Fair distribution - Strengthening institutions for fairness.

 

key points

• Inequality between countries has been falling since the turn of the century due to rising worker productivity in middle-income countries. 
•  The global increase in minimum wages has coincided with a decrease in labour income inequality.
•   Nevertheless, persistent income inequality within countries poses threats to economic performance, social cohesion and health outcomes. 
•  Poverty, working poverty and hunger (as measured by child stunting) have all fallen since 1995, although the improvement has stalled somewhat during the last 20 years. 
•  Collective bargaining is shown to be an important contributor to fairer wage distributions, but its coverage is falling. 
• Social transfers are effective in reducing income inequalities.

Under the ILO Declaration of Philadelphia (1944), both the ILO and its Member States should promote “policies in regard to wages and earnings, hours and other conditions of work calculated to ensure a just share of the fruits of progress to all, and a minimum living wage to all employed and in need of such protection”.1 Unfortunately, despite increases in real wages from 1999 until the COVID-19 pandemic (ILO 2024a), existing levels of wage inequality remain high in many countries; and across the world, millions of workers and their families continue to earn wages that are too low to provide for a decent standard of living. Overall inequality in household incomes is further exacerbated by the low labour incomes of non-wage workers, which represent almost half of all workers globally, and the limited redistribution of income through social transfers and taxes, especially in low-income countries with high levels of informality. High income inequality can have many negative effects. It slows economic growth and increases its volatility (Aghion, Caroli and García-Peñalosa 1999; Ostry, Berg and Tsangarides 2014; Vo et al. 2019). Moreover, societies with high income inequality suffer from numerous ills, such as social conflicts (Bircan, Brück and Vothknecht 2016; Rodgers 2002), crime (Fajnzylber, Lederman and Loayza 2002), poverty, poor health (Rodgers 2002; Wilkinson 2020) and low social cohesion (Wilkinson 1997, 1999). Therefore, progress towards a fairer distribution of income means progress towards social justice. A fairer distribution of income can be achieved through different policy and regulatory measures and mechanisms. Central to this effort is social dialogue, based on freedom of association and the effective recognition of the right to collective bargaining, as well as the establishment of adequate minimum wages to protect wage earners against unduly low pay. Other factors, many mentioned before, can help to improve income distribution, including efforts to formalize the informal economy, enhance productivity growth in low-paying enterprises and improve the quality of education and skills programmes. In addition, redistributive policies that support a more equitable distribution of incomes, in particular social protection and fiscal policies, can play a role in greater fairness (ILO 2022a). International labour standards are key in all these areas, including to improve working conditions in vital areas of the labour market and to progress towards universal social protection.

Concern about inequality and distributional fairness has intensified since the 2008 financial crisis. World leaders, international organizations, and business and civil society organizations alike have since made numerous commitments to promote greater social inclusion, including Sustainable Development Goal (SDG) 10 and the ILO’s cross-cutting strategy on inequality in 2021 (ILO 2021). Businesses of all sizes have also shown increasing interest in acting and reporting on inequality and the social aspect of sustainability

Establishing clear and concrete objectives for reducing inequality is somewhat different than for some other social justice metrics. For child stunting, the objective is zero; for extreme poverty, it is zero; for school completion, it is 100 per cent. However, almost all individuals recognize that there will always be differences in wages, earnings, incomes and wealth as a reward for initiative, innovation, hard work or just plain good luck (see box 3.1 for public perceptions of inequality). Elimination of income inequality is therefore neither universally desirable nor the objective of this pillar. Rather, in line with SDG 10, the goal is to reduce inequalities such that the inequalities themselves (for example, in the form of hunger, extreme poverty, discrimination, social exclusion and similar issues) do not serve as impediments to social justice by excluding those with lower incomes and wealth from opportunities to participate and thrive. In this context, the SDG’s call for reducing inequalities strongly resonates in a world in which the top 1 per cent has almost 2.5 times the total income and more than 20 times the wealth of the bottom 50 per cent. The main focus of this chapter will be on income distribution, concentrating on four aspects: (i) the global distribution of income and wealth; (ii) the distribution of wages and labour earnings (by far the most significant component of income for most households); (iii) policies for fair wage distribution and more equal remuneration; and (iv) the extent of redistribution of income through social protection and tax systems to mitigate high inequality. Analysts usually examine income or consumption when measuring inequality, since these are relatively straightforward to measure. This section will also touch upon the distribution of wealth, access to assets, services and protection against risks, which are also not difficult to measure. Many believe that voice and power should also be considered when discussing the fair distribution of resources, but measurement of these aspects is more difficult.