thumb_handpeanuts-uacescomm-by2.0-1.jpg
thumb_handpeanuts-uacescomm-by2.0-1.jpg This article is more than 7 years old

Important new study says economy sucks because people are paid peanuts

Inequality is bad for the economy. That’s the big take-away from a new report prepared for G20 labour and employment ministers by three global economic organizations: the United Nations’ International Labour Organization, the Organisation for Economic Co-operation and Development, and the World Bank. “Extensive evidence shows that high levels of income inequality tend to reinforce themselves,” […]

Inequality is bad for the economy.

That’s the big take-away from a new report prepared for G20 labour and employment ministers by three global economic organizations: the United Nations’ International Labour Organization, the Organisation for Economic Co-operation and Development, and the World Bank.

“Extensive evidence shows that high levels of income inequality tend to reinforce themselves,” says the report. And this has a negative impact on “long-term growth protential.”

The report zeros in on “stagnating wage income” and a “deterioration in job quality” across advanced G20 economies, pointing to a “long-term decline” in the share of wealth in the pockets of workers:

labourshare.png
Why is that significant?
 
Less money in the pockets of workers means less consumption, less tax revenue and less private investment.
 
“The shift of income away from labour (and, in particular, away from low-wage workers) towards capital (and top earners) might also have a negative impact on aggregate demand, to the extent that workers with below average pay tend to have a higher consumption propensity,” the report notes.
 
“The substantial jobs gap and persistent weakness in job quality, wages and incomes are among the factors contributing to the shortfall of aggregate demand via their negative impact on aggregate consumption, investment and government revenue and expenditure.”
 
What does this mean?
 
Let’s use some basic Microsoft Paint pictures to illustrate the point:
 

1. Workers have seen wages stagnate and the quality of their jobs deteriorate:

 
2dave01.png
 

2. When workers have less money in their pockets, they have to make tough decisions about what they can afford to buy, so they consume less:

3dave02.png
 

3. And that stagnates growth for other businesses:

4dave03.png
 

4. And lower consumption leads to a ripple effect felt throughout the economy:

5dave04.png
 

5. And with less money being earned, that means less tax revenues for governments:

6dave05.png

 

Bottom line: that means everyone is worse off.

Photo: uacescomm. Used under a Creative Commons BY-2.0 licence.

Our journalism is powered by readers like you.

We’re an award-winning non-profit news organization that covers topics like social and economic inequality, big business and labour, and right-wing extremism.

Help us build so we can bring to light stories that don’t get the attention they deserve from Canada’s big corporate media outlets.

 

Donate
PressProgress
PressProgress is an award-winning non-profit news organization focused on uncovering and unpacking the news through original investigative and explanatory journalism.

Most Shared

thumb-2022-06-015 Analysis

Manitoba Government Gave $50 Million to Companies Linked to Secretive Religious Sect

Related Stories

Analysis

Pierre Poilievre is Under Fire After Leading a Far-Right March Through Ottawa Residential Neighbourhood

View the post
New

Infrastructure Bank Wants To Let Private Finance ‘Renew’ the ‘Water Sector’

View the post
News

WestJet asked non-union staff to provide scab labour in case of Calgary, Vancouver strike

View the post

Explainers

Human rights & inclusion

Amira Elghawaby

Here’s The Problem With Hoping Corporations Will Be Socially and Environmentally Responsible On Their Own

View the post
Politics & strategy

Jeremy Appel

The battle of the PACs in Calgary’s municipal election

View the post
Politics & strategy

Jeremy Appel

27 Different Candidates are Vying to be Calgary’s Mayor. Here Are the Biggest Issues at Stake.

View the post
Why do newspapers always have a business section but not a labour section? We’ve launched a free newsletter covering labour issues in Canada.
Get All Your Canadian Labour News in One Place
Why do newspapers always have a business section but not a labour section? Good news! We’ve launched a newsletter covering labour issues in Canada.