Wage Inequality and Rising Fragmentation
Sanjay Roy
THE global labour market shows some recovery in real wages after protracted stagnation punctuated by episodes of decline in the aftermath of the pandemic according to a recent ILO report. Even though wages of workers show growth in the last two years, there are important concerns regarding various dimensions of wage inequality that do not show a decline. In fact, globalisation of capital entails a free flow of capital across the world to take advantage of labour arbitrage.
Mobility of labour has always been restricted coupled with free movement of capital that accentuated further the possibilities of unequal exchange and value capture across the world. Most importantly the same process has increased stratification within the labour force by externalisation of production and creating layers of unprotected labour. The process of capital accumulation entails higher centralisation of capital which is of the highest degree today in comparison to any time in the history of capitalism.
Market and competition is a myth which is only relevant according to the needs of global corporations. Essentially production is thoroughly organised across the globe and a command structure works through the production networks. Competition between suppliers is encouraged to reduce the price of components, parts and tasks and this competition boils down to the degree of subversion of labour rights and returns. At the lower end of the labour market the concentration of women workers and non-wage workers are high and if non-wage workers are included, the inequality of income within the working people increases further. The process of accumulation consolidates capital’s power through concentration and centralisation, and the same process facilitates fragmentation of workers. Inequality of wages has not increased because workers stood against each other but simply because capital could differentiate them through coercion and control by using regulatory and non-regulatory means and take benefits of this partitioned labour market.
WAGE INEQUALITY AND INFORMALITY
The recent ILO Global Wage Report highlights some important facts on the global wage trends. Because of episodes of high inflation, real wage growth in many parts of the world went to negative territory which recovered since 2023 due to reduction in inflation. Out of the 160 countries considered in the report, 60 per cent revised their minimum wages although such revisions did not fully compensate the fall in real wages due to inflation. The general decline in the share of wages in value added or GDP in most of the countries of the world can be explained by the fact that even in high income countries in the past two and half decades, the productivity of the workers increased on an average by 29 per cent while the real wages of workers in these countries only increased by 15 per cent. This is in stark contrast to the post war social democratic regimes when for decades, the share of wages and profits remained stable, and this was possible because of the institutional arrangement of fairly sharing productivity gains between the workers and employers.
Even though there is a general increase in real wages, the level of wage inequality is higher for low- and medium-income countries while it is less for high income countries. The reason is simple and that is the incidence of informality. In the low-and-middle income countries, informality among low wage workers is 90 per cent and for the overall population the proportion ranges from 49 to 75 per cent. This fact shows that it is the lowest rung of the wage distribution where informality is highly concentrated. Many commentators often equate low wage with low productivity.
In the neoliberal regime, it becomes even more clearer that wage determination essentially is a political process. Politically voiceless huge mass of informal workers without any institutional protection are always subject to severe exploitation. This may not be linked to their productivity rather a void of political representation empowers employers in reducing wages. In case of high-income countries such modes of employment do not have social institutional sanction and therefore within their geography, wage inequality is less, but capital of the North takes advantage of this informal workers of the South in extracting and transferring surplus.
The report also talks about the differences that exist in wage levels across countries. The median wages in low medium and high-income countries are respectively US$201, US$630 and US$3333 respectively in PPP terms. This implies that a worker in low-income country attains on an average a purchasing power that is one-third of the middle-income country worker and less than one-sixteenth of the purchasing power of workers in high income countries. Therefore, high inequality between workers of different countries in wages show that globalisation primarily ensured free movement of capital to attain uniform profit rate. The rich people of the world are coming closer to each other in terms of return from their investment, but by restricting the movement of workers the wage differentials are reproduced or even widened so that the legal and institutional limits of exploiting workers in one part of the world for capital can be compensated by the dispossessed of the South.
RISING INEQUALITY IN GLOBAL SOUTH
The report suggests that comparing 2021 with 2006 there is a general increase in real wage and decline in wage inequality by global wage distribution. But this has not much significance since the wide difference between countries in terms of wages and incomes persists. The median global real wage has increased from US$525 PPP per month in 2006 to US$825 PPP per month in 2021. The concept of global median wage can be important as a statistical artefact for global comparisons but do not influence the determination of real wages across the world. The process of wage determination is country specific and since movement of people across borders being restricted institutionally and politically, wages continue to differ and remain unequal. The decline in global wage inequality however is a composite effect of decrease in upper-tail inequality that is within higher waged workers in the global wage distribution and the decline in two decades is 35 per cent while within the lower-tail that is within the low waged workers of the distribution, the wage inequality has increased by 11 per cent. This simply indicates that fragmentation and segmentation in the labour market has increased further in the low wage segments of the global South.
This difference is going to increase in the future with the use of new technology. The use of new technology will drastically reduce human engagement in routine work, but it will demand workers empowered with specific skills and knowledge. These skills and knowledge cannot be acquired naturally which was possible in the twentieth century in case of labour-intensive manufacturing or routine office related service jobs.
In today’s world symbolic analyses requires proper training and specific skill development. If the access to skills and knowledge depends upon purchasing power in the market, then many in the workforce would be deprived of being able to participate in new age production process. There would also be demand for certain activities which could not be easily replaced by robots, and these are related to jobs that require direct human interaction. These are supervisory jobs, care work, domestic work and so on. These are usually low paid with high concentration of women in this segment. Therefore, if the access to education and knowledge is allocated through market and kept under private control there would be very high wage inequality in the future. The upper segment of the workforce would be earning more if they can attain requisite skills while the other segment of the workforce would be pushed to low wage work with high degree of feminisation. This would also be reflected in high gender gap in the wage distribution.
Higher control of capital has historically manifested through rising inequality and fragmentation of workers despite episodes of rising wages. Inequality and fragmentation of workers is the dialectical obverse of higher centralisation of capital, and this is essentially a political process of enhancing capital’s control over labour and the production process. Only a political process of building collective class identity within the diverse working people can resist rising inequality and dominance of capital.
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