The West is bleeding the Global South of wealth thanks to massive wage inequality, says study
The developed markets of the West are bleeding the Global South of wealth thanks to massive differences in nominal wages, according to a new study published in Nature Communications.
“First, a crucial point: workers in the global South contribute 90% of the labour that powers the world economy, and 91% of labour for international trade,” says the author of the study, Professor Jason Hickel from L'Institut de Ciència i Tecnologia Ambientals (ICTA-UAB) and visiting senior fellow at LSE. “The South provides the majority of the world's labour in all sectors (including 93% of global manufacturing labour).
“We find Southern wages are 87-95% lower than Northern wages for work of equal skill. While Southern workers contribute 90% of the labour that powers the world economy, they receive only 21% of global income,” Hinkel concludes. “In wage-value terms, the drain of labour from the South has more than doubled since 1995.”
North-South wage gaps have increased dramatically between 1995 and 2021, across all skill categories and sectors, despite a small improvement in the South’s relative position. Southern wages are 87-95% lower than Northern wages for work of equal skill as of 2021, and 83-98% lower for work of equal skill within the same sector, the study found.
Economist have tried to take the differences in nominal wages into account by comparing what goods an average wage packet can buy, rather than simply exchanging it for dollars and comparing the dollar-incomes.
In these terms, China is now the biggest economy in the world and Russia recently overtook Japan to become the fourth biggest in PPP (purchase power parity) adjusted terms. Likewise, Russia and Mexico just pushed the UK out of the top ten global manufacturing powers by rising to eight and seventh place respectively. And as bne IntelliNews reported, China is the world’s most powerful manufacturing country and Russia is the most powerful in Europe, despite being technologically behind the West.
Yet in nominal terms China is not expected to catch up with the US until about 2075, as wages in the Global South remain significantly below those in the West. The result is a flow of wealth from the developing markets to the West as Western companies set up factories in the Global South to take advantage of the differences. Moreover, as the Global South develops, these new markets have as much, or more, skilled labour as the so-called developed world.
“Global wage inequalities are truly massive. Southern wages are 87-95% lower than Northern wages for work of equal skill,” Hickel said in a post on social media. “And the wage gaps are getting worse. These wage inequalities are a result of imperialist dynamics in the world economy that act to suppress wages and consumption in the global South. Why? Because it massively benefits Northern capital.”
The systematic price inequalities mean that for every hour of work the South imports, they have to export 11 hours to "pay" for it. This results in large net flows of value from South to North.
In 2021, 9.6 trillion hours of labour went into producing for the global economy. Of that, 90% was contributed by the Global South across all skill levels: 76% of all high-skilled labour, 91% of medium-skilled labour and 96% of low-skilled labour.
“The South’s contribution to total global production has increased steadily over the period since 1995, across all skill categories. The largest increase has occurred in the high-skill category, with the South’s contribution to high-skill production increasing from 66% of the world’s total in 1995 (1.9x more than the North) to 76% in 2021,” the study found.
The North imported 826bn hours of labour from the Global South in that year, which was spread across all skill levels and sectors. The wage value of this net-appropriated labour was equivalent to €16.9 trillion in Northern prices, accounting for skill level. The amount is more labour than rendered by all workers in the US and Europe combined. In total about half of all labour consumed in the North is imported from the Global South, according to Hickel. And this labour is lost to the Global South domestic economies that could be used to develop their home markets.
“This means that without unequal exchange, Northern economies would have to reduce their consumption by half, or double their working hours,” says Hickel.
If the Global South’s labour were valued in terms of Northern wages by skill level, it would total €16.9 trillion in in 2021, or €310 trillion over the period from 1995 to 2021.
This is labour that could be mobilised to meet human needs and achieve national development objectives in the South (if Southern countries and workers had greater control over production), but instead it is siphoned away to support consumption and accumulation in the imperial core.
These wage differences are slowly being reduced as the developing world grows a lot faster than the increasingly stagnant developed world and middle classes emerge that fuel further catch-up growth.
Between 1995 and 2003 China’s average nominal minimum wage increased steadily from CNY169 ($25) to CNY301 ($41), amounting to a 78% growth in nine years. However, since China promulgated the new minimum wage regulations in 2004, the nominal minimum wage has increased rapidly by more than 200%, reaching CNY944 ($130) in 2012.
Russia has the same story, where wages have increased by an order of magnitude since the fall of the Soviet Union in 1991. However, more recently the war-induced economic boom in Russia and the drum-tight labour market have driven up real wages rapidly, increasing by almost 9% year on year in January.
Today the average salary in China is CNY265,000 per year, or $36,600 a year in unadjusted terms, according to consultants MSA Advisory. The average in Russia is around RUB1,240,000 a year, or $14,771 in unadjusted terms. In adjusted terms the wages are just over double that, putting Russian wages on a par with the median incomes in the EU on a PPP basis. However, both countries suffer from large income inequalities and regional differences, which is a function of their developing status.
The share of the North-South flow of labour may slow in the future as interregional trade grows. As part of the geopolitical clash between East and West that has intensified since the start of the war in Ukraine, leaders like Russian President Vladimir Putin and Chinese President Xi Jinping are actively promoting closer cooperation between the countries of the Global South by beefing up non-aligned organisations such as the expanded BRICS+, G20, Eurasian Economic Union (EUU), Shanghai Cooperation Organization (SCO) and others.
With the invasion of Ukraine, Putin has definitively broken relations with the West and bet heavily on the rise of the Global South.
The BRICS account for 35% of global GDP, while G7 states account for 30% of global GDP, the Russian Deputy Foreign Minister Alexander Pankin said on July 30.
"Few people promote such figures, though we try to announce them, but in reality, BRICS countries account for 35% of global GDP now, while G7 states [account for] 30%," he said, adding that "the outpacing share unseen 30-40 years has already been reached."
The share of trade inside countries of the South is also larger than that of trade between countries of the South and the North, according to Pankin.
"This is why we have set a course for global diversification of international cooperation with all regions of the South, with Asia, with Africa, with Latin America. And those are quite specific cooperation vectors. This concerns building supply chains, production chains, household chains, transport chains that would be minimally affected by Western countries, institutions and their agents," he noted.
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