Fiscal redistribution: yes, but inequality starts in the labour market: Findings from the ILO Global Wage Report 2014/2015

Patrick Belser

The International Labour Organisation (ILO) Global Wage Report[1], a publication released every two years, has been issued on the 5th of December 2014. The report is titled “Wages and income inequality” and, as usual, it has three parts. The first part analyses the evolution of real wages around the world. The second part, examines the link between wages and household income inequality, and also looks at wage gaps between certain groups: women and men; migrants and nationals; workers in the formal and the informal economy. The last part challenges the reader on what could be appropriate policy responses. The purpose of this column is to therefore highlight and discuss some of the crucial findings of the report.

Wage trends: Flat wages in developed economies, growing wages in emerging economies
The most recent global wage growth was driven almost entirely by emerging and developing economies, where real wages have been rising – sometimes rapidly – since 2007. Before the financial crisis, real average wages in developed economies grew by an average of about 1 per cent per year, and global wage growth was about 3 per cent. Such figures have since changed in recent years; wage growth in developed economies almost stands at zero, and global wages are growing by 2 per cent. If you take China out of the equation, the global wage growth is quite simply cut in half (see Figure 1).

The G20 / OECD Base Erosion and Profit Shifting Action Plan

Pierre Habbard

During a meeting held in November 2013 in St Petersburg, the G20 endorsed an Action Plan on Base Erosion and Profit Shifting (BEPS[1]) prepared by the Organisation for Economic Co-operation and Development OECD – the leading forum on international taxation. In line with addressing corporate tax “avoidance” practices, the 15 action points were to be delivered by end-2015.

The international cooperation on tax evasion has been on the G20 agenda since 2009 but tax avoidance is a fairly new topic for the G20. Unlike tax evasion – which is illegal – tax avoidance is in the grey area of compliance. It involves aggressive corporate tax planning schemes by Multinational Enterprises (MNEs) and financial institutions that exploit differences between jurisdictions to shift profits away from economically relevant jurisdictions (“Profit shifting”) or to artificially reduce the taxable corporate income base (“Base erosion”). It is more difficult to detect and to deter but it leads to similar outcomes than tax evasion in terms of losses of revenues for governments.

For years, the OECD has not taken tax avoidance to heart but was rather more concerned about the risk of “double taxation” of MNEs operating over several jurisdictions. Prior to the 2009 crisis, OECD staff would in fact never miss an opportunity to praise “tax competition” between jurisdictions and the competitiveness of low-tax economies. But the political mood within OECD finance ministries changed post-crisis and, with that, the realisation that national tax laws have not kept pace with the globalization of businesses. In turn, this leaves gaps that can be exploited by MNEs to artificially reduce their taxes.

The Epoch of Market Based Funding: Shadow Banking

Anastasia Nesvetailova

The epoch of Market based funding: Shadow Banking
In the midst of a 2008 financial crisis, a senior French banker revealed that “It takes me about two hours to assemble a team of finance geeks and lawyers to devise a product or a transaction that would bypass any new rule or regulation coming our way”. And it is this confession that captured the essence of the challenge that daunts the regulators and policy-makers in the aftermath of the most devastating financial crisis since the 1930s. It seems that whatever financial regulators come up with, industry players are likely to find a way to bypass it. Or at the very least, minimize its impact. The most compelling illustration of this blunt logic of financial evolution is the phenomenon of shadow banking, a term that entered public debate in 2007 and has since preoccupied regulators and finance experts.

What’s in the name?
Simply-put, shadow banking depicts a market-based funding system (rather than bank-based), or “money market funding of capital market lending” (Mehrling et al 2012). More extensively, it implies a complex network of credit intermediation outside the boundaries of the traditional, regulated bank. It was the crisis of 2007-09 that brought the scale of shadow banking to light and transformed a phenomenon considered to be a benign force of financial innovation and competition, into a political problem. Paul McCulley (2009) argued that the growth of the shadow banking system, which operated legally yet entirely outside the regulatory realm “drove one of the biggest lending booms in history, and collapsed into one of the most crushing financial crises we’ve ever seen.”

Switzerland-China Free Trade Agreement and Labour Rights

Zoltan Doka

Vasco Pedrina

After four years of negotiations, Switzerland has become the second European country to sign a free trade agreement (FTA) with China[1]. The importance of the FTA rests in the fact that China regards it as a significant trial run for further FTAs with industrialised countries and the European Union (EU). This has led to political controversies accompanying the negotiation process.

Right from the start, the Non-governmental Organisations (NGOs) and the trade unions successfully committed the Swiss negotiating party to the inclusion of a “durability chapter” in this FTA, which emphasis human rights and labour rights as well as environmental standards. Swiss officialdom had long upheld a taboo on mixing trade issues with commitments to such standards by building them into an FTA; changing course in 2010 – mainly due to an international trend[2].

Sustainability, Just Transition and Trade Unions

Brian Kohler

Getting to Sustainability 
Working people and their unions want a future in which the environment is protected and where sustainable industries create decent, safe and healthy work. That, essentially, implies changes in present patterns of production and consumption. However, if society wants workers and their unions to make changes to what they are doing today; logic dictates that it must be able to tell them what they will be doing tomorrow. Furthermore, it had better sound good; otherwise the resistance to change will be overwhelming. The challenge is to build a bridge from where we are now; to the future we must reach. A Just Transition for workers, their families, and their communities is the essential prerequisite for a movement towards a sustainable future. Such a transition would incorporate the elements of sustainable industrial policy; robust social protections; and creative labour-market adjustment programs.

Fear Uncertainty and Doubt 
In popular understanding of climate issues, unscientific scepticism often triumphs over science because it is a form of asymmetric warfare. Scientists are not engaged in a scholarly debate with other scientists but are debating a climate-denial noise machine. A scientist may spend years researching climatic forces and refining the algorithms in a climate model, and finally publishing a scholarly paper in a peer-reviewed journal; only to have the noise machine ridicule it and be given equal weight to real science in the popular media. In the face of rejection, the scientist responds with further years of research and another peer-reviewed paper. There is a possibility that it will again be rebutted when it is released, and the cycle continues.