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Wages in Asia, Pacific Make Dynamic But Uneven Progress

Wage growth in Asia and the Pacific has steadily outperformed much of the rest of the world in recent years, largely driven by China, but wage growth elsewhere in the region has been more modest.

In a supplement to its Global Wage Report 2014/15, the International Labour Organization (ILO) outlined wage developments in Asia and the Pacific and found that in the developing and emerging economies in the region, real wages grew 6 percent in 2013, well above the 2 percent global average.

But benefits of the growth have been unevenly distributed. Because of China’s rapid growth, real wages have tripled in East Asia since the beginning of the century, while average earnings for workers in South-East Asia and the Pacific, and in South Asia, have grown by little more than half.

However, growth aside, workers in many of the countries still earn very low wages. According to the report, one third of the region’s workers remain below poverty level, or $2 per day in purchasing power parity. Average monthly wages in Pakistan were on the lower end, at $119 in 2013, Cambodia at $121 in 2012, Vietnam at $197 and China at a much higher $613 per month as of 2013.

Wage growth was strongest in East Asia, where average real wages grew by 7.1% in 2013, owed largely to China.

“The rapid growth of wages in China has led some observers to declare ‘the end of cheap labour,’ while others have argued that wage growth has gone too far – and that wages in China have become ‘too high’. The fear is that high wages undermine the country’s competitive edge in labour- intensive sectors such as garments. China’s wages are now higher than those in Bangladesh, Cambodia and other major apparel-exporters,” the report noted. But despite the recent uptick, labor costs in China in relation to productivity, are still far below what they were in the 1990s and early 2000s, and the country now competes on high productivity instead of low wages.

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In South-East Asia and the Pacific, minimum wage increases have driven wage growth. For the five largest economies—Indonesia, Malaysia, the Philippines, Thailand and Vietnam—the International Monetary Fund (IMF) recorded average GDP growth of 5.8% from 2010-2013, though wage growth was just 2.3%. As a result, wage growth fell behind productivity gains.

In its report, ILO cited weakness of wage setting institutions as one explanation for the disconnect between productivity gains and wages. “In the absence of effective collective bargaining, governments rely heavily on minimum wages to nudge wages upwards,” the report noted.

In Thailand, for example, the introduction of the new minimum wage of 300 baht in 2012/13 led to strong real wage growth of 8.5% in 2012 and 5.8% in 2013.

In South Asia, the ILO found that wage growth was weakest, slowing to 2.4% in 2013, though the findings come with a disclaimer that wage data is less comprehensive and sometimes unavailable for certain economies.

“Historically, the industry relied on low wages and minimum standards in working conditions, but low labour costs are not the only factor that drives sourcing decisions. Global garment buyers increasingly prioritize productivity and reliability of supply – and they are adverse to the reputational risks of poor working conditions,” the report noted.

“Asia’s garment and textile industry is undergoing considerable change. Economic and demographic transitions in China and the rise of an affluent consumer class in emerging markets have implications for competitiveness. New opportunities are emerging for lower-income countries of the region. However, successfully attracting international buyers and expanding export markets will depend on policy choices.”

Click here to view the full report.