Inequalities and Decent Work – the 2030 Agenda for Sustainable Development

Delivered 05-09-2018, Mendoza, Argentina

Ministers, distinguished guests, ladies and gentlemen,

Let me congratulate the L20 for the focus placed on inequalities, a major stumbling block to sustainable development and for the achievement of the SDGs, particularly Goal 8 and 10.

But more fundamentally, reducing inequalities is a cross-cutting driver of sustainable development. More than one third of SDGs targets are about eliminating the sources of disparities across people, time and geographies and about providing equal opportunities to thrive and to live well.

At the OECD, we have long emphasised that sustainable prosperity and progress can only be achieved through inclusive growth and that promoting access to good quality jobs is a precondition for inclusive growth.

Inequalities remain high across G20 and OECD countries. The richest 10% of the population in OECD countries now take home more than 9times the income of the poorest 10%, up from 7 times 30 years ago.

The concentration of wealth at the very top of the distribution is even more severe. OECD data indicates that the richest 10% in the OECD own around half of all household assets, whilst the bottom 40% owns barely 3%. At the very top of the distribution, the top 1% holds a staggering 19% of total wealth.

But there is also the issue of the changing nature of work in the future.

At the end of 2017, nominal annual wage growth in the OECD area was 2.1% – only half of what it was just before the Great Recession, for comparable levels of unemployment. Real wage growth decreased by 1 percentage point, to 1.2%, over the same period.

There are three main reasons.

First, a low-inflation environment and a slowdown in productivity. Limited productivity gains have not fully translated into wage gains. If the growth in real median wages had perfectly followed the productivity growth over the 1995 to 2013 period, real median wages would have been 13% higher.

Secondly, due to the technological revolution, changing skills demand has also affected wages. Highly qualified workers with high-level cognitive skills and social intelligence have benefitted from wage growth. But the many workers who are not equipped with such skills are being left behind on low wages and low quality jobs.

Thirdly, long-term unemployment after the crisis may have held down wage growth. The jobs that have been created during the recovery are not the same as those that disappeared during the crisis. Jobseekers with low levels of skills have found it difficult to find jobs that matched previous wage levels; and there has been a rise in involuntary low-pay part-time employment in a number of OECD countries.

In terms of labour market inclusion, most OECD labour markets have now recovered to pre-crisis levels in terms of job quantity, but a more mixed picture emerges as regards job quality and inclusiveness.

The growing digital economy also has an effect. And many more jobs across the OECD – an estimated additional 32%. There is also a high level of skills mismatch.

And then you have the changing dynamic of firms, and the impact that globalization has had on wage moderation. You know the trends!

These trends follow the secular trend of decreasing gains from growth being accrued by labour, and this follows the increase of global interconnectedness, the low wage competition from many regions in the context of GVC, and the development in financial markets that have contributed heavily to concentration of wealth and financial assets at the top. The picture you know it well: de unionization, lower share of wages in GDP, reduces levels of support.

We are seeing a growing number of frontier firms pulling away from the rest, accumulating advantages, such as being able to offer higher wages to attract better skills, have better access to capital and technology, and operate globally. In this way, the workers with higher skills are selected and receive greater training opportunities and higher salaries. These firms are destabilizing entire markets as lagging firms cannot compete, and they are seeing wages stagnate and working conditions deteriorate.

The growing platform economy is also bringing new policy challenges. New technology and the big players in the platform economy are often concentrated: of the top 15 internet market capitalization leaders in 2017, nine were US companies. The rest were Chinese.

Indeed, we are witnessing a widening performance gap between more productive and less productive firms, which is also driven by the stagnating productivity of laggard firms.

These structural changes in our economies may leave many people, regions, industries behind. It is important to ensure those people can also take advantage of new technologies and that they are also able to participate in the development of these technologies.

The “winner-takes-all” dynamics also has implications for competition policy. If we want globalisation to work for everyone, then we need to ensure that competition is fair in a well-functioning market.

This changing dynamics of firms and the world of work will mean that we have to adapt our labour market and social protection policies. Already a substantial number of workers are in non-standard work: 1 in 6 workers in OECD countries is self-employed and 1 in 8 has a temporary contract. This has important implications for social protection. For example, only 6 out of 28 countries in the EU insure the self-employed in the same way that they insure regular employees. Not to speak about the informal economy in many member countries.

These trends will continue and will make it difficult to reach the SDG target if we do not adopt a strategy that focuses on improving working conditions and remuneration for the bottom 40 percent.

Policy solutions:

We need a multi-faceted approach.

First, we need to get skills right. Workers will need well-rounded technical, professional and social-emotional skills. This starts with providing high quality education from early childhood so that all children, especially those from disadvantaged families, have a strong foundation of knowledge and skills.

Children will need to adapt to flexible thinking, working in teams and – importantly – learn to have self-esteem and self-confidence. Investing in affordable and high-quality early childhood education and care is an area that governments should prioritise.

This is a major finding in the OECD’s new Framework for Policy Action on Inclusive Growth, which found that a focus on early years has a powerful effect in overcoming socio-economic differences in education outcomes.

We also need to invest in more lifelong learning, ensuring people have opportunities to re-skill and up-skill throughout their working lives. This is especially important for people with low skills: less than 20% of low-skilled workers in the OECD have received job-relevant training in the past year, when the average is around 40% for all workers.

This is especially important for women, with new evidence based on the OECD Survey of Adult Skills pointing to a gap between men and women in their levels of advanced numeracy, management and self-organisation skills, which are most in demand in digital-intensive sectors.

Women are also more likely to be employed in industries that are of higher risk of automation, for example in retail, residential care or food and drink services. And of course, we still have a gender wage gap, averaging at 17% across the G20.

Secondly, we have to adapt our labour market and social protection policies. Access to social protection for non-standard workers should be strengthened, and rights to social protection and training should follow the worker, not the job.

Social dialogue will also be important to prepare for the Future of Work, particularly in anticipating change and finding solutions that promote job quality and productivity growth. Social partners have an important role to play in this process. The pay and working conditions of 1 in 3 workers in the OECD are governed by a collective agreement. Our work shows that shows that co-ordinated collective bargaining systems, with strong and self-regulated social partners and effective mediation bodies, contribute to better employment outcomes.

Third, governments should encourage better diffusion of technology and innovation from leading to lagging firms, through incentives to make investments in R&D, new digital equipment and organisational know-how to help lagging firms catch-up with industry leaders.

Fourth, governments need to consider the implications of the platform economy on competition and regulation. Digital transformation is changing the world faster than many rules and regulations have evolved. Governments may need to periodically review their regulatory frameworks to ensure they remain relevant to the increasingly digitalized world.

The OECD is already making headway on inclusive growth, with our new Framework. We have already forged some significant partnerships in this area, including with the Global Deal, a multi-stakeholder partnership that brings together governments, businesses and trade unions to promote social dialogue and ensure globalisation benefits everyone. We also focus on measuring quality jobs, and not only quantity, covering the right level of remuneration, the right working conditions and security in the job.

But all this would require a new narrative of growth, to focus more broadly on improving the well- being of people, particularly the most vulnerable. It calls for a renewed emphasis on equity considerations in the policy debate and design. Only then we will be able to achieve a world where growth is inclusive and where people can reach their full potential.

Thank you.