Tuesday, June 19, 2007

Wage inequality rises in 18 of 20 OECD countries - Ireland and Spain are only exceptions


The figure shows that in all countries except Ireland and Spain, the earnings of the 10% best-paid workers increased more than the earnings of the 10% least-paid workers, over the 1995-2005 period (i.e. earnings inequality widened)

Rather than seeing globalisation as a threat, OECD governments should focus on improving labour regulations and social protection systems to help people adapt to changing job markets.

That is the message from the 2007 edition of the OECD’s annual Employment Outlook. It reviews the possibility that offshoring may have reduced the bargaining power of workers, especially low-skilled ones. Whether real or threatened, the prospect of offshoring may be increasing the vulnerability of jobs and wages in developed countries.

Wage inequality is also rising. In 18 of the 20 OECD countries where data exist, the gap between top earners and those at the bottom has risen since the early 1990s. Ireland and Spain are the only exceptions to this trend (see graph attached).

The OECD report makes a number of recommendations on policies governments should put in place to create more and better jobs.

In countries where social security contributions are high, such as Belgium, France and Sweden, the OECD suggests moving to broader sources of financing public social protection. Social contributions are largely based on wages and act as a tax on labour, limiting job creation. Given the falling share of wages in national income, it is key to reduce the role of social contributions and increase that of broader tax bases, such as income taxes and/or VAT, to fund social protection.

Globalisation requires mobility to ensure that workers are not trapped in jobs with no future. The report praises the so-called "flexicurity" approach adopted in Austria and Denmark to address this. In Austria, for example, workers have individual savings accounts, instead of traditional severance pay schemes, that move with them as they move jobs. If they lose their job, they can choose to withdraw funds from the account or save the entitlements built up towards a future pension.

Job losers should be compensated through social protection systems which are employment-friendly, the report notes. This can be done by providing adequate benefits hand-in-hand with "activation" policies which increase re-employment opportunities. Experience of Nordic countries and Australia shows that such policies, if well-designed, improve the job prospects of laid-off workers, thereby easing their fears about globalisation.

Monthly Minimum Wage Earnings in EU 27 - 2007: Varies from €92 to €1,570; Ireland ahead of France but 17% of French workforce at lowest level compared with 3% in Ireland


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