Inequality is a top issue in the public agenda, partly as a result of the financial crisis that helped draw attention to this topic. As banks relied on the support of taxpayers and millions of workers had lost their jobs, people began to see the compensation of bank CEOs – with an average 2010 pay package of $9.7 million in Europe and the US[2] – as obscene.

Those at the top of society have long captured the gains from economic growth. From 1970 to 2008, the annual incomes of the top 1% of US taxpayers rose threefold in real terms from $380,000 to $1,140,000. By contrast, the incomes of the bottom 90% remained where they were in 1970 – at $31,500 per year (in real 2008 dollars).[3]

Wages and labour markets

The top of the distribution is only part of a broader trend towards greater inequality. In the advanced countries, average wages grew by merely 5.2% in real terms over the 2000s and fell short of productivity gains. The subsequent redistribution from labour to capital income can be witnessed in dramatic declines in the labour share in countries such as Germany, where it fell by 3.9 percentage points per decade since 1991.[4] Since capital incomes are more concentrated than labour incomes, these shifts in the functional distribution of incomes have negative repercussions for income inequality between individuals.

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Written by Malte Luebker, a Working Conditions Specialist with the ILO’s Conditions of Work and Employment Branch (TRAVAIL) in Geneva. His main research interests are wages and income distribution. Prior to joining the ILO, he was a lecturer in Political Science at the Martin-Luther-University Halle-Wittenberg (Germany).

Published by Global Labour Column and edited by CSID at Wits University.