The recently released study by the International Labour Organisation (ILO), called the World of Work Report 2008: Income inequalities in the Age of Financial Globalisation, explicitly points out that in the last two decades India has witnessed only a one per cent hike in wages as against the 5 per cent growth in the productivity. In the listing of the countries with highest wage disparities and productivity growth, the study ranks India in the ninth position. India figures third in the list of countries with the highest wage dispersion, whereas the lowest wage dispersion was noted in Belgium and the Nordic countries.

The study establishes that despite the strong economic growth that has produced millions of new jobs since the early 1990s, income inequality has grown dramatically in most regions of the world and is expected to increase due to the current global financial crisis. A major share of the cost of the crisis will be borne by the hundreds of millions of people, who haven`t shared in the benefits of recent growth.

“This report shows conclusively that the gap between richer and poorer households has widened since the 1990s,” said Raymond Torres, Director of the Institute responsible for the report. “This reflects the impact of financial globalisation and a weaker ability of domestic policies to enhance the income position of the middle class and low-income groups. The present global financial crisis is bound to make matters worse unless long-term structural reforms are adopted.”

The report notes that whereas a certain degree of income inequality is useful in rewarding effort, talent and innovation, huge differences can be counter-productive and damaging for most economies, adding that “rising income inequality represents a danger to the social fabric as well as economic efficiency when it becomes excessive.”

The report marks the most comprehensive study, to date, of global income inequalities by the Institute, and examines wages and growth in more than 70 developed and developing countries. It calls for long-term action to put the global economy on a more balanced track, including the promotion of the ILO`s Decent Work Agenda to link economic, labour and social policies to boost employment and improve incomes and income distribution.

The report says that the global employment rose by 30 per cent between the early 1990s and 2007 and the income gap between richer and poorer households widened significantly at the same time. What is more, compared with earlier expansionary periods, workers obtained a smaller share of the fruits of economic growth as the share of wages in the national income declined in the vast majority of countries for which data was available.

“The ongoing global economic slowdown is affecting low-income groups disproportionately,” the report says. “This development comes after a long expansionary phase where income inequality was already on the rise in the majority of countries.”

The ILO officials involved in the study have predicted tough times ahead for India if it does not act now by pumping more resources in the unorganised sector to help the poor and  bridge the income inequalities between the formal and informal sectors. In India, of the total workforce of 457 million, around 92 per cent, or 420 million, work in the informal economy. According to Raymond Torres, in India, the foreign direct investment will decelerate and the remittance from the migrant population will also come down drastically. Referring to the income inequality between the formal and informal sectors, Torres said the wages of casual workers, who make up a substantial share of the informal sector, constituted about 44 per cent of the wages of a regular salaried worker in 2004-05 as against 62 per cent in 1983, showing the growing disparity. At the same time, expenditure on crucial items such as food had risen considerably.

According to the World of Work Report, since 2006, food prices have grown by 9 per cent, compared to 6.3 per cent for non-food prices. This has had a negative effect on the purchasing power of all urban households. The poorest households in urban India experienced an estimated drop in purchasing power of over 5 per cent whereas the richest ones experienced a drop of 2.2 per cent.

Predicting a major slowdown for India, the ILO has said the government should tone up the informal economy rather than go in for emergency financial rescue measures.