Spain's Wage Gap Charts – Wage rates for all employed in manufacturing

The Jus Semper Global Alliance Living Wages North and South

Spain’s Wage Gap Charts Wage rates for all employed in manufacturing

Wage gap charts for Spain vis-à-vis selected developed and “emerging” economies, with available wage and PPP data (1996-2011) (first report for to be published for all employed in manufacturing – see definitions and sources at the end))

Wage gap charts for Spain vis-à-vis selected developed and “emerging” economies, with available wage and PPP data (1996-2011).

© 2013. The Jus Semper Global Alliance Web portal: www.jussemper.org/ E-mail: informa@jussemper.org

Under Creative Commons Attribution 3.0 License http://creativecommons.org/licenses/by/3.0 February 2013

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Table of Contents •

Argument for wage equalisation – classic problem scenario

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Argument for wage equalisation – the argument

5

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Argument for wage equalisation – concept of living wage using PPPs

7

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Argument for wage equalisation – classic example in 2011

8

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2011 real wage gap with U.S. wages using PPPs

10

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Size of gaps with U.S. – Manufacturing hourly real wage via PPPs

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Equalisation index with U.S. – Manufacturing hourly real wage via PPPs

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Main features of the manufacturing wage situation in Spain

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Behaviour of Spanish hourly wage rates, PPPs and equalisation index with equivalent U.S. wage rates

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Gap between nominal manufacturing hourly wage rate and PPP equalisation with U.S. real wage rate

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Gap between equalisation index and size of manufacturing hourly real wage rate gap vis-à-vis U.S. real wage rate

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Performance of equalisation indices of manufacturing real wage rate and PPP indices with the U.S.

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Behaviour of comparative indices of Spain and Germany’s manufacturing hourly real wage rate

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Spain and Germany’s PPP equalisation indices of hourly real wage rate with equivalent U.S. wage rate

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Table T5 – Manufacturing workers' Wage Gap Analysis in Purchasing Power Parities (PPPs) Comparison Terms 1996-2011

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Definitions and Sources

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The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) § Classic Problem Scenario § With market liberalisation, MNCs sell their products in both the host countries and in all other markets where they are active, including their home country, at the same or at a very similar sales price, § They achieve maximum profitability when the manufacturing process in their developing countries’ operations is at par in quality and production efficiency with the standards used in their home operations but their cost of labour is dramatically lower, § The MNCs’ markets and their manufacturing and marketing operations are globalised but their labour costs remain strategically very low in order to achieve maximum competitiveness and shareholder value at the expense of the South’s workers, § The resulting situation is one where MNCs get all the benefit. Sometimes the salaries that they pay are higher than the legal minimum wage in the host country. Yet, these wages still keep workers in dire poverty. A minimum wage does not make a living wage even in the most developed economies, § What has occurred, with market globalisation, is the dramatic widening of the gap between wages in the North and in the South, § While the standard of living of a worker in the North provides the basic means to make a living and afford a basic standard of comfort, a worker working for the same company, doing the exact same job with the same level of quality and efficiency, lives in a shanty town in a cardboard house with no sewage, water and legal electricity, § In this way, the huge differential in labour costs is added to the profit margin, keeping the part (the surplus value) that should have provided the worker with an equivalent standard of living to that enjoyed by the same workers in the North. This surplus value from the labour factor is the part rightfully belonging to workers, and that they should have received from inception, as their fair share of the income resulting from the economic activity.

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The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) § The Argument § In true democracy the purpose of all governments is to procure the welfare of every rank of society, especially of the dispossessed, with the only end of all having access to a dignified life in an ethos where the end of democratic societies is the social good and not the market. The market is just one vehicle to generate material wellbeing, § In this ethos, and with markets globalised, workers performing the same or an equivalent job for the same business entity, in the generation of products and services that this entity markets at global prices in the global market, must enjoy an equivalent remuneration, § This equivalent remuneration is considered a living wage, which is a human right, • A living wage provides workers in the South with the same ability to fulfil their needs, in terms of food, housing, clothing, healthcare, education, transportation, savings and even leisure, as that enjoyed by equivalent workers in the North, which we define in terms of the purchasing power parities (PPP) as defined by the World Bank and the OECD, • The definition of a living wage of The Jus Semper Global Alliance is as follows: A living wage is that which, using the same logic of ILO´s Convention 100, awards “equal pay for work of equal value” between North and South in PPPs terms, § The premise is that workers must earn equal pay for equal work in terms of material quality of life for obvious reasons of social justice, but also, and equally important, for reasons of long-term global economic, environmental and social sustainability.

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The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) § The Argument § The argument of an equivalent living wage is anchored on two criteria: ➡ Article 23 of the UN Universal Declaration of Human Rights on the following points: a. Everyone, without any discrimination, has the right to equal pay for equal work, b. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection. ➡ ILO´s Convention 100 of “equal pay for work of equal value’, which is applied for gender equality, but applied in this case to North-South equality, using PPPs as the mechanism, § The proposal is to make workers in the South earn living wages at par with those of the First World in terms of PPPs in the course of a generation (thirty years), § There will not be any real progress in the true sustainability of people and planet –reversing environmental degradation and significantly reducing poverty– if there is no sustained growth, in that period, in the South’s quality of life, through the gradual closing of the North –South wage gap; attacking, in this way, one of the main causes of poverty, and pursuing concurrently sustainable development –rationally reducing consumption in the North and rationally increasing it to dignified levels in the South, thus reducing our ecological footprint on the planet, § Just as the International Labour Organisation’s Decent Work Agenda states, the decent work concept has led to an international consensus that productive employment and decent work are key elements to achieving poverty reduction, § The material quality of life in Jus Semper’s The Living Wages North and South Initiative (TLWNSI) is defined in terms of purchasing power, so that equal pay occurs when purchasing power is equal, § Purchasing power is determined using purchasing power parities (PPPs), § Purchasing power parities (PPPs) are the rates of currency conversion that eliminate the differences in price levels between countries.

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The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) § Concept of Living Wage Using PPPs § The concept of a living wage using PPPs is straightforward. To determine real wages in terms of the purchasing power of any country in question, the PPPs of this country are applied to nominal wages. These are the real wages for each country, § Purchasing power parities reflect the amount in dollars required in a given country to have the same purchasing power that $1 U.S. has in the United States; e.g.: if the PPP index in one country is 69, then $0,69 are required in that country to buy the same that $1 buys in the U.S.; thus, the cost of living is lower. If the PPP were to be higher than 100, say 120, then $1,20 is required in that country to buy the same that $1 buys in the U.S.; the cost of living is, thus, higher, § To calculate a living wage, the real wage of a specific category of U.S. workers is used as the benchmark, and the PPPs of a country in question are then applied to the U.S. wage, § This provides the equivalent living wage that a worker in the country in question should be earning in order to be at par in terms of purchasing power to the material quality of life enjoyed by the equivalent U.S. worker. This is the equalised wage in terms of purchasing power, § In this way, the comparison between the actual real wage of the country in question exposes the gap, in real terms, between the current real wage of the worker of the country in question and the living wage it should be earning, in order to be equally compensated in terms of PPPs, § In practice, since the PPPs vary annually, due to the dynamics of economic forces, the pace of the gradual equalisation of wages, through small real-wage increases, needs to be reviewed annually. § It must be pointed out that this rationale does not even take into consideration that the neoliberal paradigm of staunch support for supply-side economics has consistently depressed for three decades the purchasing power of real wages in the U.S., the benchmark country for wage equalisation. This has been attempted to be resolved by women joining the work force and, fictitiously, through over indebtedness, which eventually has brought us down to the great implosion of capitalism in 2008. In this way, this equalisation analysis is made in the context of a course set forth during three decades of global depression of real wages in favour of international financial capital.

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The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) A Classic Example in 2011 § Equivalent manufacturing workers in Spain and Argentina earn only 80% and 72%, respectively, of what they should be making in order to be compensated at par with their U.S. counterparts in terms of purchasing power, § U.S. Workers earn $35,53/hour whilst Spanish and Argentinian workers earn only $28,44/hour and $15,91/hour, respectively, § Since costs of living in PPP terms in Spain and Argentina are 99¢ and 62¢, respectively, for each $1 U.S. dollar, equivalent Spanish and Argentinian manufacturing workers should be earning instead $35,33/hour and $21,99/hour, respectively, in order to enjoy equal purchasing power compensation, § The difference is the wage rate gap that employers perversely keep to increase profits, § Germany, in contrast has a real wage rate competitive advantage over its U.S. counterparts, since its nominal wage rate ($47,38) is 120% of the equivalent wage rate ($39,59) needed to be at par, with a PPP of $1,11 per each $1 U.S. dollar.

Nominal, Real and Equalisation Wage Rate for All Employed in Manufacturing by Using Purchase Power Parities (PPPs) Benchmark

2011

Nominal Hourly

PPP

Wage

2009

Equalisation

PPP

Equalised Nominal Hourly

Real Wage

Wage

Index

United States

$ 35,53

100

$ 35,53

$ 35,53

100

Germany

$ 47,38 133% $ 28,44 80% $ 15,91 45%

111

$ 42,52 120% $ 28,60 80% $ 25,70 72%

$ 39,59 111% $ 35,33 99% $ 21,99 62%

120

Spain Argentina

99 62

80 72

Sources: U.S. Department of Labour, Bureau of Labor Statistics, December 2012.

Data base of World Bank's World Development Indicators, 1975-2011, (GDP & GDP PPP, Atlas method) February 2013

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The Argument for Wage Equalisation Using Purchasing Power Parities (PPPs) § A Classic Example in 2011 § From a graphic perspective, the first pie chart shows the U.S. real wage rate for all employed in the manufacturing sector, which is always the benchmark. In Spain’s case, the pie chart exhibits the nominal wage rate earned, the nominal wage rate equalised with the U.S. wage rate –always in purchasing power parity terms, and the difference retained inappropriately (deliberately). § The nominal equalised wage rate of $35,33 is what all employed in Spain’s manufacturing sector should earn to be equally remunerated (in purchasing power terms) for performing an equivalent task. Yet, workers only earn $28,44 instead of $35,33 thus the employer deliberately retains $6,89, which constitutes about one-fifth of the surplus value that legitimately belongs to Spanish workers, according to TLWNSI’s concept. § In this way, the second pie chart shows how the employer retains inappropriately 20% of labour’s surplus value, or labour share of income, by only allocating to the worker 80% of what he/she is entitled to.

20%

$ 35,53

$ 6,89

$ 28,44 $ 35,33

80%

Nominal wage rate earned Equalised nominal wage rate Difference inappropriately retained by the employer U.S. equivalent wage rate (benchmark for equalisation)

Nominal wage rate earned Difference inappropriately retained by the employer Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance

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Wage rate gap comparisons for selected economies § Since 2010 the international comparison of hourly compensation costs (hourly wage rates) between the U.S. and selected developed and "emerging" markets refers to all employed in the manufacturing sector and no longer will be available for production workers only. Production-line wage rates are on average 20% below wage rates for all employed in manufacturing, including production workers, for the 1996-2009 period, for all countries included in the assessment. For further reference see wage-gap assessment of trends and differences between production-line and all employed in manufacturing in compensation cost terms here: <http://www.jussemper.org/Resources/Labour%20Resources/Resources/ PLWvsAEM_wage_rates96-09.pdf> § Overall, seven out of the twelve countries in this assessment are better off in 2011 than in 1996, the first year available with hourly compensation cost data. Overall East Asian economies recorded the greatest gains in their wage-rate position. In contrast, Canada and Brazil have lost much ground whilst Australia, France and the UK have the same gap as in 1996. Most countries recorded their best position between ’02 and ’08. Canada, Brazil and France had their best equalisation index (Eq-Idx) in ‘96 or ’98. Mexico, as in the case of production-line wage rates, had negligible change in 15 years and continues to have the worst position of all countries. § In 2011, Germany shows a competitive advantage of its wage rates over the rates of equivalent workers in the U.S. Germany’s hourly wage rates have a purchasing power 20% stronger than the rates of their U.S. counterparts and is the only country in this assessment to have an advantage over the U.S. rate for all employed in the manufacturing sector. Based on Germany’s PPP cost of living, workers in the manufacturing sector needed a rate of $39,59, to be at par (equalised) with the U.S. rate. Yet, its current nominal rate is 20% higher ($47,38) than what is required. § In contrast, all other economies recorded at least a small gap. France, Italy, Australia, Singapore, Canada and Spain recorded gaps between 2% and 20%, whilst the U.K, Japan and South Korea recorded gaps between 20% and 30% of their respective equalisation level. Far behind these economies, Brazil and Mexico continue to have huge gaps with their U.S. counterparts of 69% and 72% respectively. § Brazil remains far behind its best Eq-Idx of ’96 in 2011. Mexico’s track record since 1996 is the worst in this assessment. Thus, barring the Philippines, Mexico continues to have the worst position of the 31 countries in the three regions of our assessments.

2011 gaps between nominal and equalised wage rates with U.S. wage rates using PPPs (Total hourly manufacturing compensation costs in U.S. dollars – U.S. is benchmark) $60 (20%)

15% 2% 7%

Benchmark

54,51

47,38 35,5335,53

17%

39,59

42,1243,03

46,29

25% 21%

20% 16%

47,56

44,23

36,1738,97

36,56 22,60

28,44

26,89

35,33

38,86 30,77

28%

38,18

35,71 26,33

69%

18,91 11,65

$0

U.S.

Germany

France

Italy

Australia

Singapore

Nominal Wage Rate

Canada

Spain

UK

Japan

South Korea

Brazil

23,42 72% 6,48

Mexico

Equalised Wage Rate

Gap between Nominal and Equalised wages rates in terms of purchasing power parities 1) If lighter bar is greater than darker bar= Nominal wage rate is superior to rate required to be at par with U.S. 2) If darker bar is greater than lighter bar= Nominal wage rate is less than wage required to be at par with U.S. 3) If both bars are in equilibrium= Nominal wage is equivalent to nominal wage in U.S. in terms of purchasing power (The size of wage gap is expressed in percentages. If negative, there is a wage advantage instead of a wage gap for nominal wage rate is superior to rate required to be at par with U.S.. Comparisons are in terms of hourly compensation costs as explained in T5.) ______________________________________ Sources: – Data base of World Bank's World Development Indicators, 1975-2011, (GDP & GDP PPP, Atlas method) X International Comparisons of Hourly Compensation Costs for all employed in Manufacturing, December 2012.

U.S. Department of Labour, Bureau of Labour Statistics

February 2013

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§

East Asian countries, particularly Singapore and South Korea, experienced very strong reductions of their wage rate gaps between 1996 and 2011. Singapore and South Korea did it between ’96 and ’08. South Korea recorded its lowest wage rate gap in 2008 (28%) and managed to remain at the same level in 2011. Singapore recorded its lowest wage rate gap also in 2008 (13%) to then increase it drastically (24%), but it has managed to go back to a level close to that achieved in 2008 (16%). Japan has been gradually reducing its gap and it recorded its lowest gap ever in 2011 (25%).

§

The UK has been losing ground since its best position in ’06 and suffered a heavy increase of its gap in 2011. This has taken the UK back to the same wage rate gap of ’96 (21%). As with the UK, Canada has been losing ground since its pre-crises ’06 position. Moreover, in 2011 it recorded its worst wage rate gap ever (17%) and is now 10 points above its 1996 level and 13 points above its lowest gap recorded in ’98 (4%). Australia has also lost ground since 2004 and is now at the same level as in ’96 (15%).

§

Among the euro-area countries, Germany and Italy recorded small improvements in 2011 but Germany is still behind its best position of ’06 (-23%), while Italy retained its best position of ’08 (7%). Spain lost little ground in 2011 from its best position recorded in 2010 (20%). Yet, all three countries are clearly ahead of their 1996 gaps.

France, in contrast, has barely experienced any change since 1996.

§

Brazil remains far above its gap of ’96 (60%). Mexico’s track record continues to record gaps of 70% or more since 1996, with no meaningful improvement whatsoever.

Size of Gaps with U.S. - Manufacturing Real Hourly Wage Rates via PPPs

73

-15

1996

72

71

70

72

-12

-14

-14

-16

1998 U.S. Benchmark United Kingdom February 2013

2000 Canada Spain

South Korea Mexico

2002 Japan Brazil

2004 France Australia

Germany Singapore

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71

71

-23

-22

2006

2008

72

72

-18

-20

2010

2011

Italy Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance 11

§ From an equalisation perspective, East Asian countries experienced very strong gains in Eq-Idx between 1996 and 2011. Singapore and South Korea registered powerful growth of thier Eq-Idx between ’96 and ’08. South Korea recorded its best Eq-Idx in 2008 and managed to remain at the same level in 2011. Singapore recorded its best Eq-Idx in 2008 to then drop drastically, but it has recovered much of its best position since 2008. Moreover, both countries have the best performance of all countries for the entire 15-year period. Japan has been gradually reducing its gap and, after a slump in 2010, it recorded its best Eq-Idx ever in 2011. § The UK has been losing ground since its best Eq-Idx in ’06 and suffered a heavy drop in 2011 of four index points due to a lower nominal wage rate growth than in the U.S, with a much higher PPP increase. This has taken the UK back to the same Eq-Idx of ’96. As with the UK, Canada has been losing ground since its pre-crises ’06 Eq-Idx due to a lower nominal wage rate growth than in the U.S. with a higher PPPs increase. Moreover, in 2011 it recorded its worst Eq-Idx ever and is now 10 points below its 1996 level and 13 points below its best Eq-Idx recorded in ’98. Australia has also lost ground since 2004 and is now at the same level as in ’96. Its PPP has recorded the strongest growth of all countries, making it extremely expensive to increase real wages and quite difficult to close the living-wage gap. § Among the euro-area countries, Germany and Italy recorded small gains in 2011 but Germany is still behind its best Eq-Idx position of ’06, while Italy retained its best Eq-Idx of ’08. Spain lost little ground in 2011 from its best Eq-Idx recorded in 2010. Yet, all three countries are clearly ahead of its 1996 Eq-Idx, with Germany maintaining its clear advantage over U.S wage rates, with an Eq-Idx of 120. France, in contrast, has barely changed its Eq-Idx since 1996, remaining, except for 2004, almost at par with U.S. wage rates. Despite the crises, euro area countries have maintained or even improved, however slightly, their pre-crises equalisation position. § Brazil managed to record a one point gain in its Eq-Idx in 2011, which could be the result of the start of its minimum wage recovery in 2010, which sets out to increase real wages annually by adding to the consumer price index of the previous year the GDP growth of two years prior. The plan, enacted in a new law, sets out to increase real wages annually until 2023. We will see how the increase in real minimum wages exerts a multiplying effect on the wages of all employed in the manufacturing sector, but it should establish a positive trend.. Yet Brazil remains far behind its best Eq-Idx of ’96. Its main obstacle is that despite strong growth of nominal rates, its PPP is also growing rather strongly, making Brazil more expensive than the U.S. for the first time. § Mexico’s track record since 1996 exposes a deliberate State policy of maintaining real wages at the level of modern-slave-work wages, with a 28 Eq-Idx that is one point above its lowest index and two points below its best recorded index in fifteen years. Consequently, baring the Philippines, Mexico continues to have the worst position of the 31 countries in the three regions of our assessments.

Equalisation Index with the U.S. - Real Manufacturing Hourly Wage Rates via PPPs 123

115

114

112

122

116

114

120

118

27

28

29

30

28

29

29

28

28

1996

1998

2000

2002

2004

2006

2008

2010

2011

U.S Benchmark Brazil

Canada Australia

South Korea Singapore

Japan

France

Germany

Italy

United Kingdom

Spain

Mexico

Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance February 2013

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Main features of the manufacturing wage situation in Spain

§

In 2011 Spain and the rest of euro-area countries, for all workers employed in the manufacturing sector, do not appear to be affected yet by the global capitalist crises.

§

Broadly, the result of the planned process of convergence with the major economies of the EU, Spain’s GDP income per capita is now not far from them and moves in symmetry. By the same token, assuming that equivalent wages in the U.S. are of the living wage sort, as in the case of production-line workers, Spanish wage rates for all employed in manufacturing can generally be regarded as living wage rates, and in real terms are now also similar to those prevalent in some of the largest European economies. In fact, in 2011, Spain’s wage rates are slightly in a better equalisation position with U.S. wage rates than equivalent wage rates in the U.K., for the latter have lost value dearly with the ongoing global systemic crisis and have now returned to their 1996 position. Spain’s equalisation index, in contrast, is now clearly ahead of its 1996 position and is now only a point below its best index recorded in 2010.

§

All 21 European countries with wage rate data available recorded their best Eq-Idx between 2006 and 2011. Of these, three, including Spain, did it in 2010 and nine in 2011. In the same way, of 13 euro-area countries, three recorded their best Eq-Idx in 2010 and four in 2011. Thus, there is no reflection yet of the effect of the crises. Their wage rates continued their equalisation trend with those of their U.S. counterparts.

§

In Spain, real wages in local currency have sustained a consistent improvement since 1996. Inflation increased 49,9% for the 1996-2011 period, but nominal wage rates did so by 73,3%. Thus, real wage value improved in euros 15,6%. As for their behaviour in U.S. dollars, while U.S. wage rates for all employed in manufacturing increased 58,1% between 1996 and 2011, Spanish wage rates grew 84,8% for the same period. As a result, equalisation improved from a 73 Eq-Idx in 1996 to an 81 Eq-Idx in 2010 and an 80 index in 2011. In fact, when looking at wage rates for production-line workers in previous reports, which go as far back as 1975, the Eq-Idx for Spain climbed from a 52 to an 89 EqIdx between 1975 and 2009. Thus, Spanish wages in the manufacturing sector have consistently improved for the last 35 years and have nearly converged with the equalisation levels of the largest western European economies.

§

Unfortunately, the gradual transformation of Spanish wages into living wages is bound to experience a hard regression to the levels recorded many years ago. As could be expected, the ensuing effects of the systemic global capitalist crisis began to exert a toll on real wages in the entire Euro area in 2009, which continued in 2010 and 2011 and will be felt far more harshly from 2012 onward. Greece, Portugal, Italy, Ireland, Belgium and Spain have been forced to impose drastic economic policies that can no longer be considered supply sided or even recessionary but truly economically depressive. A euro-area policy centred on the harsh reduction of public deficits to 3% of GDP by 2013 – which will not be met at all– is drastically cutting budgets in all areas of government at both national and municipal levels. In the case of Spain, the recorded deficit for 2012 was 6,98% of GDP, more than the 6,3% negotiated for the year with the European Commission. Needless to say, everybody knows that the 2013 goal will not be met whatsoever. Hence the European Commission asserts that unless even harsher measures are applied, the public deficit in 2013 will be 6,7% and 7,2% in 2014 vis-à-vis the planned 2,8% (Joaquín Maudos, Varapalo a las previsiones, Cinco Días, 28-2-2013).

§

However, “coincidentally”, the new European Union directives are imposing, and not just demanding, a sheer neoliberal systemic restructuring which will deepen the already supply-side ethos that was gradually put in place in the 1990s. In complete incongruence with a truly democratic ethos, the new directives are now focused on reducing wages to the minimum common denominator and on dismantling many labour rights. As it happens, given that euro-area countries no longer have a national currency that could be devalued to increase competitiveness, and that the European Central Bank’s sole goal is to contain inflation, euro-area economic strategy to increase competitiveness is now exclusively anchored on wage pauperisation. Thus, euro-area workers are at a real disadvantage vis-à-vis the rest of the world.

February 2013

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Main features of the manufacturing wage situation in Spain § Furthermore, there is now clear evidence that there is an ongoing deliberate assault on labour rights in the EU. In the past, wages were not in the domain of EU directives. However, Germany‘s economic paradigm, which is excessively centred on the containment of inflation and the absence of deficits, has made its policy to reduce wages and labour rights as the sole means to achieve its objective. In this way, German wages –already downgraded in the 1990s– have barely kept up with inflation since 2000. Consequently, Germany’s best Eq-Idx, although it still has a surplus over equivalent U.S. wages (Eq-Idx of 120), recorded its best position in 2006, the farthest back of all euro-area countries. § This policy has been effectively transferred to the euro area and is being imposed even more profoundly as the new standard.

Hence, among other directives, lower pay (or more hours for the same wage) has become the required standard. The so-called “troika” of the European Commission (EC), European Central Bank (ECB) and the IMF began with Greece, by cutting wages in all public sectors by 25% in 2010. In 2011 the EC demanded that Belgium reform its wage indexation system to put a cap on wages in line with the same controls that were being implemented by its neighbours. Then in January 2012, the troika demanded the reduction of the minimum wage in Greece’s private sector (Anne Dufresne: The war on salaries Less pay for the workers, Le Monde Diplomatique, February 2012). And now, in 2013, the directive to rescue Cyprus banks is to impose a deposit sequestration (the same as Argentina’s “corralito”) – which blocks account holders from withdrawing their deposits– to approve taxes that –at the time this report was prepared– go from 3% to 12,5%, with the objective of making the citizenry pay the cost of paying the foreign creditor banks (Cyprus closes banks to stop run amid fury over bailout, The Guardian,18 March 2013).

§ All across the European Union a strong push for the reduction of labour entitlements is being unleashed by the troika, with the argument of being instrumental in the reduction of public deficits, debt and unemployment. But, as can easily be observed, the new standards go far beyond the argument and constitute, “coincidentally,” a harsh deepening of the neoliberal ethos demanded by financial markets. Three instances are quite illustrative. First, the policies aimed at the reduction of real wages are intended to cover both private and public sectors and not just the latter, where public debt resides. Second, the troika is also getting involved in reducing concrete and previously-thought untouchable labour rights enshrined in the ILO’s core conventions, such as the troika’s direct meddling in the collective bargaining processes and actually dismantling collective bargaining models. Indeed, in 2011 the members adopted the Euro-plus Pact, to speed up the dismantling of collective bargaining models as a legally-binding directive. Third, time and time again it has been shown that transforming labour prerogatives into criteria applied in a supply-side discretionary manner has never decreased unemployment significantly. Instead, it has contributed very meaningfully to reduce labour’s share of income and, thus, increase shareholder value. This conspicuous concept, to be sure, is the only raison d'être of financial markets, and they are demanding it from governments by reducing labour rights and the public sector to their minimum expression. Yet, the entire system is full of incongruences and hidden agendas. Governments are getting more and more in debt to rescue private banks. The ECB –financed by European taxpayers– is barred from lending to governments, but it lends to private banks at 1%, supposedly to support their recovery from their profligate lending practices. The ECB argues that it is also lending to banks so that they reestablish their credit lines with the general public. Yet, instead, the banks are using what they are borrowing at 1% to lend to governments at 4%, 5% or more. This way they clean their balance sheets and boost their shareholder value at the expense of the State and, ultimately, of taxpayers (Ana Flores: Las cinco grandes mentiras para salvar a la banca, Público, 02/01/2012). On top of that, they demand the reduction of the welfare state, of labour`s share of income and of labour’s fundamental rights, or, otherwise, they will increase the interest they charge to buy public debt, which is used to support them. Who are governments working for?

February 2013

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Main features of the manufacturing wage situation in Spain §

The entire scheme is clearly a neoliberal approach designed to fulfil all the demands of international financial markets, now that governments, both left and right, no longer feel constrained to show their true face as market agents and consolidate the marketocratic ethos disguised as representative democracy. This is clearly a façade to blur, as much as possible, the dictatorial and very private will of the owners of the market, which is systematically and unrelentingly imposed through the troika. As could be expected, the dismantling of European labour entitlements is not the only goal. Traditional neoliberal dogma is also being pursued, including prominently, the privatisation of state enterprises. The Washington Consensus, imposed in Iberian America in the 1980s and 1990s, is now being imposed across euro-centric economies.

§

In line with the new neoliberal, undemocratic and regressive European Union assault on labour rights, Spain’s “labour” government passed a new labour reform in 2010 designed to comply with the new directives of the EC. It should be noted that Spain had already passed supply-side labour reforms in 1984, 1992, 1994, 1997, 2001 and 2006, all aimed at increasing flexibility in hiring and firing practices, reducing benefits and employer contributions, theoretically aimed at reducing unemployment by increasing temporary employment and similar practices that increased job insecurity and reduced labour rights (F. Javier Murillo Arroyo: Impacto salarial del milagro económico español, 1994-2007, Análisis Económico, Núm. 59, vol. XXV, Segundo cuatrimestre de 2010).

§

Then, in 2012, the new ultra neoliberal government immediately passed a new labour reform that deepens the flexibility of employers, so that they can hire and fire almost at will. Employers can now unilaterally opt to ignore their collective bargaining agreement with the union every time they record any drop in sales/revenue (not profits) in two consecutive quarters, and, among other things, lay off workers individually (less than 10% of the work force) or collectively if sales/revenue (not profits) drop at any rate in three consecutive quarters. Yet, the staunchest neoliberal change of the new reform is the inclusion of the right of employers to cut wages every time they record any loss of revenue/sales (not profits) in two consecutive quarters (Boletín Oficial del Estado, Num. 36, Sábado 11 de febrero de 2012, Sec. I. págs. 12507-13). Again, the government’s argument is that the reform is designed to encourage employers to hire by making it easier and cheaper to hire and fire. Such view is clearly unsustainable, given that employers have not endured any great difficulty in laying off people since the beginning of the crisis.

§

The results for 2012 could not be more illustrative of the marketocratic assault on the Spanish citizenry. Unemployment has already climbed from 4,7 million people without work, which amounted to a 22,9% rate, and 49% unemployment among those 16-24 years of age, at the end of 2011, to almost 6 million people unemployed, accounting for 26,1% of the economically active population, and 55,1% of the 16-24 age bracket. Lastly, the GDP dropped 1,8% in 2012 and is forecasted to drop 1,6% in 2013 by The Economist and by 1,4% by the EU Commission, whilst the Spanish government reckons that it will drop only 0,4%. The government’s predictions are simply not credibile, whereas the assertion that the new reform clearly reduces labour rights has become axiomatic except to its imposers.

§

In summary, the capitalist systemic crisis has served to ensue a new assault on labour rights and the Welfare State in Spain and across the entire European Union. A new assessment reckons a drop of unit labour cost of 5,8% in 2012 (Jose Antonio Vega, La devaluación de los costes se ceba en el trabajo, que se abarata el 5,8% en 2012, Cinco Días, 28-02-2013).

This will, in all certainty, decrease the workers’ share of income and increase the employers’ shareholder value in the coming years. The same assessment reckons that labour’s share of income has dropped and in the fourth-quarter 2012 it was less than the employers’ share (44,24% vs. 46,21% respectively) whereas in 2011 labour share was still ahead (47,8 vs 43,6%). Real wages in the U.S. are not getting any better either, but economic policy is not obsessively centred on reducing deficits and contains some degree of countercyclical measures that are at least, unlike in the EU, producing a slight recovery and preventing a deep recession. Consequently, we continue to foresee that living-wage equalisation indices of Spain and the rest of the EU with the U.S. will surely decrease in the coming years and will produce a real wage gap that will not improve as long as fiscal policy remains excessively centred on deficits and inflation –with the ulterior motive of creating the ideal conditions for maximising the shareholder value of the EU’s true masters: the institutional investors of international financial markets. Ironically, even staunch apologists of neoliberalism such as the Wall Street Journal (Spain Versus the Budget Inquisition – The EU's legalistic focus on deficit numbers is to no one's benefit, 7 March, 2012) and the Financial Times (Tom Barber: Spain exposes flaws in EU crisis response, 5 March, 2012) have considered the euro-area economic strategy a great mistake.

February 2013

The Jus Semper Global Alliance (WGSp 96/11)

15

The chart below provides a complete illustration of the behaviour of Spain’s wage rates vis-à-vis U.S wage rates since 1996.

Between 1996 and 2011, Spain’s real wage rates and, consequently, their equalisation with equivalent U.S. wage rates improved steadily. Spain’s hourly wage rates for all employed in manufacturing increased nominally 85%, whilst the PPP cost of living increased only 5,3% and U.S. wages 58%. This equalisation trend will reverse meaningfully across the euro area but even more so in Spain, given the drastically depressive economic policies that are being imposed.

Behaviour of all Spanish employed in manufacturing hourly wage rates, PPPs and equalisation index with equivalent U.S. wage rates 105 99 94

94

94

92

Current U.S. dollars

80

75

73

69

73

73

29,31

1996

1998

Equalisation Index Spain Nominal Wage Rate

12,40

2000

35,53

34,81

32,78

30,48

19,82 14,15

80

72

27,75 15,48

81

80

78

27,36

24,96

23,49

22,47

68

26,66

28,44

21,80

13,85

2002

U.S. Benchmark Spain Real Wage Rate

2004

2006

2008

2010

2011

Spain Equalised Wage Rate PPP (cost of living) Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance

February 2013

The Jus Semper Global Alliance (WGSp 96/11)

16

Gap between hourly nominal and equalised wage rates in PPP terms for all employed in manufacturing with equivalent U.S. real wage rate (current dollars) 40

Size of gap between nominal and equalised wage

30

20

10

0

1996

1998

2000

2002

2004

Spain equalised wage rate

2006

2008

2010

2011

Spain nominal wage rate Sources: WB, U.S. BLS, OECD â&#x20AC;&#x201C; Š The Jus Semper Global Alliance

February 2013

The Jus Semper Global Alliance (WGSp 96/11)

17

Gap between Spain’s equalisation index and size of hourly real wage rate gap for all employed in manufacturing vis-à-vis U.S. real wage rate

73%

27%

1996

75%

25%

1998

78%

73%

73%

72%

27%

27%

28%

2000

22%

2002

2004

Size of Gap

2006

80%

81%

80%

20%

19%

20%

2008

2010

2011

Equalisation Index Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance

February 2013

The Jus Semper Global Alliance (WGSp 96/11)

18

Performance of equalisation indices of Spain’s PPP hourly real wage rate for all employed in manufacturing vis-à-vis U.S. counterparts and behaviour of Spain’s purchasing power parity indices (cost of living in PPP terms – U.S.= 100) 105

110

99 94

94

94

92

80

83

69

68

75

73

73

73

72

81

80

78

80

55

28

0

1996

1998

2000

2002

2004

Spain PPP cost of living

2006

2008

2010

2011

Equalisaton Index Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance

February 2013

The Jus Semper Global Alliance (WGSp 96/11)

19

When comparing Spain’s all employed in manufacturing real wage rates with those of their German counterparts, the latter average 50% or more in value than Spanish ones. The relationship appears to be fairly stable, oscillating within the 140-160 index range.

Behaviour of comparative indices of Spain’s manufacturing hourly real wage rate for all employed in manufacturing vis-à-vis equivalent German wage rate (Spain = 100)

161 159 157

156

155 152

149

149 145

1996

1998

2000

2002

2004

2006

2008

2010

2011

Spain Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance February 2013

The Jus Semper Global Alliance (WGSp 96/11)

20

The comparison between Spain and Germany’s living wage equalisation trends with U.S. equivalent wage rates exhibits a rather stable relationship between 1996 and 2011. Real wages in both countries will tend to decline however. Thus, given euro area economic policy, equalisation with the U.S. is bound to decline in both countries as well. Yet, the gap between their respective Eq indices should remain fairly stable, unless concrete policies to cheapen Spain’s labour costs vis-á-vis Germany’s labour costs are imposed, in which case the gap in the chart below will increase.

Spain and Germany’s PPP equalisation indices of hourly real wage rates with equivalent U.S. wage rates for all employed in manufacturing

115

112

114

114

123

122

78

2006

118

120

80

81

80

2008

2010

2011

116

73

75

73

73

72

1996

1998

2000

2002

2004

Spain Eq-Idx

Germany Eq-Idx Sources: WB, U.S. BLS, OECD – © The Jus Semper Global Alliance

February 2013

The Jus Semper Global Alliance (WGSp 96/11)

21

The Jus Semper Global Alliance – Living-Wage-Gap and Equalisation analysis (vis-à-vis the U.S.) for all employed in manufacturing in purchasing power parity terms 1996-2011

Benchmark

1. U.S. Hourly Manufacturing Wage Rate*

1996

1998

2000

2002

2004

2006

2008

2010

2011

22,47

23,49

24,96

27,36

29,31

30,48

32,78

34,81

35,53

1,213 1,3638 0,89 19,99 20,93 18,62 1,37 0,93

1,188 1,4836 0,80 18,80 22,54 18,04 0,76 0,96

1,232 1,4855 0,83 20,70 22,46 18,63 2,07 0,90

1,230 1,5704 0,78 21,43 23,40 18,33 3,10 0,86

1,231 1,3017 0,95 27,73 25,41 24,04 3,69 0,87

1,207 1,1340 1,06 32,46 27,28 29,05 3,41 0,90

1,233 1,0660 1,16 37,92 28,11 32,52 5,40 0,86

1,219 1,030 1,18 41,19 29,24 34,60 6,59 0,84

1,231 0,989 1,24 44,23 29,37 36,56 7,67 0,83

(Hourly compensation costs)

Canada

Brazil

February 2013

PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1)

$ $ $ $ $

$ $ $ $ $

0,799 1,0051 0,80 17,86 8,94 7,11 10,75 0,40

$ $ $ $ $

$ $ $ $ $

0,867 1,1605 0,75 17,56 9,03 6,75 10,81 0,38

$ $ $ $ $

$ $ $ $ $

0,964 1,830 0,53 13,15 8,26 4,35 8,80 0,33

$ $ $ $ $

$ $ $ $ $

The Jus Semper Global Alliance (WGSp 96/11)

1,114 2,9213 0,38 10,43 8,08 3,08 7,35 0,30

$ $ $ $ $

$ $ $ $ $

1,308 2,9262 0,45 13,10 8,55 3,82 9,28 0,29

$ $ $ $ $

$ $ $ $ $

1,394 2,1738 0,64 19,54 9,34 5,99 13,55 0,31

$ $ $ $ $

$ $ $ $ $

1,520 1,8326 0,83 27,18 10,18 8,44 18,74 0,31

$ $ $ $ $

$ $ $ $ $

1,727 1,760 0,98 34,16 10,27 10,08 24,08 0,30

$ $ $ $ $

$ $ $ $ $

1,797 1,672 1,07 38,18 10,84 11,65 26,53 0,31

22

The Jus Semper Global Alliance – Living-Wage-Gap and Equalisation analysis (vis-à-vis the U.S.) for all employed in manufacturing in purchasing power parity terms 1996-2011

Benchmark

1. U.S. Hourly Manufacturing Wage Rate* (Hourly compensation costs)

Mexico

France

Germany

Italy

PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1)

United Kingdom PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1)

February 2013

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

1996

1998

2000

2002

2004

2006

2008

2010

2011

22,47

23,49

24,96

27,36

29,31

30,48

32,78

34,81

35,53

3,764 7,60 0,50 11,13 6,16 3,05 8,08 0,27

4,974 9,15 0,54 12,77 6,57 3,57 9,20 0,28

6,101 9,5 0,65 16,10 7,29 4,70 11,40 0,29

6,558 9,7 0,68 18,57 8,24 5,59 12,98 0,30

7,220 11,29 0,64 18,74 8,23 5,26 13,48 0,28

7,191 10,91 0,66 20,10 8,92 5,88 14,22 0,29

7,478 11,14 0,67 22,00 9,64 6,47 15,53 0,29

7,906 12,624 0,63 21,80 9,80 6,14 15,66 0,28

8,191 12,427 0,66 23,42 9,83 6,48 16,94 0,28

6,483 5,1158 1,27 28,47 21,95 27,82 0,65 0,98 1,942 1,5049 1,29 28,99 25,75 33,22 (4,23) 1,15 1621,441 1542,76 1,05 23,62 19,98 21,00 2,62 0,89 0,641 0,6407 1,00 22,48 17,77 17,78 4,70 0,79

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

6,341 5,8995 1,07 25,25 23,23 24,97 0,28 0,99 1,932 1,7597 1,10 25,78 26,35 28,92 (3,14) 1,12 1565,076 1736,85 0,90 21,17 21,31 19,20 1,97 0,91 0,644 0,6034 1,07 25,09 19,36 20,68 4,41 0,82

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

0,937 1,0832 0,87 21,59 24,70 21,37 0,22 0,99 0,965 1,0832 0,89 22,23 28,53 25,41 (3,18) 1,14 0,815 1,083 0,75 18,79 22,11 16,64 2,15 0,89 0,635 0,6598 0,96 24,02 21,48 20,67 3,35 0,86

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

The Jus Semper Global Alliance (WGSp 96/11)

0,901 1,0578 0,85 23,30 27,16 23,13 0,17 0,99 0,938 1,0578 0,89 24,25 31,17 27,63 (3,38) 1,14 0,842 1,0578 0,80 21,77 23,39 18,61 3,16 0,85 0,626 0,666 0,94 25,74 23,49 22,10 3,64 0,86

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

0,938 0,8040 1,17 34,21 27,54 32,14 2,07 0,94 0,895 0,8040 1,11 32,63 33,88 37,72 (5,09) 1,16 0,871 0,804 1,08 31,76 25,02 27,11 4,65 0,85 0,632 0,5456 1,16 33,94 24,61 28,50 5,44 0,84

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

0,901 0,7960 1,13 34,51 29,89 33,85 0,66 0,98 0,836 0,7960 1,05 32,02 37,48 39,37 (7,35) 1,23 0,832 0,796 1,05 31,86 27,28 28,52 3,34 0,90 0,625 0,5425 1,15 35,14 27,09 31,23 3,91 0,89

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

0,878 0,6791 1,29 42,39 32,29 41,76 0,63 0,99 0,807 0,6791 1,19 38,97 39,98 47,53 (8,56) 1,22 0,785 0,6791 1,16 37,88 30,39 35,11 2,77 0,93 0,645 0,5392 1,20 39,22 28,58 34,20 5,02 0,87

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

0,866 0,7541 1,15 39,96 34,08 39,12 0,84 0,98 0,803 0,7541 1,07 37,07 41,15 43,83 (6,76) 1,18 0,798 0,7541 1,06 36,86 31,72 33,59 3,27 0,91 0,656 0,6472 1,01 35,28 28,72 29,11 6,17 0,83

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

0,869 0,7178 1,21 43,03 34,78 42,12 0,91 0,98 0,800 0,7178 1,11 39,59 42,52 47,38 (7,79) 1,20 0,787 0,7178 1,10 38,97 32,98 36,17 2,80 0,93 0,682 0,6233 1,09 38,86 28,13 30,77 8,09 0,79

23

The Jus Semper Global Alliance – Living-Wage-Gap and Equalisation analysis (vis-à-vis the U.S.) for all employed in manufacturing in purchasing power parity terms 1996-2011

Benchmark

1. U.S. Hourly Manufacturing Wage Rate*

Spain

PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1)

Japan

South Korea

Singapore

Australia

1996

1998

2000

2002

2004

2006

2008

2010

2011

22,47

23,49

24,96

27,36

29,31

30,48

32,78

34,81

35,53

119,447 126,68 0,94 21,19 16,42 15,48 5,71 0,73

119,588 149,41 0,80 18,80 17,68 14,15 4,65 0,75

0,732 1,0832 0,68 16,88 18,34 12,40 4,48 0,73

0,730 1,058 0,69 18,88 20,07 13,85 5,03 0,73

0,758 0,804 0,94 27,63 21,02 19,82 7,81 0,72

0,734 0,796 0,92 28,12 23,63 21,80 6,32 0,78

0,716 0,6791 1,05 34,58 26,31 27,75 6,83 0,80

0,710 0,7541 0,94 32,76 28,33 26,66 6,10 0,81

0,714 0,7178 0,99 35,33 28,60 28,44 6,89 0,80

(Hourly compensation costs)

PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1) PPP conversion factor, GDP (in country currency) Exchange rate PPP conversion factor, GDP (in U.S. dollars) 2. Equalised PPP nominal wage rate US $ 3. Actual PPP Real wage rate US $ 4. Actual Nominal wage rate US $ Compensation Deficit in US $ (2 minus 4) Wage Equalisation index (4÷2 or 3÷1)

February 2013

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

170,600 108,78 1,57 35,24 15,09 23,67 11,57 0,67 731,420 805,00 0,91 20,42 10,50 9,54 10,88 0,47 1,293 1,410 0,92 20,60 13,01 11,93 8,67 0,58 1,276 1,2775 1,00 22,44 19,19 19,17 3,27 0,85

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

166,684 130,99 1,27 29,89 16,18 20,59 9,30 0,69 773,443 1400,40 0,55 12,97 11,99 6,62 6,35 0,51 1,414 1,672 0,85 19,87 13,56 11,47 8,40 0,58 1,401 1,5896 0,88 20,71 19,45 17,15 3,56 0,83

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

154,807 107,80 1,44 35,84 17,42 25,02 10,82 0,70 746,166 1130,90 0,66 16,47 14,58 9,62 6,85 0,58 1,217 1,725 0,71 17,60 16,60 11,71 5,89 0,67 1,421 1,7197 0,83 20,62 19,91 16,45 4,17 0,80

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

The Jus Semper Global Alliance (WGSp 96/11)

143,578 125,22 1,15 31,37 18,73 21,48 9,89 0,68 769,318 1250,31 0,62 16,83 16,66 10,25 6,58 0,61 1,114 1,791 0,62 17,02 19,51 12,14 4,88 0,71 1,286 1,84 0,70 19,13 24,91 17,42 1,71 0,91

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

134,356 108,15 1,24 36,41 20,34 25,27 11,14 0,69 795,939 1145,24 0,70 20,37 18,17 12,63 7,74 0,62 1,059 1,690 0,63 18,37 21,07 13,20 5,17 0,72 1,317 1,3578 0,97 28,42 27,59 26,75 1,67 0,94

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

124,733 116,31 1,07 32,69 22,41 24,03 8,66 0,74 774,431 954,32 0,81 24,73 21,40 17,37 7,36 0,70 1,017 1,588 0,64 19,51 21,51 13,77 5,74 0,71 1,399 1,3271 1,05 32,13 27,67 29,17 2,96 0,91

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

116,883 103,39 1,13 37,06 24,31 27,48 9,58 0,74 783,377 1098,71 0,71 23,37 23,63 16,85 6,52 0,72 0,932 1,414 0,66 21,61 28,63 18,87 2,74 0,87 1,551 1,1714 1,32 43,41 27,12 35,91 7,50 0,83

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

111,360 87,78 1,27 44,16 25,03 31,75 12,41 0,72 824,389 1155,739 0,71 24,83 24,86 17,73 7,10 0,71 0,988 1,363 0,73 25,24 26,34 19,10 6,14 0,76 1,465 1,087 1,35 46,91 29,44 39,67 7,24 0,85

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

106,674 79,70 1,34 47,56 26,68 35,71 11,85 0,75 820,464 1106,94 0,74 26,33 25,51 18,91 7,42 0,72 0,951 1,257 0,76 26,89 29,86 22,60 4,29 0,84 1,485 0,9679 1,53 54,51 30,17 46,29 8,22 0,85

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*Definitions::

v PPPs stands for Purchasing-Power Parities, which reflect the currency units in a given currency that are required to buy the same goods and services that can be purchased in the base country with one currency unit. This analysis uses the U.S. and the U.S. dollar as the benchmark and assumes that the U.S. wage is a living wage. v The hourly manufacturing wage rate is the "hourly compensation cost" as defined by the U.S. Department of Labour, Bureau of Labour Statistics: This includes (1) hourly direct pay and (2) employer social insurance expenditures and other labour taxes. Hourly direct pay includes all payments made directly to the worker, before payroll deductions of any kind, consisting of pay for time worked and other direct pay. Social insurance expenditures and other labour taxes refers to the value of social contributions incurred by employers in order to secure entitlement to social benefits for their employees. v PPP conversion factor, GDP (Gross National Income) in country currency express the number of country currency units required to buy the same goods and services a U.S. dollar can buy in the U.S. v Exchange rate is nominal exchange rate. v PPP conversion factor, GDP in U.S. dollars expresses the U.S. dollar units required in a given country to buy the same goods and services a U.S. dollar can buy in the U.S. If the PPP is less than 1, a U.S. dollar can buy more in the country in question because the cost of living is lower, and viceversa. v The GDP PPP, expressed in national currency, reflects the exchange rate in comparison with the market exchange rate, which does not reflect the ratio of prices. v Equalised PPP nominal wage rate is the hourly U.S. dollar nominal rate required to equally compensate a worker in a country, in purchasing power terms, for equal work rendered, as the equivalent U.S. worker is compensated. This analysis assumes the U.S. wage to be a living-wage. A living wage is a human right in accordance with Article 23 of the UN Universal Declaration of Human Rights. ILO's Convention 100 of "equal pay for equal work", for men and women is hereby applied in a global context. v Actual PPP Real wage rate is the hourly wage paid in a given country in purchasing power terms. v Actual Nominal wage rate is the nominal hourly wage paid in a given country. v Compensation deficit expresses the wage gap between the hourly nominal wage rate paid (4) and the equalised PPP hourly rate that should be paid for equal work (2). v Compensation equalisation index expresses the ratio of actual nominal pay to equalised PPP hourly pay (4 between 2): or the ratio of actual real pay (3) to the hourly nominal pay benchmark (1) (3 between 1). v Note: Variations in previous years are due to revisions made by the sources, including the World Bank's new 2005 PPP benchmarks, which replaced the previous 1993 benchmarks. v According to the World Bank, the 2005 PPPs are the most comprehensive for developing countries since 1993, and reveal that the size of their economies were often overestimated.

Sources: The Jus Semper Global Alliance analysis is performed using the sources below. (Sources with X indicate that some of their data is directly incorporated in the table:) – Database of World Bank's World Development Indicators, 1975-2011, (GDP & GDP PPP) X Hourly Compensation Costs for all employed in Manufacturing, updated on December 2012. U.S. Dept. of Labour, Bureau of Labour Statistics.

– Global Purchasing Power Parities and Real Expenditures. 2005 International Comparison Program. World Bank 2008.

– Purchasing Power parities – Measurement and Uses by Paul Schreyer and Francette Koechlin, OECD Statistical briefs, March 2002.

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Note regarding the new 2005 PPC round: Since 1970 the International Comparison Program (ICP) of the World Bank has conducted eight rounds of PPP estimates for the major components of countries’ gross domestic product (GDP)—the most recent for 2005. According to the World Bank, the PPP process calls for the systematic collection of price data on hundreds of representative and carefully defined products and services consumed in each country. Purchasing power parities are needed because similar goods and services have widely varying prices across countries when converted to a common currency using market exchange rates.

The PPPs previously published in World Development Indicators and used to estimate international poverty rates were extrapolated from the benchmark results of the 1993 ICP or from the Eurostat 2002 and then extrapolated forward and backward. The extrapolation method assumes that an economy’s PPP conversion factor adjusts according to the different rates of inflation for its economy and the base economy, the United States. A good approximation in the short run, but over a longer period changes in the relative prices of goods and services and in the structure of economies—what they produce and consume—distort this relationship, and new measurements must be made. New methods of data collection, differences in country participation, and changes in analytical methods all add to the differences between new PPPs and old.

The major finding, in the 2005 round of PPP estimates, is that, under the new PPPs, the aggregate GDP of developing economies in 2005 is 21 percent smaller than previously estimated, corresponding to a 7 percentage point reduction in their share of world GDP—from 47 percent to 40 percent. The United States—as the base country, unaffected by any revision—increased its share from 20,6 percent to 22,1 percent.

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