THE BLOG
10/07/2014 09:10 am ET Updated Dec 07, 2014

Is the Global Economy Out of Time?

As the World Bank and the IMF meet in Washington this week, people are asking, is the global economy finally out of time?

The financial institutions said once again 2014 could be the year the global economy emerged from six years of recession and slow growth. They were wrong again.

By July, the IMF reduced its global forecast for 2014 due to slower than expected GDP growth in the U.S., China and other emerging-market economies because of weak domestic demand or the impact of geopolitical conflicts.

Recent data from Europe shows that growth has slowed again, creating the very real prospect of the euro area entering into a "triple-dip" recession.

Working families have had enough.

The answer is the world needs a pay rise and the World Bank must stop hiding behind exploitation of workers and instead refuse to lend money to those that mistreat working people.

If you want the global economy to grow you need to pay people more, not less.

We have proof, economic proof.

The question is whether the international financial institutions are prepared to make the shift away from the thinking that says the path to growth is cutting wages and maximizing short-term business profit.

Our economic modeling shows a mix of wage increase and investment in infrastructure in developed countries can create up to 5.84 per cent more growth and create 33 million jobs compared to business as usual.

It could create 5 percent growth in developed countries, the efforts of emerging economies and a concerted attack on inequality with social protection and minimum living wages in all nations.

Now that's a solution with dignity.

The economics of household demand show that the world economy, in aggregate, is wages-led -- that is, the more you pay people the more they will spend on goods and services -- stimulating local, national and global economies.

Seems basic.

On the other hand, every one percentage point simultaneous decline in the wage share in the world leads to a decline in the global GDP by 0.36 percentage points.

So when G20 finance ministers set a bold target of 2 per cent of growth above expectations the obvious question is how to get there.

With a global wages slump over three decades and a sluggish global economy the facts are clear. Jobs and wages are the keys to growth.

The OECD Economic Outlook leads to similar conclusion when the OECD Secretary General, Angel Gurria says: "further reductions (in wages) may be counterproductive and neither create jobs nor boost demand."

The ITUC Global Poll is a one of kind insight into the lives and beliefs of working people in fourteen countries -- representing half the world's population. It shows a remarkable 88 percent of people support a rise in the minimum wage in every country.

The track record of politicians is strewn with people frustrated with their poor performance in tackling unemployment and creating jobs with decent wages.

68 per cent of respondents to the ITUC Global Poll 2014 said their government is bad at tackling unemployment.

For those holding on to jobs, since 1980 the share of total global output that has gone to workers in wages has fallen from 62 per cent to about 58 per cent in 2000 and with a further decline to 54 per cent in 2011.

This decline has caused a growth in inequality that is even worrying the economically staid International Monetary Fund (IMF), and is contributing to the shortfall of demand in the global economy. Sadly they still pursue more of the same failed policies.

Low wages are a major issue when 1 in 2 people globally can't make ends meet and each year for three years now half the worlds' people tell us in the ITUC Global Poll that they can't save a euro, a dollar, a unit of currency for emergencies.

Insecure jobs are a major problem. 60 percent of people have direct or family experience with unemployment or reduced hours and more than 50% believe their kids won't find a decent job.

Rising inequality is creating desperation and 78 percent of people think the current economic system favours the wealthy, rather than being fair to most people.

People want Governments to act to tame corporate power.

62 percent know corporate power is now out of balance and they want workers' rights respected through the entire global supply chains.

Yet the World Bank is set to continue to fund construction, forestry, energy and agricultural companies and their contractors that deny freedom of association and potentially use child and slave labour.

We call on governments to stand up to the World Bank to secure a world where their people have fundamental rights.

The international instructions, the World Bank, the IMF have failed us.

They are like the wealthy in-laws of the global economy -- the people who you have to invite to the party as they have overstuffed saving accounts, and they're family but their hands outs are often cruel, come with strings attached and do more harm than good.

Jobs, just wages, rights and social protection -- now that's a family recipe for hope.

That's what our world would be like with an IMF and a World Bank which had pro people not pro-business policies.