Global Income Inequality: Insights from ILO's World Employment and Social Outlook Study

​Income inequality: on the ILO's World Employment and Social Outlook study

More jobs and higher taxes can counter the effects of automation The ILO's World Employment and Social Outlook study (September) has definitively linked declining trends in labour's income share of total income within nations to technological advances -- mainly automation and artificial intelligence. In an analysis of the past two decades, it mentions a 1.6% drop in the global labour income share between 2004-24. More ominously, almost 40% of this decline was in the pandemic years of 2019-22 -- a drop that has not been recouped in the past couple of years. Labour income share is a measure widely used to assess income inequalities within economies. The 1.6% drop might seem insignificant, but it amounts to $2.4 trillion in lost wages at constant purchasing power parity, in relation to what workers would have earned had the labour income share been stable since 2004. $2.4 trillion lost globally is more than half of India's nominal GDP forecast for FY2023-24. The study also highlights the gendered aspect of this inequality. In 2024, almost a third of the world's young women (28.2%) are not in employment, education or training, it estimates, which is double that of young men (13.1%). This is alarming for developing nations with growing working age populations, as it highlights challenges in job creation. In fact, another ILO report on the status of employment in India estimates that 83% of its unemployed are youth. This coupled with the government's recent prescriptions to the private sector to invest in labour intensive employment points to a crisis in jobs growth and rising inequality, even as output and labour productivity rise. Several countries have been mooting the idea of a universal basic income (UBI), or a floor to stand on, as economists have called it. A referendum in Switzerland on UBI was defeated in 2016, while Democratic candidate and American tech investor Andrew Yang, in his aborted 2020 bid to the White House, mainstreamed a 'Freedom Dividend' of $1,000 a month for every American adult. Congress leader Rahul Gandhi too made a proposal of ₹12,000 a month for every family, during his 2019 election campaign, calling it a "final assault on poverty". Several industry reports point to high-paying job creation due to automation and AI, to counter the jobless growth theory. But again, this only highlights an acceleration in income-inequality trends. Indeed, with the apparent advantages of automation and AI being irreversible, perhaps a global goal towards a universal basic income could address Sustainable Development Goal 10, or reduced inequality within and among countries. It is perhaps time that developing nations such as India consider the reintroduction of an inheritance tax as a measure to redress wealth inequality. Published - September 06, 2024 12:10 am IST Read Comments

No single way to fight inequality

A recently released ILO report says that globally, the share of labour incomes in total income declined by another 0.6 percentage point between 2019 and 2022 and has remained flat since. While the latest numbers are in keeping with the long-term trend of falling labour income share, the report notes that the three-year period following the pandemic saw a decline which accounts for 40% of the overall decline between 2004 to 2024. In a number which has lent itself to some bit of sensationalism, the ILO estimates that had the labour income share remained stable between 2004 and 2024, workers would have earned an additional $2.4 trillion in purchasing power parity terms. The report also flags the role of technology in shaping inequality, especially with the growing use of AI. While such technologies are known to lead to a rise in productivity, they can also lead to a reduction in labour income share, it says. What does all this mean as far as policy wisdom is concerned? That labour income shares have been falling and technology might have played a role is not something we are being told for the first time. The fact that this trend has not reversed and is perhaps feeding into growth of reactionary politics across the world, especially in the advanced economies, is what needs a closer and urgent examination. So, what is to be done? The biggest lesson which needs to be learnt is that there cannot be a one-size-fits-all approach to fighting inequality or the role of technology in driving it. Many countries in the world are at a stage of demographic evolution where they would need technology to ease the pressure on the already falling share of working population. The more important question for them is not to control roll out of technology per se but who gets to control the surplus generated from its growing use. India might have a lesson or two to teach the world from its Digital Public Infrastructure push on this front. To be sure, it is important to ensure that technology does not become the excuse for other policy failures to boost mass incomes. For example, India, the world's most populous country, has done very well in high-technology exports but performs much below its potential in labour-intensive exports. These counter-intuitive facts remind us that the battle against inequality is best fought outside convenient echo-chambers.