For some time, The Wonk Room has been making the case that income inequality is a real problem that is caused by stagnating wages and declining union numbers. This week, the International Labor Office (ILO) released its Global Wage Report for 2008/9, which shows that wages in the United States and around the world are declining, as are rates of unionization and collective bargaining. This is leading to more widespread income inequality, and all of its associated adverse effects.
The ILO found that between 1995 and 2007, real wage growth in the United States was essentially 0 percent, and in 2009 wages will “decline by 0.5 percent in industrial countries and grow by no more than 1.1 per cent globally.” The Center for American Progress Action Fund has found that weekly wages were actually 0.3 percent lower in June 2008 than they were in March 2001.
This stagnation — which occurred at the same time that CEO pay steadily increased — has led to severe income inequality. The ILO found that the U.S. is one of the countries in which “the gap between top and bottom wages has increased most rapidly.” Indeed, the Organization for Economic Cooperation and Development (OECD) reported recently that “in the United States, the richest 10 percent earn an average of US$93,000 — the highest level in the OECD. The poorest 10 percent earn an average of US$5,800 — about 20 percent lower than the OECD average.”
As the ILO pointed out, income inequity has serious economic consequences:
There are also many economic costs associated with higher inequality, such as higher crime rates, higher expenditures on private and public security, worse public health outcomes and lower average educational achievements. A growing body of studies also highlights the importance of reducing inequality to achieve poverty reduction.
Furthermore, as the Center for American Progress’ Sabina Dewan explained, “declining wages means a decrease in purchasing power and a slowing down of global consumption at a time when the wheels of the world’s economic engine are already grinding to a halt.”
To alter the downward trajectory of wages, the ILO makes two suggestions: better designed and managed minimum wage laws and stronger collective bargaining for workers. A step that could be taken here in the U.S. to make stronger bargaining possible is passing the Employee Free Choice Act, which would help to ease the path toward unionization — and thus higher wages and better benefits — for America’s workers.