Key Highlights:
- Outlook: World Employment and Social Outlook.
- Date: Released on Wednesday (4 September) in Geneva, Switzerland.
- Job Displacement: AI is a major contributor to the decline in labour income.
- Income Stagnation: 0.6% decline in labour income share from 2019 to 2022.
- Pandemic Impact: COVID-19 caused a nearly 40% reduction in labour income share (2020-22).
Impact of AI on Labour Income: The International Labour Organisation’s report, “World Employment and Social Outlook,” highlights that while AI and technological innovation have elevated productivity, they have also reduced the share of income earned by labour, deepening inequality by rapidly replacing low-skilled jobs. The report also indicates that the stagnation in labour wages was worsened by the COVID-19 pandemic, showing that crises can have long-lasting effects on the economy and workforce.
Table of Contents
Brief Overview of ILO
The International Labour Organisation (ILO) was created in 1919 in France as part of the Treaty of Versailles. In 1946, it became the first specialised agency of the United Nations (UN). Today, 187 countries are members of ILO.
ILO works on the Tripartite principle, which brings together three key stakeholders to promote social and economic welfare, fostering decent work conditions and internationally recognised human and labour rights. These stakeholders are:
- Governments
- Workers
- Employers
Disparities in Income Distribution and AI Technology
The ILO studied the labour income share between 2019 and 2022, which went down by 0.6%. This indicates that if the labour share had remained at 2019 levels, labour would have collectively earned an extra $2.4 trillion globally in 2024.
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This study analysed data from 36 countries and concluded that technological innovations, particularly those driven by AI, have likely reduced the labour wage share (the proportion of total wages going to workers instead of capital owners). The ILO warns that without adequate policy intervention, the labour income share may continue to fall, further widening the gap between capital and labour incomes.
Impact of COVID-19 on Inequality
A notable decrease in the proportion of labour income was caused by the COVID-19 pandemic, which broadly impacted labour markets. According to the ILO report, almost 40% of this reduction in the labour share occurred during the pandemic years of 2020 to 2022. The pandemic highlighted and exacerbated inequality, potentially putting the achievement of the Sustainable Development Goals (SDGs) at risk.
Impact on Sustainable Development Goals
The ILO’s findings raise serious concerns about progress toward achieving the Sustainable Development Goals, particularly SDG 10, which focuses on reducing inequality within and among countries. The report underscores slow progress toward these goals as the 2030 deadline nears. The concentration of capital income among the wealthiest individuals hinders efforts to promote fair growth and development.
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Suggested Policy Actions
The ILO proposed stronger measures to address the falling labour income share. The ILO Deputy Director-General advised that countries need policies such as Universal Basic Income (UBI) and the reintroduction of Inheritance Tax to promote an equitable distribution of economic benefits. Additionally, the ILO recommends protection of freedom of association, support for collective bargaining, and strengthening labour administration to encourage inclusive growth.
- Universal Basic Income (UBI) is a government program that offers regular cash payments to all citizens, regardless of their employment status. UBI aims to alleviate poverty and simplify need-based programs.
- Inheritance Tax is a tax imposed on the estate of someone who has passed away. It is calculated based on the estate’s value, and beneficiaries may be required to pay taxes on the inheritance they receive.
Conclusion
Collaboration between governments, employers, and educational institutions, along with the promotion of inclusive growth strategies, is essential for harnessing the benefits of AI while mitigating its adverse effects on labour incomes. Ensuring a balanced approach will be key to creating a future where technological advancements contribute to shared prosperity rather than exacerbating existing inequalities.
