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Growing income inequality weighs down economic recovery

The ILO, OECD and World Bank's joint report to G20 Labour Ministers stresses that “income inequality cannot be ignored by the G20 if stronger, sustainable and balanced growth is the objective.” 

Melbourne, Australia (11 September 2014) — A significant and persistent shortfall in the number and quality of the jobs being created in G20 countries is affecting prospects for reigniting economic growth, according to a report entitled G20 Labour Markets: Outlook, Key Challenges and Policy Responses. The report was prepared by the International Labour Organisation (ILO), the Organization for Economic Co-operation and Development (OECD) and the World Bank Group for the G20 Labour and Employment Ministers meeting taking place in Melbourne, Australia, this week.

Report finds that wage growth is lagging and income inequality remains high 

One of the report's key findings is that wage growth has significantly lagged behind productivity growth in most G20 countries, while the wage gap and income inequality either remains high or has widened.

The report stresses that “income inequality cannot be ignored by the G20 if stronger, sustainable and balanced growth is the objective.” It points out that policy interventions that address growing income inequality are essential to reverse the current self-reinforcing cycle of slow growth, low job creation and low investment.

“Extensive evidence shows that high levels of income inequality tend to reinforce themselves, reducing social mobility and thus affecting long-term growth potential. In addition to the negative consumption and fiscal effects of stagnating incomes and inequality, International Monetary Fund research finds that lower net inequality is robustly correlated with faster and more durable growth and that the total effects of redistribution policies to address inequality are on average pro-growth.”

“Reducing inequality requires both improving the distribution of income and creating more and better jobs. Disparities in income will not be reduced if the benefits of economic growth continue to accrue mainly to holders of capital and those at the top end of the income distribution.”

Further action needed on protecting rights of workers and citizens to overcome growing income inequality

The report also highlights social protection, social dialogue, rights at work, and workplace safety as areas in need of further action.

Quality job creation and robust, equitable growth are intertwined goals, the study concludes. “Policy interventions that address both the demand and supply sides of the labour market are essential to reverse the current self-reinforcing cycle of slow growth, low job creation and low investment. Such policies would be much more effective if taken collectively and coordinated at the G20 level.”

More information:

G20 labour markets: outlook, key challenges and policy responses: A joint report by the ILO, OECD and the World Bank