Wage gap widening, unionization declining worldwide

WASHINGTON – Declining unionization and increasing globalization are two key factors that are widening wage gaps between the rich and everyone else not just in the U.S. but worldwide, a new study says.

And the author of the report for the Worldwatch Institute, senior analyst Michael Renner, adds that increasing economic internationalization may make it tougher for individual countries and their workers to reverse that trend.

Renner’s report, Vital Signs That Shape Our Future, found wages grew much more slowly in the developed nations from 1979 onwards than they did in China, India and other newly industrializing nations. 

Since 2000, the biggest rise in average real wages has been in Eastern Europe, up 270 percent, the report says.  But that includes Russia, whose economy crashed after the demise of the Soviet Union in 1991 – and took its allies down with it.  They fell so far that the recent increase got wages in that area of the world “only back to where they were in the early 1990s,” Vital Signs says.

Real wage growth from 2000-2011 in other world regions ranged from just below 200 percent in Latin America and the Caribbean to an actual decline in the Middle East.

The report focused on manufacturing wages, which are more easily measured and compared to productivity.  But it also noted that even in manufacturing, there are problems.  Figures for China, where the 2007 factory wage was $1.36 per hour, and India ($1.17 hourly) are unreliable (China) or incomplete (India).  That’s because 80 percent of Indian manufacturing is still in that rapidly developing nation’s informal sector.

By contrast, the 2007 U.S. average compensation for factory workers was just over $35 an hour, including benefits.  In Germany, it was over $45.

But those wages grew slowly: 17 percent in the U.S. from 1979-2007 and slightly more in  Germany, the two big economic engines of the industrialized world.  Indeed, Renner told Press Associates Union News Service, German government policy in the last decade created a low-wage second economic tier, covering 20-25 percent of its workers.

Such wage trends widened the wage gap between the rich and everyone else worldwide, his report noted.  By 2007, just before the crash, the ratio of an executive’s pay to an average worker’s pay in the U.S. was more than 400-1.  Despite a slump since, it’s still more than 200-1.  That worldwide chasm isn’t good for either workers or societies, the report states.

“For reasons of fairness and stability, today’s growing wage gaps cannot continue indefinitely.  There are no easy solutions in an ever-more-interconnected global economy.  But a return to stronger worker representation in industrial economies and growing worker rights in developing economies are essential ingredients of change,” Renner’s report says.

“The International Labour Organization points to the importance of collective bargaining and minimum wages to help achieve a more balanced and equitable recovery…And the organization finds that in the countries where collective bargaining agreements cover more than 30 percent of all employees, productivity and wage trends are more in tune with each other than in other countries.  Collective bargaining and minimum wages also tend to reduce the share of workers earning low wages.”

In a telephone interview, Renner said that data is not exact enough for researchers to pinpoint how much of the wage gap and its spread is due to declining unionization and how much is due to increasing globalization.

The U.S. labor movement has often cited studies showing firms export high-wage jobs – union and non-union – to low-wage nations, thanks to increasing globalization and opportunities it provides to capitalists.  The exports drain jobs and force down wags in developed nations.

“The decline in labor union membership has to be a major factor” in U.S. and world wage gaps, Renner said.  “But the exposure of national economies to the international market has also changed over time.”

Europe, being in the international market before the U.S. was, got hit by the impact of globalization first, Renner explained.  But now the U.S. feels it, too. 

Renner also mentioned another major problem in labor data for the entire world: The service sector.  Wage data there are problematic because the sector – and duties of workers in it – are so broad and varied, he explained. 

“It’s hard to compare the wages and productivity of a burger flipper at McDon-ald’s with that of a banker behind a desk, but they’re both service workers,” he said.

“Also, even though manufacturing is now a smaller sector” than it was in the U.S. and many other industrialized countries, “the factory workers still tend to be better paid and their wages influence those of other sectors.  I was trying to give a sense of the global picture, but there are a lot of gaps in the data.”

Photo: Wages have been going up in Russia but this is mainly because the economy crashed down so far when the Soviet Union collapsed and capitalism was restored in the early 90’s.   Dmitry Lovetsky/AP