The International Labour Organization has come out with the latest Global Wage Report 2022. Over the past two years, labour markets have witnessed significant changes globally. These changes have been triggered by a slow economic recovery from the pandemic, high and persistent inflation rates, and new uncertainties brought about by the war in Ukraine. Global growth rates slowed down in 2022 and are expected to do so in 2023. The International Monetary Fund had predicted a global growth rate of 3.6% in April 2022, which was revised downwards to 3.2% in July 2022. In October 2022, the IMF’s prediction for economic growth in 2023 was in the range of 2% to 2.7%. Inflation was expected as an outcome of the pandemic; the policymakers’ response to it was presumed to be the loosening of money supply and reduction in interest rates. However, central banks across the world tightened money supply and hiked interest rates in an effort to control high inflation rates. In 2022, the global average inflation rate is expected to be 8.8%, falling to 6.5% in 2023 and to 4.1% in 2024. Weak recovery and high inflation have led to a slow adjustment in nominal wages and rapid rise in prices. Hence real earnings, particularly among low-income households, have fallen sharply.
Globally, real monthly wages fell by 0.9% during the first six months of 2022. For the G20 countries, which account for 60% of the world’s wage-earners, real wages fell by 2.2% in the half year of 2022. The labour market has in some economies been characterised by greater wage inequality. On the other hand, almost all nations, particularly India, have witnessed a large informalisation of the labour market which implies greater uncertainty in job security and earnings. From the policy perspective, there is a need to switch from average targeting to focussed targeting of income support schemes. Since high inflation has raised housing, food and transport prices, lower income households require special attention, with more than average adjustments required in their nominal wages. Central banks have to realise the need to ensure that cheap and assured credit lines are available for the small and medium sectors of the economy while tightening money supply and hiking interest rates. The economic scars of Covid will not go away in a hurry. Interventions must be suitably designed to ensure that the scars do not leave lasting marks on the economy.
Source: The Telegraph, 26/12/22
