The global environment has experienced increased income inequalities, and the United States, in particular, has seen a pronounced escalation of the condition. The global climate has experienced a decline in the wages paid to the workers and an increase in inequalities in the recent past. The growth in inequality has received the significant attention of late and has been a source of debate by researchers from different disciplines. Efficiency and equity are essential elements underlying the need for work and employment relations. There have been increased calls from all corners for fairness and equity in employment. Workers in the U.S., for example, find the current distribution of income unacceptable despite underestimating the actual degree of differential that exists. Globally, there are intellectual, political and moral reasons for the increased concern on income distribution. Similarly, there are economic policies that are concerned with the distribution of income. Evidence shows that higher levels of inequalities lead to slower economic growth. According to a recent survey by the IMF, a one percent increase in the share of income for the top 20% leads to a decline in economic activities by 0.08% in five years. Similarly, a 1% increase in the salary of the lower 20% leads to a 0.38 jump in the economic growth. The relationship between labor market, wages, and income inequalities has received lots of attention from scholars, economists, institutions, governments and media houses. Every month or so informative articles are written by reputable media companies addressing the issue while offering a pool of knowledge that can be used by policymakers to make informed decisions on the future of the subject (Cynamon and Fazzari, 2014: Dabla-Norris, et al., 2015; Stiglitz, 2015).
According to an article by Bloomberg titled why wages aren’t growing written by Michael Schuman on 09/21/2017, the wage increase is a global phenomenon in which the investors, managers and the demise of unions are to blame. According to the authors, the wage rate has defied the law of demand and supply by declining with scarcity. Japan labor market, for instance, is at its tightest level since 1970. The rate of unemployment stands at 2.8% which is the lowest in 23 years. Available jobs versus applicants have reached a level; not seen in four decades. The growth in workers compensation in Japan is close to zero with the rate growing by 0.5% per annum in the year ended July. Total earnings including bonuses have also declined by 0.3%. Despite signs of future growth in wages, workers are unlikely to reap from the gains as shown by the market (Dabla-Norris et al., 2015; Schuman, 2017, September 21).
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Schuman asserts that Japan is an extreme example but not an isolated case. Wage increase throughout the world is subdued despite the recovery of the global economy. In the US for example, unemployment has reached its lowest in ten years to 4.4%, the workers have not experienced any positive impact, and in essence, they are not better off. In August, the average hourly rate grew by a mere 3%. The eurozone also recorded slight growth of 2% for the second quarter compared to a similar period the previous year (Schuman, 2017, September 21).
The overall labor costs are not proliferating compared to the period before 2008 despite the surprising revival in Europe. One of the highlights of the article is that without higher pays, the average household has little to spend and therefore growth will be impaired. The slow increase in disposable income reduces the ability to consume leading to a decline in the economic growth of a country (Dabla-Norris et al., 2015; Schuman, 2017, September 21).
The current status of the global wage increase is a serious issue. Economists have tried to explain the phenomenon and its glacial pace of recovery from the depression of 2008 including excessive government regulation and insufficient spending. Some of them have argues that the global economy has slipped to a long-term cycle of slow growth. The plight of the employee is an overlooked factor. Workers have not benefited from the improved economic performance or profits generated by companies (Dabla-Norris, et al., 2015; Schuman, 2017, September 21).
The article recognizes that individuals are better off today than immediately after the great recession. The household income in the US experienced a 3.2% growth in 2016 having taken into account the adjustments for inflation. The reported increase cannot be attributed to wages according to a US census report in September. According to the report, the median earnings of a full-time employee did not materially change in 2016 from the previous year. The increase can be attributed to Americans working more thanks to a buoyant job market. According to Federal Reserve data, wage growth improved but is still below the levels achieved in other times of low unemployment (Dabla-Norris, et al., 2015; Schuman, 2017, September 21).
Employees have been suffering for a long time for example when inflation is considered; the median weekly earnings in the second quarter were merely 5.7% higher than ten years ago when inflation is factored. The IMF in an April study concluded that the percentage of national income received by the workers regarding pay has been declining since the 1980s in advanced economies. This scenario applies to emerging economies like China where there has been a decline in the ratio despite the reduction in the level of poverty. The implication is that wages have not mirrored gains in productivity something that should have been the case. Currently, more income is earned through the use of capital investment and investors are winning against the worker (Dabla-Norris, et al., 2015; Schuman, 2017, September 21).
The great recession negatively affected the welfare of the workers. However, the cause of wage stagnation is much more profound than thought, and one of the contributors in is the globalization of the workforce. In this case, workers in one country are hit by direct competition from workers in other nations especially those with a wide gap in the level of wages. Labourers are also finding it hard to compete with machines that replace them. The IMF report estimates that a sizeable decline in the share of income by the worker in developed economies can be attributed to technological advancement (Schuman, 2017, September 21).
Unions have also been accused in some countries for their inability to call for increased wages for their members. There was a significant drop in the number of workers who are in unions in the US from 16.8% in 1983 to 6.4% in 2016. Each country also has its wage destroying dynamics that affect its ability o pay its workers a higher salary. In Japan, for example, a dual track system can be blamed for the stagnant wages. In this approach, corporations hire more workers in poorly paid part-time jobs curtailing the ability of the fierce unions (Schuman, 2017, September 21).
The mentioned factors have affected the influence of the employees in their companies. Managers, on the other hand, are likely to reward themselves and other high ranking employees including their bosses and shareholders. According to a report by the economic policy institute published in July, the chief executive officers of the most significant companies in America received an average of $15.6 million in compensation last year which is equivalent to 271 times the yearly pay of an ordinary worker. Despite the narrowing down of the income disparity between the high and the low earner, the difference is still more significant than the 29 times reported in 1965. Numerous studies have indicated that gains from wages are skewed towards high earners. The implication is that workers at the bottom of the pyramid are worse off than what the statistics show (Schuman, 2017, September 21).
Efforts to try and give the workers a fair deal are challenging to achieve because the forces that are affecting the wage bill are unlikely to change. It is impossible for instance to go back to the period when labor markets were localized neither is it possible to stop the innovations that will enhance information technology and robotics. However, viable options include filling well-paid jobs that are unoccupied due to the lack of skilled labor. Companies can also partner with colleges to start apprenticeship programs and train poorly skilled workers in addition to efforts like on the job training and hire long-term employees. It is also advisable to strengthen the worker's unions which can be instrumental in advocating for higher pays (Schuman, 2017, September 21).
According to a 2013 report by the U.S. Bureau of labor statistics, unionized workers receive more substantial wage increases earned more and accessed better corporate benefits compared to their nonunionized counterparts. Similarly, research by the economic policy institute in 2016 asserted that all workers are poised to gain from unions irrespective of whether they are members or not because increased unionization enhances wages by establishing the pay standards that employers are to adhere. Governments must support the formation of unions and impose penalties on companies that victimize organizers and ban the right to work laws in states that encourage the weakening of such unions (Dabla-Norris et al., 2015; Schuman, 2017, September 21).
Performance-based pay can also be used to increase the wages of employees. In this case, hard work is rewarded. However, this is not the case in most corporations where the CEO is compensated for their contribution, but the employees are always not. A report by PayScale Inc indicated that three quarters of CEOs, directors, and managers in the companies under study received bonuses yet less than half of the hourly workers received any such bonuses. If corporations can link compensation to contribution, they are likely to boost productivity and loyalty (Schuman, 2017, September 21).
Executives should cooperate with schemes aimed at improving the wages of the employees, and if they are unwilling to cooperate, the policymaker might be called upon to force them to comply. Management can be encouraged to employ tax policies to share profits with their employees. Opponents of a free market might argue against such a move but with time, tightening the labor market will boost the wages. The long-term trend is discouraging and calls for urgent actions to correct the situation. A new balance between worker protection and flexibility of the labor market can be stricken. Executives should also establish practices that compensate the employees according to their performance and retain the right employees (Schuman, 2017, September 21).
Increased concern on the labor market, wages, and income inequality has generated a growing body of research on the causes of such disparities and how to alter the current situation. The role of technology and globalization on income inequality has also been thoroughly discussed. Similarly, the influence of education and trade unions cannot be overemphasized. No single component can address income inequality, and a combination of different approaches can help alleviate the situation. The current situation is as a result of a trend that started more than three decades ago and therefore trying to correct the situation in a short period might turn out to be impossible. A broad-based systematic approach that is informed by in-depth studies can alter the long-run trends and institute recovery efforts. Achieving such a move might prove to be more stringent than anticipated.
References
Cynamon, B. Z., & Fazzari, S. M. (2014). Inequality, the Great Recession, and Slow Recovery. SSRN Electronic Journal . doi:10.2139/ssrn.2638030
Dabla-Norris E., Kochhar K., Suphaphiphat F.R. & Tsounta, E., (2015) Causes and consequences of income inequality: A global perspective. Report, International Monetary Fund Staff Discussion
Schuman, M. (2017, September 21). Why Wages Aren't Growing. Retrieved November 17, 2017, from https://www.bloomberg.com/news/articles/2017-09-21/why-wages-aren-t-growing
Stiglitz, J. E. (2015). The Origins of Inequality, and Policies to Contain It. National Tax Journal, 68 (2), 425-448. doi:10.17310/ntj.2015.2.09
