The ILO’s Global Wage Report states that “in the wake of the financial crisis of
ID: 418954 • Letter: T
Question
The ILO’s Global Wage Report states that “in the wake of the financial crisis of 2008–09, global real wage growth started to recover in 2010, but has decelerated since 2012, falling from 2.5 per cent to 1.7 per cent in 2015, its lowest level in four years. If China, where wage growth was faster than elsewhere, is not included, real wage growth has fallen from 1.6 per cent in 2012 to 0.9 per cent in 2015.” What is the reason for this deceleration of real wage growth? Answer using data. The ILO’s Global Wage Report states that “in the wake of the financial crisis of 2008–09, global real wage growth started to recover in 2010, but has decelerated since 2012, falling from 2.5 per cent to 1.7 per cent in 2015, its lowest level in four years. If China, where wage growth was faster than elsewhere, is not included, real wage growth has fallen from 1.6 per cent in 2012 to 0.9 per cent in 2015.” What is the reason for this deceleration of real wage growth? Answer using data.Explanation / Answer
The primary reason for this deceleration of real wage growth is the lower wage growth in emerging and developing economies. The recovery that was witnessed since 2010 was mostly due to strong wage growth in emerging and developing economies. However, since 2012, these developing economies situated in Asia and the Pacific witnessed a fall in real wage growth rate from 6.6% in 2012 to 2.5% in 2015. This strong decline of 410 basis points in the real wage growth rate led to deceleration of real wage growth on a global level.
On the other hand, during this period, the real wage growth rate increased in developed countries. For the developed countries in G20 the real wage growth increased from 0.2 % in 2012 to 1.7% in 2015. But this growth was not enough to offset the higher decline that was attributed to emerging economies. Thus caused the real wage growth to decline on an overall basis.
Increase in real wage growth rate was limited to Northern America and few European countries. This was not sufficient to offset the decline that was happening in emerging economies. Emerging economies were plagued with twin problems of low GDP growth and high price inflation. This led to fall in real wage growth in the emerging economies.
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