• Pay packets around the world rose 1.8 per cent in 2023 and continued their positive trajectory in the first half of the year, rising by 2.7 per cent on the back of a strong post-COVID global recovery, the International Labour Organisation (ILO) said in a report.

• The report reveals that wage inequality has decreased in about two-thirds of all countries since 2000 at an average annual rate of between 0.5 and 1.7 per cent. Despite this positive trend, significant wage differentials persist worldwide. 

• The most significant decrease in wage inequality occurred among low-income countries where the average annual decrease ranged from 3.2 to 9.6 per cent in the past two decades.

The need to address wage inequality

• Reducing inequalities and poverty is a major challenge on the path towards social justice. Labour income is the main, if not the sole, source of income for most households in regions across the world. 

• Therefore, what happens in labour markets matters a great deal for overall inequality. The world of work and its institutions have a distinct role to play.

• More than half of the workers in the world are wage earners. This means that reducing wage inequality can contribute significantly to reducing inequalities. 

• While wage inequalities matter, wage levels are also instrumental to ensuring decent and dignified lives for households globally.

• Addressing income inequalities in the labour market, including gender pay gaps and pay gaps suffered by workers in vulnerable situations, is an effective path towards reducing household inequality and poverty. 

• In a context of significant geopolitical instability, this would contribute to fairer societies and reduce social tensions.

Increase in average wages

• From a regional viewpoint, average wages increased faster in Asia and the Pacific, Central and Western Asia, and Eastern Europe, compared to the rest of the world.

• Wage inequality is declining at a slower pace in wealthier countries, shrinking annually between 0.3 and 1.3 per cent in upper-middle-income-countries, and between 0.3 to 0.7 per cent in high-income countries. 

• Moreover, even though wage inequality narrowed overall, decreases were more significant among wage workers at the upper end of the pay scale.

• Preliminary data for the first two quarters of the year indicate that global real wage growth recorded a 2.7 per-cent increase in 2024, the largest gain in more than 15 years.

• Such positive outcomes mark a notable recovery when compared to the negative global wage growth, of -0.9 per cent, observed in 2022, a period when high inflation rates outpaced nominal wage growth.

• Wage growth has been uneven across regions, with emerging economies experiencing stronger growth than advanced economies.

Persistent wage inequality

• Despite recent progress high levels of wage inequality remain a pressing issue. The report shows that globally, the lowest-paid 10 per cent of workers earn just 0.5 per cent of the global wage bill, while the highest-paid 10 per cent earn nearly 38 per cent of this wage bill. 

• Wage inequality is the highest in low-income countries, with close to 22 per cent of wage workers there classified as low-paid. 

• Women and wage workers in the informal economy are more likely to be among the lowest paid. This finding reinforces the need for targeted actions to close wage and employment gaps and ensure fair wages for all wage workers.

• Wage inequality is relevant in all countries and regions. Globally, however, one in every three workers is a non-wage worker. In most low and middle-income countries the majority are self-employed workers, who can only find opportunities to earn a living in the informal economy. 

• Men earn more than women in all country income groups and across the entire wage scale. Among lower and upper-middle-income countries, the gender wage gap is higher at the low end of the distribution (where women are more likely to be employed in low-paid occupations and sectors with high levels of informality), and lower at the top end of the distribution (where a minority of highly educated women earn high wages, possibly in the public sector where pay is likely more equitable). In high-income countries, the gender wage gap tends to be lower at the bottom end of the wage distribution than at the top.

Strengthening wage policies to reduce inequality

• The study emphasizes the need for targeted policies to foster inclusive economic growth.

• Reducing wage inequality requires both strong wage policies and structural support for equitable growth. 

• By addressing these challenges countries can make real progress toward reducing wage gaps and promoting fair, sustainable, economic growth for workers worldwide.

Key recommendations include: 

i) Setting wages through social dialogue: Wages should be set and adjusted through collective bargaining or agreed minimum wage systems involving governments, workers and employers.

ii) Taking an informed approach: Wage-setting should take into account both the needs of workers and their families and economic factors.

iii) Promoting equality, and equal opportunity of treatment and outcomes: Wage policies should support gender equality, equity and non-discrimination.

iv) Using strong data: Decisions should be based on reliable data and statistics.

v) Addressing root causes of low pay: National policies should reflect each country’s specific context and address the causes of low pay such as informality, low productivity and the under-valuing of jobs in sectors such as the care economy.

National strategies should go beyond the realm of wage-setting alone and include a broader range of factors, such as productivity growth – which can be achieved, for example, through the creation of an enabling environment for entrepreneurship and sustainable enterprises, improved access to finance, as well as strong public support for technological innovation and skills development. 

At the same time, strong and effective labour market institutions and social dialogue can help to ensure that productivity growth translates into wage growth, particularly for those at the low end of the wage distribution. 

Reducing household income inequality also requires the redistribution of income through a country’s system of taxes and social transfers. 

The amount of redistribution through taxes and transfers depends on many factors, including the amount of taxes levied and distributed, the progressivity of taxation systems (that is, the extent to which high-income earners pay a larger share of their incomes in taxes), and the extent to which transfers benefit low-income households more than high-income households.

In developing countries, however, there is relatively limited scope for redistribution through taxes and transfers because of the large share of own-account workers, whose labour earnings are even lower than those of wage workers and who overwhelmingly work in the informal economy.

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