World economic and social inequalities remain high: ILO report

According to ILO report, India experienced a significant decline in the share of poor individuals (less than USD 2 per day) between 1999 and 2010 (from 79% to 69%), while the floating group i.e. those just above the poverty level, increased by an almost equivalent amount (10 percentage points). The gain in the middle-income group over the period was only 1 percentage point. Importantly, inequalities also increased between 1999 and 2010 by 4 percentage points (an increase in the Gini coefficient from 29 to 34).

A report entitled, “Repairing the economic and social fabric”, undertaken by International Labour Organisation (ILO), notes that between 2007 and 2011, the labour market situation deteriorated and job quality worsened in India. The minimum wage system existing in the country is quite complex as minimum wages are set for certain “schedules of employment” in each state and, as a result, not all workers are covered by minimum wages. 48 different minimum wages rates are set for different job categories in agriculture, mining, oil extraction or any corporation under the ownership of the Central Government, while the various State governments determine wage rates for 1,123 job categories among sectors “scheduled” (or listed) in the Act. Legal minimum wages are set in each state by occupation or industry group, by type of establishment – public or private sector – and by size of the enterprise. This has resulted in significant variations in the minimum wage rates across states but only partial coverage, as only around two-thirds of wage earners, excluding public-sector workers, are covered by minimum wage legislation in India.

Despite the complex minimum wage systems in India and high levels of minimum wage rates, the country has successfully improved compliance rates, largely by strengthening enforcement mechanisms. According to the report, for minimum wage legislation to be effective in developing countries, the government should be committed to act as an “employer of the last resort”. This would help to ensure jobs for all unskilled workers at the stipulated minimum wage rate. In this spirit, in India the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) provides all households in rural areas with 100 days of employment per year, paid at minimum wages. The Act also relies on a legislated Right to Information and Social Audits, which provides an opportunity for civil society to ensure that the implementation of the program is effective. This has not only provided a number of days of work at minimum wages to poor households but also improved the compliance rate with minimum wages in rural parts of India where the program operates. A high proportion of female workers have benefited from the program as well and the strategy has effectively redistributed resources to low-paid workers. Thus, through the expansion of the rural employment programme (MGNREGA), India has managed to increase consumption while also stimulating productive investment in land and non-agricultural activities, thus boosting productive employment.

The report also adds that in the last decade the composition of global investment has shifted dramatically. In 2000, advanced economies accounted for more than 60% of total investment, with the United States and the European Union accounting for close to half of all investment worldwide. Emerging economies accounted for less than one-third of total investment and developing economies a mere 11%. However, in 2012, following 12 years of rapid growth, emerging economies’ share of global investment grew to close to half, with China alone contributing 28% of all investment – compared with 11% in 2000 – and other emerging economies, such as Brazil and Russian Federation, accounting for an additional 5%. The share of global investment attributed to developing economies also grew between 2000 and 2012, from 11.3% to 16.7%; with India showing a sizeable increase from 4% in 2000 to 8.1% in 2012.

Global Outlook

Even after 5 years since the global financial crisis, the global employment situation remains uneven, with emerging and developing economies recovering much faster than the majority of advanced economies. ILO reports that at the global level, the number of unemployed people will continue to increase unless policies change course. Global unemployment is expected to approach 208 million in 2015, compared with slightly over 200 million at present.

As the key labour market weaknesses worsened in the post crisis period, the incidence of long-term unemployment increased by 60% for the advanced and developing economies. In addition, labour force participation rates have decreased between 2007 and 2012, fuelling social tensions in advanced economies and developing countries, notably in southern Europe, South Asia and the Arab region.

In 2012, global unemployment increased by more than 3 million people to 195.4 million unemployed. ILO projects that global unemployment rate will rise from 5.9% in 2012 to 6% in 2013 and by 2014, around 205 million people will be unemployed. The number of jobseekers will continue to swell and will reach 214 million by 2018.

Employment and social outlook differs considerably across countries. Over the past three years, emerging and developing countries have posted positive employment gains, with employment growing at an average annual rate of 0.9% between 2008 and 2012. However, the situation among the advanced economies is more complex with these economies facing the dual challenge of closing the existing jobs deficit while also providing employment for the over 20 million additional young people expected to enter the labour market over the next 5 years.

Warm regards,

Dr. S P Sharma

Chief Economist