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Half of world's workers earn $2 per day

GENEVA, December 08, 2004

Half the world’s workers—some 1.4 billion people—are trapped in grinding poverty unable to earn enough to lift themselves and their families above the US$2 a day poverty line, but this figure could be reduced if policies zero in on improving labour productivity and creating jobs, says a new study by the International Labour Office (ILO).

The ILO World Employment Report 2004-2005* states that focusing economic policies on creating decent and productive employment opportunities is vital for reducing global poverty as called for in the Millennium Development Goals (MDGs).

“Women and men all over the world expect to get a fair chance at a decent job,” said ILO Director-General Juan Somavia. “Generating more and better jobs must become the central plank of the global drive to reduce poverty.”

The report also says that the 185.9 million people in the world who were unemployed in 2003 represent the “tip of the iceberg” of the decent work deficit, since more than seven times that number of people are employed but still live in poverty.

According to the report, some 2.8 billion people were employed globally in 2003, more than ever before. However, of these, nearly 1.4 billion—the highest number ever—are living on less than the equivalent of US$2 a day and some 550 million are living below the US$1 a day poverty line.

But the news is not all bad. The report shows that the actual percentage of working persons living under both the US$2 a day and US$1 poverty lines is lower today than in 1990, while projected global growth rates may halve US$1 working poverty in some areas of the world by the year 2015

“The key to reducing the number of working poor is creating decent and productive employment opportunities and promoting a fairer globalization as strategies for poverty reduction,” says Mr. Somavia. “It is not only the absence of work that is the source of poverty, but the less productive nature of that work. Productivity growth, after all, is the engine of the economic growth that enables working men and women to earn enough to lift themselves out of poverty.”

The World Employment Report 2004-2005 breaks new ground with its analysis of the linkages between employment, productivity and poverty reduction.

The report argues that the benefits of productivity gains start at the enterprise level, with lower costs of production and increased profits and competitiveness, and can continue through to benefit workers in the form of higher earnings and reduced working time. Ultimately these benefits impact the macro-economy with lower prices, increased consumption and increased employment.

However, the report acknowledges that reality can be more complex, with major shifts in employment and earnings hidden behind average figures. Productivity gains can often lead to the downsizing of some sectors, with employment increases coming elsewhere. To deal with this challenge, “institutions should provide workers with security and training to better prepare them for the changing labour market.”

“A focus on where people really work is as important as a focus on emerging, dynamic sectors,” adds the report, highlighting the importance of the expanding service sector, which has shown both productivity and employment gains and provides opportunities for both high and low skilled workers. In this context, upgrading the informal economy where most people work in many developing countries is vital.

The report also calls for more attention to increasing productivity and earnings in agriculture since a large share of workers in this sector are informally employed and living in poverty. The agricultural sector employs over 40 per cent of developing countries’ workers and contributes over 20 per cent of their GDP.

The report outlines the importance of employment stability since it helps productivity growth. Employment “stability” is not “labour immobility”: jobs and skill requirements can change for the same person working for the same firm. In order to improve productivity, there is a need to balance the flexibility that firms require with protection for workers

The World Employment Report 2004-2005 also recommends policies to improve the integration of small firms into the broader economy and to narrow the productivity gap with larger enterprises. Smaller businesses represent a substantial share of employment in both developed and developing economies but their potential to help reduce poverty is limited if their productivity is low.

Future trends

The new ILO report also deals with the question of how likely is it that the world will halve working poverty by 2015, and says that:

• The analysis of labour productivity trends, labour market trends, and trends in working poverty shows that those regions that have managed to increase productivity in the longer run and have also managed to create employment opportunities are more likely to be on track to reach the Millennium Development Goal of halving poverty by 2015.
• There is a chance to halve the global proportion of US$1 a day working poor by 2015 since the global annual GDP growth rate needed would be 4.7 per cent, less than the 5 per cent annual rate projected between 1995 and 2005. But, this global projection is heavily influenced by rapid growth in China, South East Asia and South Asia. The transition economies, and the Middle East and North Africa should also meet the goal. Latin America and the Caribbean, however, most likely will not and sub-Saharan Africa is significantly off track.
• The outlook for halving US$2 a day working poverty is less promising. Only East Asia has a realistic chance, whereas none of the other regions will succeed unless their GDP growth rates increase considerably.
• The share of people working under the US$2 a day poverty level has declined from 57.2 per cent in 1990 to 49.7 percent in 2003, and may drop to around 40 per cent in 2015.

The report says that it is clear that there is a large and persistent decent work deficit in the world –  “one that poses a great challenge in the fight against poverty.”

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