FALLING LABOUR INCOME, RISING CAPITAL GAINS CREATE ALARMING SITUATION

Income from capital is rising fast while income from labour is on the decline globally. It is putting upward pressure on inequality. Job market has now become ever more challenging to a much worrying level, and young people are hardest hit. Sustainable Development Goals (SDGs) targets are not on track and inequality is widening at the alarming speed.

This is the gist of the new World Employment and Social Outlook (WESO): September 2024 update released by the International Labour Organization. The report finds while measuring the widening inequality on the basis of proportion of total income in a country that employed people earn by working that this share  declined globally by 0.6 percentage points between 2019 and 2022, and has since remained flat.

With only six years remaining, the achievement of the Sustainable Development Goals (SDGs) increasingly seems to be out of reach, the report said. This is the case for two SDG indicators that the report has analysed in this brief – the share of youth not in employment, education, or training (NEET) and the labour income share.

It was observed that the trend of decline was consistent with the longer term which was 1.6 per cent between 2004 and 2024, with 40 per cent decline during 2020- 22 alone. In 2024, the trend represents an annual shortfall in labour income of $2.4 trillion (in constant PPP) compared to what workers would have earned had the labour income share remained stable since 2004.

Amongst other factors, economic studies have identified technology as a key driver of declines in the labour income share. Recent developments in the artificial intelligence (AI) field make it particularly relevant to analyse the relationship between technological innovations and the labour income share.

Across a sample of 36 countries with the required data, composed of mostly advanced economies, technological innovations over the past two decades are found to produce persistent increases in labour productivity and output; however, they can also reduce the labour income share. The evidence presented suggests that automation-oriented technological progress could be contributing to labour income share declines.

If historical patterns were to persist, absent a stronger policy response across a wide range of relevant domains, the recent breakthroughs in generative AI could exert further downward pressure on the labour income share. This is not a prediction about AI effects. Rather, the finding highlights the importance of ensuring that any benefits of AI are widely distributed, the report read.

The global incidence of youth Not in Employment, Education, or Training (NEET) has seen only a modest decline since 2015, falling from 21.3 per cent to 20.4 percent in 2024. The Arab States region has the highest incidence of youth NEET, at 33.3 per cent, followed by Africa (23.3 per cent), Asia and the Pacific (20.4 per cent), Latin America and the Caribbean (19.6 per cent), Europe and Central Asia (13.0 per cent), and Northern America (11.2 per cent).

NEET estimates show that large gender inequalities remain in young people’s access to education and employment, although there has been moderate progress in reducing gender gaps over the past two decades. The female youth NEET incidence is estimated at 28.2 per cent in 2024, more than double the incidence among youngmen (13.1 per cent). Gender gaps in NEET rates are largest in the Arab States (25.3
p.p.), followed by Asia and the Pacific (19.1 p.p.), Latin America and the Caribbean (17.6p.p.), and Africa (12.5 p.p.). The Europe and Central Asia and Northern America regions have the smallest gender gaps (3.5 p.p. and 0.2 p.p., respectively).

“Countries must take action to counter the risk of declining labour income share. We need policies that promote an equitable distribution of economic benefits, including freedom of association, collective bargaining and effective labour administration, to achieve inclusive growth, and build a path to sustainable development for all,” said Celeste Drake, ILO Deputy Director-General.

Drawing on the ILO’s recently published Global Employment Trends for Youth (GET Youth), the study also identifies the large share of youth outside employment, education and training as a persistent area of concern. As GET Youth showed, the global rate of youth not in employment, education or training (NEET)
registered only a modest decrease from 21.3 per cent in 2015 to 20.4 per cent in 2024 and is projected to remain flat for the next two years. The female NEET rate – which stood at 28.2 per cent in 2024 – is more than double that faced by young men, jeopardizing SDG 8.

Ensuring young people’s participation in education and their effective integration into the labour market is crucial for long-term social and economic development, particularly in a context of rapid technological advances, the report emphasized. Novel estimates suggest that large gaps remain in this area. Despite modest improvements in reducing the global NEET rate since 2015, NEET incidences remain at high levels. Finally, stark gender disparities persist, although some progress has been made in narrowing this gap. Overall, the slow pace of progress highlights the need to increase efforts to provide decent work  opportunities and to improve access to education, particularly in the regions with the highest NEET
incidences.