The World of Work Report 2008 of theInternational Labour Organisation (ILO) examines the increase in global income inequality and how it is linked with financial liberalization and globalization; and how a policy of ‘Decent Work Agenda’ can improve income inequalities. The first chapter describes the extent of increase in income inequality and employment. In the post-1990 period, the world has experienced increase in employment along with decline in share of wages in income and increase in income inequality in two-third of the countries, whose data is available. Further, within the wage earners, the gap between the high wage group and low wage group has widened and the gap between corporate executives and average employees has increased. The second chapter describes how increasing financial globalization has led to the increase in income inequalities. Under the regime of financial liberalization and globalization, greater importance is attached to ‘share-holder value’ maximization and private equity funds in corporate management.
Managers in general no longer share the benefits of long-term cooperation with employees that would result in higher productivity and stronger investment in firm-specific capital. Rather they select to invest in projects that promise tangible profits over the short term and restrict incentives established to reward employees over the long term. Financial liberalization and globalization have led to decline in share of wages in GDP and to an increase in income inequality through the increase in financial assets relative to GDP. Further, the increasing frequency of financial crises has increased income inequalities across and within countries. The generally prescribed recovery measures from crisis or measures to avoid crisis—like increase in interest rate or disciplining macroeconomic policies (say maintaining fiscal prudence) has a further role in increasing income inequalities.
This chapter argues that financial liberalization and globalization have failed to improve global productivity and employment growth. It has not provided greater access to savings by the less developed countries, thereby preventing convergence of wealth across countries. It is further explained why financial liberalization and globalization have not provided the expected outcome as predicted by neoclassical economic theories. It says that unequal level of development in financial market openness is the reason behind lack of wealth convergence across the countries; the lack of proper regulatory framework for the overall economy including liberalized financial market and corporate governance are responsible for greater crises as well as partially responsible for this financial system not ensuring higher output, productivity and employment growth.