S in ESG Matters as Real Wages Fall

    Stockholm (NordSIP) – According to a new report by the International Labour Organisation (ILO), the severe inflationary crisis combined with a global slowdown in economic growth are causing a striking fall in real monthly wages in many countries, reducing the purchasing power of the middle classes and hitting low-income households particularly hard.

    The Global Wage Report 2022-2023: The Impact of inflation and COVID-19 on wages and purchasing power, estimates that global monthly wages fell in real terms to minus 0.9 per cent in the first half of 2022 – the first time that real global wage growth has been negative since the ILO started measuring this variable 15 years ago.

    Among advanced G20 countries, real wages in the first half of 2022 are estimated to have declined to minus 2.2 per cent, whereas real wages in emerging G20 countries grew by 0.8 per cent, 2.6 per cent less than in 2019, the year before the COVID-19 pandemic.

    “The multiple global crises we are facing have led to a decline in real wages. It has placed tens of millions of workers in a dire situation as they face increasing uncertainties,” said ILO Director-General, Gilbert F. Houngbo. “Income inequality and poverty will rise if the purchasing power of the lowest paid is not maintained. In addition, a much-needed post pandemic recovery could be put at risk. This could fuel further social unrest across the world and undermine the goal of achieving prosperity and peace for all.”

    The report shows that rising inflation has a greater cost-of-living impact on lower-income earners, which were already disproportionately affected by the preceding COVID19 crisis. This is because they spend most of their disposable income on essential goods and services, which generally experience greater price increases than non-essential items. This danger is compounded by the fact that inflation is also biting into the purchasing power of minimum wages, the report says.

    What Role for Investors?

    In light of this crisis, the social factor of ESG becomes more important than ever. What are investors prepared to do to help cushion the blow of the ongoing crisis and mitigate its social costs?

    Will they argue for a decreased passthrough of energy costs onto consumers? Will they push for higher wages for workers? Both of those would certainly help address some of the purchasing power issues raised by the ILO. However, they would also bite at the profit margins of their investments. The issue is not easily addressed, but should be tackled in some way if investors are serious about the S in ESG.

    Filipe Albuquerque
    Filipe Albuquerque
    Filipe is an economist with 8 years of experience in macroeconomic and financial analysis for the Economist Intelligence Unit, the UN World Institute for Development Economic Research, the Stockholm School of Economics and the School of Oriental and African Studies. Filipe holds a MSc in European Political Economy from the LSE and a MSc in Economics from the University of London, where he currently is a PhD candidate.

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