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World Bank report: Reducing inequality without strengthened labor rights?

In October the World Bank launched the first of what it says will be a series of annual reports on Poverty and Shared Prosperity, for tracking progress towards two key Sustainable Development Goals (SDGs): reducing extreme poverty and inequality. The theme of the first edition is “Taking on Inequality.”

The report’s findings that “between 2008 and 2013, the number of countries experiencing declining inequality was twice the number exhibiting widening inequality” quickly made it onto the press.

Unfortunately, although the report offers some useful analyses of inequality and the forces driving it, it offers no analysis of this partial and modest reversal of growing inequality trends in the most recent five-year period examined.

The finding is mostly based on what the Bank’s report calls the “shared prosperity premium,” the difference between income growth for the bottom 40 per cent and average income growth in in each country. Indeed, at the instigation of the World Bank, the UN’s Sustainable Development Goal on inequality adopted as an indicator the “boosting the bottom 40 per cent” target over a more precise and widely accepted indicator of income inequality such as the Gini coefficient. The World Bank’s optimistic declaration, then, follows analysis of data on this indicator for only 83 countries out of a potential 195.

The data showing a slight reversal in the growth of inequality only cover the years 2008 to 2013, hardly a typical five-year period. These years coincide with the aftermath of the 2008-2009 global financial crisis, a period characterized by an asset-price collapses in many countries. The report does not explore whether this period has sustainably reversed a quarter century of increased within-country inequality or whether the specific impacts of the financial crisis and subsequent recession may have only temporarily halted the growth of inequality.

A recent report by the UN Special Rapporteur on the rights to freedom of peaceful assembly and of association, Maina Kiai, found that “the majority of the world’s workers, including informal, women, domestic, migrant and agricultural workers and day labourers, are often excluded from national legal protective frameworks, leaving them unable to exercise their fundamental rights to associate or assemble, and without access to remedies when their rights are violated.” He also found that the structural changes, in particular, expansion of production through global supply chains, have distanced workers from their rights to freedom of association because workers fill permanent jobs but are denied permanent employee rights. “Without assembly and association rights, workers have little leverage to change the conditions that entrench poverty, [and] fuel inequality,” he said. But the Bank found no reason, apparently, to look into these trends.

The Bank did not need to look at UN human rights mechanisms. Even researchers at the Bank’s sister institution, the IMF, have identified precarious work, the undermining of worker’s legal protections, and the weakening of collective bargaining as major causes of increased inequality despite the Fund’s lack of interest in promoting worker rights in its country programs. (See for example the following papers issued by the IMF: “Inequality and Labor Market Institutions”  and “Causes and Consequences of Income Inequality: A Global Perspective”).

The omission of labor market issues in the report’s recommendations is all the more conspicuous given the role that expansion of workers’ rights and improved minimum standards played in decreasing income inequality in the most substantial of the report’s five success stories, which is Brazil up to 2014. The Bank’s analysis attributes 80 per cent of the decline in inequality in 2003-2013 to what it calls “labor market dynamics” and the expansion of social programs. Among the former it identifies “increasing wage premiums for the less skilled, more formal jobs and a rising minimum wage.”

Peter Bakvis directs the Washington, D.C., office of the International Trade Union Confederation, which represents 180 million workers in 162 countries. Click here to read a longer analysis of the World Bank’s report.

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