A Changing Labour Market?
Employees at fast food restaurants in different countries of the world, from the United States to Nigeria, Italy and New Zealand went on strike in May to demand higher wages and better working conditions.
The aim of this worldwide campaign was both to put additional pressure behind workers' specific requests in each country, to express solidarity with the American petition of a minimum wage of $15 per hour, and the right to unionize without fearing retaliation.
As of July 2009, under President George W. Bush, the US federal minimum wage in almost all states and municipalities was raised at $7.25 per hour. Only 22 states and Washington D.C. have minimum wages higher than the federal minimum. This wave of strikes began more than a year ago, but until recently, they didn't prove to be decisive in meeting the goal of forcing big fast food corporations to raise wages.
Five years since the worst moments of the global economic and financial crisis the US economy has finally regained almost all of the 9 million jobs it lost between January 2008 and February 2010, in spite of an unequal recovery and a shift in the quality of employment which saw a sharp increase in low-paying industries, like fast food where the annual average pay after tax is less than $20,000 according to Demos (Figure 1). It must however be remembered that in the meantime the US working-age population has grown by more than 8 million since 2007, while the total population has increased by almost 20 million from July 2007 to June 2014. The debate around minimum wage has gained a significant role as income inequality is becoming a growing concern in the United States. The latest proposal presented to the Congress is to hike up the minimum hourly pay from $7.25 to $10.10.
Moreover, if we look at the rest of the world, the wage policies of other countries may be astonishing as well. In particular, the European Union is the most progressive. Prosperous countries such as: Denmark, Finland, Sweden, and Norway don't have a minimum wage policy, thus setting their pay rate through collective bargaining between unions and employer associations on a sector-by-sector basis. This same policy applies also to the Italian labor market. On the other hand, Germany has only recently (April 2014) approved an hourly minimum wage of €8.50 to be introduced in 2015.
In Switzerland, the law settled a sector-by-sector collective labor agreement, and on May 18 2014 Swiss voters rejected a popular initiative that would have set the hourly minimum wage at CHF22, which is more than 18euros. If we examine the Asian region, India has more than 1,200 different wage systems but according to the International Wage Indicator Network the national level has been raised to $1.84 per day. Whereas, in China the minimum wage ranges according to four different classes from €0.88 (lowest class level) in the Guangxi province to €1.79 in Beijing (if we take into account the purchasing parity the gap with advanced countries narrows somewhat).
Obama's proposal encountered stiff opposition from Republicans in Congress but in the meantime the President used his powers to rule that suppliers to the Federal Government must introduce the $10.10 minimum hourly pay.
Some large retail groups followed suit, notably the GAP garment chain in February and the IKEA furniture group in June 2014. If the President has his way, the United States will have the tenth highest minimum pay, almost reaching the UK rate of $10.72 per hour.
The highest hourly wages worldwide are those of Australia, Luxembourg, France and Belgium (Figure 2)
The debate over a higher minimum wage has shown wide splits not only between political parties, but also among economists. A school of economists contends that higher wages would increase consumers' disposable income, thus helping businesses and the economy. On the other hand, this proposal is perceived by another school as a move that would force companies to lay off workers and raise prices, thus worsening the employment situation and subsequently the economy. Considering that economic growth is the sum of productivity and labor force growth, a reduction of the latter would make faster development harder. Nonetheless, the financial crisis has deeply changed the quality and the level of employment.
Americans are suffering the sharp decrease in the quality of jobs: today's fast food servers are not high school kids working a few hours to earn extra money, they are adults with children, paying rent and utilities.
In May 2014, after more than six years, the US economy has regained its momentum counting more people employed now than before the Great Recession. However, if we merely look at the total employment figure this will not fully communicate the overall status of the labor market (Figure 3). Although employment has increased from its minimum, social security contributions (whose rates have remained unchanged) are still well below the 2007 level.
A more accurate analysis of the data disclosed by the US Labor Department in terms of employment and economic performance, reveals that the labor market is going through a "mixed recovery" which may result in a major reshaping of the US economy. A significant number of high-wage sectors are well below pre-recession employment levels, while others are growing at a faster pace. Professional & business services, private education & health services, and leisure & hospitality have contributed to this growth (Figure 4) .The manufacturing industry, which faces global competition, is only slightly regaining health as evidenced by the 12,099 thousand workers employed in May 2014 compared to 11,862 thousands employed in May 2009 (Figura 5). Contrarily, higher-paying jobs in industries such as aerospace and medical equipment are performing much better.
Last month, employment in construction, a high skill industry with above-average wages, has reached the same level of its employment as of May 2009 (Figure 6). Government employment is down by 507,000 positions. The financial activities employment shows an unchanged situation, underlying the continuous decline of commercial banking activities which registered a loss of 3,000 jobs in May due to the negative level of credit intermediation, and a sluggish recovery of insurance activities and real estate. Therefore, many high wage sectors have contracted, while a large percentage of the high-growth sectors are relatively low-paying.
According to the U.S. Census Bureau, the 2007 inflation-adjusted median household income was about $55,000, while in 2013 it was down to $52,000 – the same level as of 1997. Median household incomes have collapsed since the recession, and even before the crisis the typical family unit was showing poor improvements in its purchasing power. This trend is partly due to the high unemployment figures on one side, and also to the fact that the jobs lost during the recession were medium wage jobs which have since been replaced by low-wages positions (Figure 7). After examining the aforementioned data, we can confirm that the American labor market is on the mend, but it is not back to its normal pace. Unfortunately, we cannot say the same for the European counterparts, where in 2013 – according to the ILO – employment continued to fall in many countries, and in others the recovery was not sufficient to regain growth (Figure 8). In the third quarter of 2012, the employment rate of Europeans aged 15-74 stood at 57.6%, well below the rate registered during the third quarter of 2008.
There are only 5 countries out of 27 that were able to recover and exceed their pre-crisis rates: Austria, Germany, Luxembourg, Malta and Hungary.
Young and low-skilled workers were the demographic groups worse impacted by the crisis. Greece, Spain, Portugal and Italy registered in 2013 the highest rates in youth unemployment
The worsening employment situation, and the weak recovery experienced on both sides of the ocean explain the recent social unrest that has emerged Worldwide (Figure 10). Between 2006-2007 and 2011-2012 Europe has registered an alarming intensification of such risk. According to the Economist Intelligence Unit, 65 countries will record a high risk of social agitations in 2014.
The United States, Canada, Australia, and a couple of European Nordic countries will record relatively less risk of social unrest, while countries like Italy, France, the UK and Russia will face a medium risk. High risks of turmoils are detected in Spain, Mexico, Brazil and China.