The International Herald Tribune, January 2, 2007, Tuesday

Copyright 2007 International Herald Tribune
The International Herald Tribune

January 2, 2007 Tuesday

SECTION: FINANCE; Pg. 15

HEADLINE: Fortunes of workers looking up;
Political changes point to labor gains;
ECONOMIC OUTLOOK;
MARKETPLACE by Bloomberg

BYLINE: Matthew Benjamin and Simon Kennedy

DATELINE: WASHINGTON

BODY:
Workers around the world are demanding a bigger share of global prosperity, and this year they might get it.
Political shifts in the United States, Europe and Asia increase the chances that 2007 will bring labor higher pay and stronger job protection after five years in which its share of economic gains fell. ''The pendulum of economic power might well begin to shift from capital back to labor,'' said Stephen Roach, chief global economist with Morgan Stanley in New York.
While that is good news for workers, the result may be a squeeze on corporate profits and stock prices, economists say. Roach, for one, foresees ''a very challenging and difficult environment for global stock markets,'' with heightened risks of protectionism, accelerating inflation and higher interest rates.
Labor's advocates argue that workers have been left behind while business owners have benefited disproportionately from the strongest world economy since the 1970s. Among the Group of 7 major industrialized economies, workers' share of national income shrank to a record-low 54 percent last year, while the share going to profits rose to 16 percent from 10 percent five years earlier, according to Morgan Stanley research.
Wages in the dozen nations that shared the euro before an expansion to 13 on Monday barely shifted last year even as the region enjoyed its strongest growth in six years. ''Economic data is so good that employees must have a share in the success they've helped to bring about,'' said Jurgen Peters, head of IG Metall, Germany's largest labor union.
The disparity is fueling what Sean Sweeney, director of the Cornell Global Labor Institute in New York, calls ''a seismic reaction brewing to the maldistribution of wealth.''
In the United States, the takeover of Congress by the Democratic Party increases the chances of raising the minimum wage.
Elsewhere, China's leaders are raising wages and encouraging unionization efforts at foreign-owned businesses. And IG Metall, which already won the biggest pay raise in more than a decade for 85,000 German steel workers, says it now wants ''significantly more money'' up to 7 percent for more than three million workers this year. IG Metall's pay accords act as benchmarks for other unions in Germany, Europe's largest economy.
The realignment now under way may add half a percentage-point a year to labor's share of national income over the next three to five years, while reducing capital's share by the same amount, Roach at Morgan Stanley said. That may be a cause for concern among central bankers, who warn that higher labor costs may push up prices. The European Central Bank's president, Jean-Claude Trichet, said last month that the possibility of inflationary wage demands was a ''risk which we do consider to be on the upside.''
Not everyone expects significant gains for workers. Immigration and low-cost labor in Asia and Eastern Europe will continue to keep a lid on pay, said Ronald Janssen, an economics adviser to the European Trade Union Confederation in Brussels. ''Wage gains have been very modest and will remain so.''
Still, said Julian Callow, chief European economist for Barclays Capital in London, ''even employers are saying the time has come to share the strong profit growth with employees.''
Workers can already point to tangible gains in several countries.
In Spain, Prime Minister Jose Luis Rodriguez Zapatero sealed a deal with unions and employers on changes to labor laws that left out one of business's major demands, a provision to make it easier to remove permanent workers. Prime Minister Romano Prodi of Italy reversed a policy of Silvio Berlusconi's government by reinstating collective bargaining on issues like overhauling pensions.
In the United States, passage of a higher minimum wage would raise pay directly for about 4 percent of the work force, and indirectly for many more, according to the Center for Economic and Policy Research in Washington.
Christopher McNally at the East-West Center, a research group in Honolulu, said that even in China, where widening income inequality has accompanied rapid economic expansion, ''there's been a policy shift similar to what's happening in the U.S.'' Cities like Shenzhen and Dongguan are raising the minimum wage, while the central government is encouraging unionization at larger companies, especially foreign ones.
In democracies, workers' muscle-flexing is translating into electoral gains for labor-allied parties. The Socialist Party in the Netherlands gained the most seats in November's election, a month after the Social Democrats in Austria won an election with promises to reduce unemployment.
In France, the Socialist Segolene Royal, who says the state ''must have a function'' in protecting workers from the effects of globalization, is tied in polls with Nicolas Sarkozy of the ruling Union for a Popular Movement party ahead of the spring presidential election.
Politicians who have traditionally been more business-friendly are also making overtures to labor. Chancellor Angela Merkel of Germany, who previously rejected calls for wage increases from her Social Democratic coalition partners, said last month that ''one has to think about it'' in ''booming sectors and in booming companies.''
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Simon Kennedy reported from Paris.