By Kimball Cariou

The International Labor Organization reports global growth in real wages slowed dramatically in 2008 as a result of the economic crisis, and wages are expected to drop even further this year, despite signs of a rebound in profits and stock prices. In an update of its Global Wage Report, the ILO also warns of worse times ahead.

     The report says the deterioration of real wages around the world calls into question the true extent of an economic recovery, especially if government rescue packages are phased out too early.

     In a sample of 53 countries for which data are available, the ILO finds growth in real average wages had declined from 4.3 percent in 2007 to 1.4 percent in 2008, and the picture is projected to get worse this year. ILO Specialist on the Conditions of Work and Employment, Patrick Belser, says declining wage rates are linked to the levels of unemployment.

     "The quite dramatic unemployment figures, which we now see in some of the countries, this strongly suggests that there will be greater pressure on wages in the future as more people will be unemployed, more people will be looking for jobs and the pressure on employers to raise wages to attract workers will decline," he said. "So, we expect that the second part of the year will not be very good in terms of wage growth."

     The report finds more than a quarter of the countries experienced flat or falling monthly wages in real terms. They include, the United States, Austria, Costa Rica, South Africa and Germany.

     ILO economists say some nations have come up with polices to lessen the impact of lower wages during the economic crisis. An example of these is work sharing with government subsidies. Under this scheme, the number of individual working hours is reduced in an effort to avoid layoffs. For this scheme to work, the government must provide wage subsidies to compensate for lost pay due to the shorter hours.

     Besler says a second important finding in the report is that both developed and developing countries have strengthened their minimum wages in recent years.

     "A large number of countries, including major economies such as the U.S., Brazil, Russia, and also Japan have increased minimum wages by more than inflation figures in 2008. And, these countries have also addressed their minimum wages further in 2009," said Belser. "The ILO considers that minimum wages are an important tool for social protection and that everyone should have access to a decent minimum living wage."

     The ILO also says the United States is reporting slightly higher rates of unemployment than Europe. October figures show a 9.4 percent U.S. jobless rate compared to 8.8 percent in the European Union.

     The report calls the link between productivity growth and wage increases "essential for economic and social sustainability". It argues companies should be able to achieve competitiveness through rising productivity rather than by cutting labor costs. And, it correctly stresses that workers should have enough bargaining position to defend their wages.

     However, the ILO's argument is weakened by its failure to consider the contradictions of capitalist economies. As Karl Marx revealed in Capital and other groundbreaking studies over a century ago, employers are compelled by the dynamics of their own system to constantly attempt to expand the total mass of surplus value (profits) created by workers, and to increase the level of exploitation within each enterprise.

     The rising productivity referred to by the ILO report can be achieved through various means, including savings on fuel costs, the reduction of raw materials required per unit, cutting expenditures on storage, transportation, etc.

     But the most significant way to increase productivity is to produce more goods or services with lower labour costs. This can be accomplished by investments in new labour-saving technologies, such as automation of processes to reduce the numbers of hired workers. Or it can be done through speed-up, forcing employees to work harder and faster, or by lengthening the working day. Another option, of course, is to reduce wages and benefits such as pensions or paid vacation time.

     The competitive nature of capitalism forces every corporation to use these methods, or else face bankruptcy. Workers are the targets of this process, compelled to constantly resist pressure from bosses to work harder and longer, or to accept wage cuts and other concessions. The threat of unemployment is ever-present ("we'll move the plant to South Iglesia if you don't take this pay cut").

     In a society based on working class political power and collective ownership of the means of production and natural resources, rising productivity is a means of increasing the average standard of living - higher wages, improved health care and education systems, greater levels of social equality, and so forth. This was the case in the Soviet Union and other socialist countries for decades before the restoration of capitalism, and it remains the basic feature of Cuba's socialist economy.

     But under capitalism, the drive for higher productivity pits capitalists against each other, and workers against other workers. The ILO's latest report gives a useful picture of the serious crisis facing workers on a global scale; however, its solutions fall far short of what is really required.