Global labour body slams growing inequality

Nina Larson/AFP
Nina Larson/AFP - [email protected]
Global labour body slams growing inequality
ILO headquarters in Geneva. Photo: Wikimedia Commons

Inequality is on the rise in most advanced economies, the Geneva-based International Labour Organization lamented on Monday, decrying surging executive compensation and large companies hording profits rather than investing.


The world economy is slowly recovering from the global financial crisis that set in in 2008, with most developing and emerging economies showing rises in employment and a narrowing of income inequalities, the ILO said in its annual World of Work Report.

But although large companies in developed countries have seen their profits bounce back, the story there is quite different: investments are slumping and inequalities are growing.

Between 2010 and 2011, income inequalities increased in 14 of the 26 advanced economies studied, including in France, Denmark, Spain and the United States, the report showed.

"There is a disconnect between profits and investment," Raymond Torres, the head of ILO's International Institute of Labour Studies, told reporters in Geneva.

In a world where some 200 million people are out of work — a number set to rise to 208 million by 2015 — large firms in advanced economies now enjoy profit margins similar to those attained between 2004 and 2007, according to the 117-page report "Repairing the economic and social fabric".

"But rather than putting these profits to work through productive investment in the real economy, increased revenues have more often been channelled towards higher cash holdings," it said.

As a result, the economic crisis continues to linger, and "the situation in some European countries in particular is beginning to strain their economic and social fabric," ILO chief Guy-Ryder said in a statement, lamenting widening inequality.

"We need a global recovery focussed on jobs and productive investment, combined with better social protection for the poorest and most vulnerable groups," he insisted.

That could be difficult: In the world's richest countries, investments fell from 21.6 percent of gross domestic product in 2007 to just 18.5 percent of GDP last year, the report showed.

At the same time, cash-holdings by companies in these countries grew from 11.8 percent of total assets in 2008 to 12.4 percent in 2011, it pointed out.

And at a global level, publicly listed companies increased their cash holdings from $2.3 trillion in 2000 to $5.2 trillion in 2008 to $6.5 trillion in 2011.

In parallel, "executive compensation has returned to, and in some cases exceeded pre-recession levels," the ILO said.

In Germany and Hong Kong, average chief executive pay among the largest firms for instance swelled 25 percent from 2007 to 2011, pushing the salaries of Germany's top bosses for instance from 150 to 190 times that of the average worker.

In the United States, meanwhile, the top chief executives earned 508 times the wages of the average American worker in 2011, the report showed.

But while the biggest companies and the biggest bosses are getting richer, smaller firms have seen their profit margins plunge around 40 percent from pre-crisis levels as they continue to struggle to gain access to credit.

"There has been a growing polarisation between small and larger firms in terms of profitability," Torres pointed out.

"This is of particular concern as small-and-medium enterprises would normally account for significant job creation," he said, lamenting that the middle class is shrinking amid stubbornly high unemployment.

In the United States, for instance, the richest seven percent of the population saw their average net worth swell from 56 percent in 2009 to 63 percent in 2011.

"The remaining 93 percent of Americans saw their net worth decline," ILO said.


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