in the total wage bill “had the greatest impact on low-income groups” and “was more pronounced in low- and middle-income countries than in high-income countries.” What’s more, the report finds that “the increase in the cost of living among low-income households can be between 1 and 4 percentage points higher than that faced by high-income ones.” The evidence also indicates that minimum wages, which aim to protect low-income workers, have decreased in real terms in various countries, leading to reduced purchasing power of minimum wages. And this isn’t limited to low-income countries: for example, “during 2020–22, the minimum wage decreased in real terms owing to rising inflation in Bulgaria, the Republic of Korea, Spain, Sri Lanka, the United Kingdom and the United States. These trends reflect the way in which the cost-of-living crisis has hit low-paid workers particularly hard.”
- A disproportionate impact on some of the most vulnerable groups: While the report cautions that there is “no general answer” to the ways in which wage inequality has evolved over the past few years, it does point to overall trends suggesting a disproportionate impact of this crisis on women and informal workers. Lower wages and higher cost of living are compounded by other inequalities. For example, informal workers faced higher employment losses than formal employees, reducing their purchasing power even further. Likewise, while the overall gender pay gap hasn’t widened significantly since pre-pandemic years, existing structural inequalities across countries and regions will persist and continue to require serious attention. The ILO also adds a word of caution about the possibility of “an increase in inequality, threatening the economic recovery and possibly fuelling further social unrest.”
