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Living-wage assessment – Table T5: 1996-2018 Real wage-gap rates for fourteen selected economies, in purchasing power parity (PPP) terms, for all employed in manufacturing. *(The base table used for all PPP real-wage gap analysis)

Our 2018 assessment reports divergent outcomes among selected economies that were predominantly the result of a meaningful increase of hourly wages in local currency (or lack of it), exchange rates and changes in their PPP cost of living.

Germany continues to have the best position with an increasing equalisation advantage over the US in real PPP terms in its hourly wage rates, followed by France with a four-point advantage over US wage rates. All other countries continue to record wage gaps vis-à-vis equivalent manufacturing wage rates in the US. Six out of the twelve countries improved their position in 2018 vis-à-vis 2017 by increasing their advantage (Germany and France) or decreasing their wage gaps (Italy, Singapore, South Korea and Australia). Brazil and Mexico remained with the same gap since 2016. Only Canada, the United Kingdom, Spain and Turkey increased their gaps from the previous year. Mexico and Brazil continue reporting the greatest wage gaps.

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Living-wage assessment (1996-2018) twenty-eight European economies.

2020 Report: Living-wage assessment – New assessment of Brazil's wage rate gap 1996-2018

Temer’s supply-side economic policies that continues with Bolsonaro’s government, have stopped any effort to improve the labour’s share of income and clearly reflect a policy of deliberate wage contention. Temer’s government passed a new law (PEC 55) that freezes all public spending for 20 years, which implies that constitutionally-protected government expenditures in the areas of health, education and other social sectors would remain stunted until 2036. This has ended Brazil’s commitment to sustain its minimum wage appreciation policy, after the minimum wage had more than doubled in real terms since 1996. As for manufacturing wages, they actually lost ground since 1996, which partially recovered from the recession at the start of the century, until the minimum wage appreciation policy had a positive influence from 2010 onwards that is now receding once again. Yet, with a renewed recession during the 2014-2016 period, that only began to subside in 2017 and will fall back into a deep recession due to the ongoing COVID-19 pandemic, and the staunchly neoliberal and predatory supply-side approach followed by Bolsonaro’s government, Brazil will not resume any gains in real terms from a domestic perspective nor will it resume the closing of its Eq-Idx, from a global perspective, for the foreseeable future. In fact, it is likely to actually increase its equalisation gap with comparative wages in the US in the coming years.

For the entire 24-year period (1996-2018), living wage equalisation of manufacturing hourly wages have not made any improvement whatsoever, and they are slightly lower than in 1996. The hourly rates recovered gradually after the turn of the century recession but by 2018 their equalisation with equivalent US wages are down to a 32 index relative to the 34 index of 1996. Our estimate for 2019, indicates that their Eq-Idx would drop to 31 as the result of a meagre increase estimate in local currency, the actual erosion of the BRL and an increase of the PPP cost of living in local currency. The compounding effect of Bolsonaro’s government predatory economic policy that is clearly anti-labour and the COVID-19 pandemic, make any change for the better rather unlikely for the foreseeable future. Hence, the prospect for living wage equalisation appears grim. 

Parting from the implications carried by the shift from demand-side to supply-side economic policy in Brazil’s current government, it appears to be unlikely that any meaningful progress will be achieved in increasing manufacturing wages and wage rates for the entire economy in real terms. In the best case scenario, wages will keep their current value. All of this is further complicated by the deep recession triggered by the pandemic.

 

 

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Most Recent Publications
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2019 Reports: Living-wage assessment – PPP Wage rate gaps for selected "developed and emerging" economies for all employed in manufacturing workers (1996 up to 2017).

This section offers charts of living wage rate gaps for the G7 economies and other selcted econmies including "emerging" economies with available data.

The wage rate gaps represent the difference between hourly manufacturing real purchasing power parity (PPP) wages in the U.S. and all other economies. Living wages are calculated by applying the PPPs reported for each countr by the World Bank and the OECD to their hourly nominal manufacturing wages. PPPs reflect the currency units required in a given currency to buy the same goods and services that can be purchased in the base country with one currency unit. The PPPs are in effect an estimate of the cost of living in each economy. Thus, a living wage is the hourly wage -above or below its nominal wage- necessary to provide a material standard of living equivalent to that in the benchmark, based on the PPPs reported for a specific year for each country. This analysis uses the U.S. and the U.S. dollar as the benchmark for a living wage. All nominal and PPP wages in all other countries are expressed in U.S. dollars as well.

In this way, equal PPP compensation expresses the hourly U.S. dollar nominal rate required in a given country, in terms of purchasing power, in order to equally compensate local workers as equivalent U.S. workers are compensated for equal work rendered. Thus, this PPP compensation represents the real manufacturing wage required in each country to be at a par with the real manufacturing wage's purchasing power in the U.S.

 

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2020!
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2020 Report: Living-wage assessment – New assessment of Mexico's wage rate gap 1996-2018

The staunchly predatory, corrupt and fraudulent governments of Mexico, imposed a policy of wage erosion and containment at an extremely precarious level in manufacturing and all economic sectors, as one of the pillars of their economic policy for nearly 36 years. With the current government, this appears to be changing. 

Mexico’s track record since 1996 exposed a deliberate state policy of maintaining modern-slave-work real wages between 1996 and 2015. However, their wage policy appears to have changed in 2017 after the execution of consistent supply-side policies over more than three decades. For the first time the federal minimum wage was increased above inflation in 2017 and 2018. Through a so-called “Independent Recovery Amount”, the minimum wage for 2017 was increased arbitrarily by 9,6%, including 3,9% to offset the estimated CPI inflation rate. The same criterion was applied for 2018, for a total minimum wage increase of 10,4%, including a 3,9% increase to offset CPI inflation. In 2019, Mexico’s new government, vowing to implement a strong minimum wage recovery policy, increased the minimum wage by 16,2%, including a 5% increase to offset inflation and by 20% in 2020, including 5% to account for inflation. This changes appear to have a direct positive impact on manufacturing wages in real terms and on its equalisation with comparative US wages. Between 2015 and 2018 the manufacturing hourly rate in local currency increased 43,6%, and by 18,3% in US dollars after accounting for an erosion of the peso, which allowed the PPP conversion factor for private consumption to drop. The combination of these components allowed the Eq-Idx to gain five points in 2016 and then remain at this level in 2017 and 2018. 

After two years, it remains to be seen if the government follows this path or resumes abiding by supply-side criteria. Mexico has the worst wages in Iberian America. We have observed 36 years of a deliberate policy of wage pauperisation that has forced a huge population to join the ranks of the precariat. While minimum wage policy appears to be moving on the right track, there are many instances of public matter with the government clearly siding with the interest of capital and not with the people. If, at the end, the labour’s share of income does not improve steadily and shows a marked increase by the end of 2024, we would have to conclude that the only goal of the government was to mitigate the worst characteristics of exploitation and not to change the structures that sustain them.

On the other hand, if the government complies with its campaign promises, it will take decades to both achieve a living-wage ethos and to close the gap with equivalent wages in the manufacturing sector, under the equal pay principle. At the very least, it will take five six-year terms to fulfil this expectation under the presumption that the current government sets the path and materialises the progress that can be achieved by 2024, as illustrated in our projections.

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2020 Report: Living-wage assessment – New assessment of Argentina's wage rate gap 1996-2018
Our analysis of Argentina’s living wages in the manufacturing sector from a global perspective (purchasing power parities) no longer assumes that Argentina’s government will continue to regard the appreciation of real wages as a fundamental element of its economic policy. As expected, the Macri government did everything possible to resume the old centre-periphery relationship that applies a neocolonial ethos to Argentina’s economic policies. Unfortunately, his economic policies have proven disastrous, and in his four years, inflation and devaluation have exploded, the country fell into default of its sovereign debt, real wages collapsed and poverty increased very meaningfully. One clear direct consequence is that the equalisation indices for at least the 2018 - 2020 period will drop dramatically, from 50 in 2017 to low to mid 30s, which is tantamount to the levels prevalent during the 1996 - 2000 period.

After the staunchly neoliberal Macri government left Argentina’s socio-economic conditions in dire shambles, the new Fernández government is doing its best to recover the gains for the common citizen of the preceding Kirchner-Fernández governments, which will be a rather daunting task, given the recurring crises since the start of this century. For now, living wage equalisation in the manufacturing sector vis-à-vis equivalent US wages has collapsed and is destined to drop to levels reminiscent of the 2002 crisis before it begins to recover.

The new government of Alberto Fernandez immediately implemented a countercyclical package to return to demand-side policies aimed at reducing as much as possible Macri’s neoliberal ethos and his economic policy errors. Some of these are tax hikes on foreign currency purchases, agricultural exports, wealth, and car sales as well as labour protections to increase compensation for unjustified work dismissals. Also, as it happened at the start of the century, Argentina was forced to default on its foreign debt, and has just reached an agreement with vulture funds and other foreign creditors that, for the most part, fulfils their demands and not those of Argentinians. Moreover, Argentina is once again under negotiations with the IMF to reduce its never ending sovereign foreign debt. Furthermore, the economic crisis has been convoluted by the COVID-19 pandemic, which will clearly exacerbate Argentina’s deep recession. So far, inflation appears to be substantially lower in 2020 than in 2019, at 13,5% for the first six months, but expected to hover at 30% by the end of the year, despite the effect of the pandemic on an already depressed demand. As with the rest of the world, GDP will fall drastically, at least 11% and then gradually recover, more as a technical rebound rather than as true growth in 2021. All of these factors will make it difficult for Argentina to recover real wages in manufacturing and gradually bring them to their previous equalisation position relative to the 2002 crisis.

Parting from this rather negative context, the socio-economic picture for Argentina looks a lot like a loss of two decades. This would entail a colossal hardship particularly for the lower ranks of society. One of the greatest benefits of the appreciation of real wages of any country –in the context of a living wage ethos in a market society– is the direct impact on the eradication of the conditions of inequality and exclusion; conditions that have prevailed in Argentina for many decades and were only reduced substantially between 2004 and 2015. It remains to be seen if the new government is capable of performing a successful balancing act between the different variables in an extremely complex scenario.
 

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2020!

2020 Report: Living-wage assessment – PPP Wage rate gaps for selected "developed and emerging" economies for all employed in manufacturing workers (1996 up to 2018).

Our 2018 assessment reports divergent outcomes among selected economies that were predominantly the result of a meaningful increase of hourly wages in local currency (or lack of it), exchange rates and changes in their PPP cost of living. Six economies improved their position, four lost ground and four did not change. France, Germany, Italy, South Korea, Singapore and Australia improved their equalisation index (Eq-Idx). Canada, United Kingdom, Spain and Turkey lost ground compared to their 2017 position, whilst Brazil, Mexico, Japan and South Africa experienced no change.

Among the six economies that improved their living-wage equalisation position, the main factors were the substantial increase of their hourly rates in local currency combined with a revaluation of their currency or a decrease in their cost of living in PPP terms for private consumption. In the case of the three euro-area countries (France, Germany and Italy), it was specifically the combination of the increase of their hourly wage rates with a revaluation of the euro. This allowed France, Italy and Germany to increase their equalisation Eq-Idx. This combination served to offset their increase of their PPP cost of living, and increased their advantage over the increase of the US hourly rates in real terms. A similar behaviour took place in the case of Singapore and South Korea. In this way, they clearly outperformed the increase of the US hourly rate in manufacturing and thus increased their equalisation Eq-Idx In fact, Singapore’s Eq-Idx is its best recorded since 1996. Australia, in contrast, devalued its currency, but it achieved the highest improvement of its equalisation Eq-Idx among all 41 economies in our reports, which is equal to its best position previously achieved in 2014. This was the result of a strong increase of its hourly rate in local currency and a currency devaluation, which contributed to a drop of its PPP cost of living.

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