Inequality is the defining challenge of our time. The roots of inequality are complex and, to some extent, depend on global forces, but they also reflect our policy choices. In one of the chapters of his recent book, “The Great Divide”, Nobel Prize-winning economist Joseph Stiglitz sums it up: “Inequality is a Choice.”
Recent research by the ILO, IMF and others also demonstrates that in addition to the social injustice and division that comes from inequality, the latter also harms economic growth. For example, the OECD recently estimated that rising inequality in Europe had shaved almost 5 per cent of the region’s economic growth in recent years.
Earlier this month, G20 labour ministers meeting in Ankara, Turkey, made the right choice when they showed a strong commitment to boost growth, jobs and reduce inequalities. Tackling inequalities and creating better jobs helps to build more inclusive societies and stronger economic growth.
The extent of the increase in inequality in some countries is staggering. For example, in the United States, between 1979 and 2007, almost half of the total national income gains were captured by the top 1 per cent. In Europe, the top 10 per cent in the distribution of incomes (wages and capital) obtains 35 per cent of national income.
One of the major causes for growing inequalities is the declining share of total GDP that goes to working people through their pay checks and benefits. In addition to unemployment and underemployment, a significant slowdown in wage growth in most advanced and emerging G20 countries is responsible for the decline in the labour share of national income.
Inequality is not inevitable
Inequality is a tough problem and it arises from multiple causes. But we have policy tools that can address each one of them.
In their final declaration in Ankara, the ministers agreed to address rising inequalities and where necessary declining labour income shares by undertaking a mix of policies appropriate to their national circumstances. They endorsed a list of policy priorities to be considered, including active use of appropriate wage-setting mechanisms (for example minimum wages and strengthened collective bargaining), social protection systems, effective tax policies to address inequality and effective use of employment services and active labour market policies to bring vulnerable or excluded populations into better jobs.
The ministers will recommend to G20 Leaders to prioritize job-rich growth by addressing the range of factors underlying weak aggregate demand in many G20 economies, which includes sluggish employment and stagnant wages in most of them. They will forward their declaration and its attached detailed recommendation to the Leaders for consideration at the G20 Summit to be held in Antalya, Turkey in November.
Giving voice to the actors in the real economy
The Turkish Presidency invited international organizations of employers and trade unions (the Business 20 and Labour 20), along with several civil society outreach groups, to a social dialogue session with G20 ministers. Addressing a joint meeting of the Labour and Employment Ministers with G20 Finance Ministers, both groups pointed to rising inequality as a problem demanding attention.
The Turkish Presidency hosted the joint meeting in recognition that labour ministries cannot tackle inequalities, promote inclusiveness and strengthen the links between employment and growth alone. Their work must be complemented with corresponding efforts in finance, economic and other ministries.
The ILO has stepped up its role in the G20 in recent years and will continue to play an active role in providing the empirical evidence, policy options and practical steps that can curb inequality, foster more inclusive societies and create better jobs for people in the G20 and around the globe.