Welcome to the Future of Work podcast. I'm Steve Needham. We're here in Bangkok, where economic leaders from around the world are meeting for the IMF and World Bank Annual Meetings. One of the big issues facing policymakers and millions of people is the rising cost of everyday life. And even when we've seen economies grow and become more productive, workers don't necessarily see that reflected in their pay. So why is life becoming harder to afford, and what can be done about it?
Joining me here in Bangkok is the ILO's Chief Economist, Sangheon Lee. Sangheon, welcome to the podcast. Thank you so much, Steve, for having me here. Great. Let's move to the first question, Sangheon. If we go back to the pandemic four or five years ago, since the pandemic, the cost of everyday essentials rose very sharply in many countries. Since then, inflation has largely been brought under control, but many people are still struggling with the everyday cost of living. What's behind that?
Well, I think there are two things we need to understand here. The first is inflation has come down, but that doesn't mean prices have fallen. It simply means the prices are rising more slowly. So, for many households, actually, the prices of everyday essentials like food and housing and energy remain considerably high, much higher than before the pandemic, I must say.
The second, perhaps more importantly, wage growth, which actually, Steve, you touched upon. Wage growth has been relatively weak. In many countries, wage increases have failed to keep pace with inflation, for example, particularly during the recent inflation period. So even where wages have somehow recovered in real terms, the gains have often been very modest, leaving many workers with very limited improvement in their purchasing power.
There, I just want to add another long-term issue here. Wage growth has been left behind productivity growth. Probably we are going to document it in our forthcoming World of Work report, which means actually that even when countries become more productive, workers do not necessarily receive a proportionate share of those gains. This is particularly difficult for low-income households, as you can imagine, because they spend a much larger proportion of their income
on basic necessities. So I think we need to look beyond inflation itself. The fundamental question for us is whether workers' incomes are growing sufficiently to improve their living standards. And, of course, that brings us to the very important and broader issue of how the benefits of economic growth are shared. And so what we're seeing is that there is economic growth, productivity is rising, but, as you say, wages are not going up. Why is that, Sangheon? Why aren't workers seeing the
benefits in their incomes? Why isn't that benefit in productivity being enjoyed by workers as well? You know, Steve, I mean, this is really one of the most important economic questions we face today, right? Traditionally, productivity growth has been the main driver of rising wages, living standards. So when workers produce more value, then we expect their incomes to increase automatically accordingly. But this relationship is not automatic at all,
and it appears now to have weakened in recent years. So our analysis suggests that productivity gains are not being fully translated into higher wages, particularly for those in the middle and also lower part of the income distribution. One very important indication in that respect is labour income share. Globally speaking, the share of incomes going to labour declined from around 54 per cent in 2004 to 52.6 per cent in 2025.
So why is that? There are many reasons for that, like technological changes, globalization, changes in labour market institutions, and also weakening collective bargaining power in many countries. But one factor I just want to mention, as a little bit of a new emerging factor, is market concentration and market power. In many sectors. probably many of you know, a relatively small number of large firms has been increasingly dominant. And this can affect, of course, how productivity gains are shared,
not only between, let's say, enterprises and labour, but also among enterprises, between large and small enterprises, and also between workers as well. This is really a question about distribution at the moment. And Sangheon, you recently wrote about what you call the low-pay, low-productivity jobs trap. What exactly does that mean, and what does that look like in everyday working people's lives?
I mean, the idea I tried to actually introduce and explain quite a little bit in my recent Financial Times article, it's a bit simpler in a sense because we know millions of workers are working very, very hard, often for very long hours, but somehow they still remain trapped in jobs that generate very little income and offer limited opportunities to improve their productivity.
So let me just give one example. Let's think about a very small informal business, let's say, in developing countries. So it might be like a small shop, small workshop or even a family enterprise. I mean, that business may have very limited access to finance and modern technology and/or infrastructure, even some skill development. Because of all of this, productivity remains very low there, and the business cannot
afford to pay, of course, higher wages. But the relationship also runs in the other direction. So low pay, let's say poor working conditions, can severely undermine the incentive, actually, for the enterprise to invest in workers and develop skills and improve productivity. And also because the income and profit remains very low, both workers and enterprises have very limited resources to invest in becoming more productive.
So, in other words, the causality runs really both ways. Low productivity contributes to low pay, while low pay also can itself become an obstacle to productivity growth. So these two problems reinforce each other, creating a bit of a vicious circle. And I must say, this is not a marginal problem. Actually, think about around 1.1 billion workers
worldwide who are in informal employment, many of them facing precisely this kind of constraint. So this is why simply creating more jobs is not sufficient. What we need to do is help workers and enterprises move into more productive activities, while ensuring productivity improvements translate into better income and better working conditions. I think this is how we can begin to break this trap, I would say.
Can you give me an example of a low-pay, low-productivity job, or somebody who would be in a low-pay, low-productivity jobs trap, as an example of a job or an occupation? So, for example, a young person who is struggling to find a job and happens to find a very low-paid job without any opportunities for training or skill development, or other opportunities for improving their productive capacity.
But somehow this job is very important for their survival in the short term. But imagine a young person in this situation. You can think about the overall future trajectory of their working life. There is a high risk these young people may stay in that kind of job for the rest of their working lives because they haven't had the opportunity for learning new skills and then moving on to much better job opportunities.
So in that scenario, unless there is some support from enterprises or unless there is support from public institutions, these people continue to stay in the job, which means it's a trap. So how can we help those young people out of this trap? That should be a very important question – political question and also social question. Also, it's a very important economic question because when you have so many young people in that category,
that itself will drag on economic growth itself and also productivity growth. And so it's not just a case of having more jobs, but we need better jobs, as in a summary. And this isn't just a problem for workers, is it? I mean, how can having lots of low-paid, low-productivity jobs also impact economies? Yeah, absolutely. In fact, this is one of the central arguments I have been making. We often think about decent jobs as a bit of an outcome of economic growth,
but decent jobs are also an important driver of growth. So I think there are both, actually, in my view, microeconomic and macroeconomic reasons for this. When a large number of workers have a low and insecure income, their purchasing power is, of course, limited. And this constrains household consumption,
which is definitely a main source of demand in most economies. So weak demand, in turn, can discourage businesses from investing and expanding. So these microeconomic in the enterprise and also macroeconomic factors reinforce each other. Once again, low productivity, low wages and weak consumption demand and insufficient investment can keep an economy trapped in a low-growth equilibrium. Of course, my argument, the opposite is entirely possible.
So higher productivity and better wages and stronger demand and greater investment can also reinforce each other in a most positive way, creating a more dynamic economy. Now, this is why I believe improving job quality should not be seen simply as a social policy objective. It should be at the heart of our economic growth and development strategy. Sangheon, I understand artificial intelligence has played a major
part in the agenda of the World Bank and IMF meetings in Bangkok this week. And obviously, the potential of AI to help drive productivity is great. The potential is there, but is there a danger that AI could widen the gap even further between those who may benefit from productivity growth and those who don't? What are your thoughts there? One of my main concerns is the emergence of new types of AI divide. Actually, we can see this divide at several levels.
So let's see, first, between countries. Advanced economies generally have better access to AI infrastructure and technology and skills and investments. At the same time, by contrast, many developing countries risk falling further behind, potentially widening existing productivity and income gaps. But that's not the end of the story. We have to also consider the divide between enterprises.
Large firms have much greater resources to develop and adopt AI, while SMEs often face significant financial and technological constraints. So this actually could further reinforce the issue of market concentration, as I mentioned before. Then comes another important dimension, which is related to between workers. So those workers who have access to AI tools and the skills to use them may become much more productive
and benefit more from the higher incomes, and others may face the opposite destiny. So AI could potentially widen existing inequalities between countries, between enterprises and also between workers. I think everybody will agree on this point. AI should not become another source of economic division. It should be an opportunity to make productivity growth more inclusive.
And Sangheon, you mentioned a couple of times there the role of SMEs, and especially in this region, Asia-Pacific. The vast majority of enterprises and jobs are in SMEs. What specifically can be done to help SMEs in this context, to help them boost productivity and to see those wage increases passed on to their workers? I think there are so many ways of supporting MSMEs, and especially with a view to helping them create quality jobs.
One of the things is, of course, we need to help MSMEs to have better access to financial services because they need resources for investment. And also we need to support MSMEs in skills development because sometimes they do not necessarily have the capacity in doing so. At the same time, when actually these MSMEs are providing the skills training, we have to make sure those workers who acquire the skills are properly compensated. Otherwise,
they wouldn't maintain the incentive and continue to engage in the training, etc. When it comes to AI, for example, I think there are lots of things that government can do. I mean, as I mentioned, very small investment in small AI, for example, will be extremely helpful to MSMEs in actually exploring different market opportunities and improving human resource management, improving their marketing strategy and also improving the production process.
So I think there is no shortage of ideas or areas of action. It's really time for taking real action and bringing real resources to helping these enterprises. And we're here in Bangkok, Sangheon, at the IMF and World Bank Annual Meetings, and the ILO is calling for, as we said, these productivity gains to translate into better jobs and better incomes. I mean, what action would you like to see the policymakers who are gathering here in Bangkok this week take?
Yeah, it has been quite a marathon for me. So there are so many meetings and so many people to meet and so many meetings I have to attend. But overall, I must say I'm quite encouraged by the growing attention given to these job issues in international economy and development cooperation, particularly at the World Bank. President Banga himself, and also other senior officials at the World Bank,
increasingly speak about jobs with dignity. So when they actually explain what they mean by jobs with dignity, many of the elements are very familiar to us at the ILO. So jobs with dignity means productive employment and decent income and opportunity for workers to develop their skills, and greater economic security and safety and health, for example.
So these are, in my view, precisely the issues we have been pushing through our decent work agenda for many years. So I see some great opportunity here for stronger collaboration. But at the same time, I think there is some important shift in thinking that we should push further or pursue together with the World Bank and the others. Because much of the conversation among the international financial institutions now is
still sort of about investment for jobs. So it's about how investment can create employment, and this is obviously very important, but we should go further towards, I must say, investment in jobs. So what do I mean by this? Because I mean treating the jobs themselves, like their productivity, quality and income they generate, these quality aspects, as an investment in
economic development rather than simply sort of the outcome or automatic outcome of investment. This calls for actions on three fronts, in my view. The first one is perhaps we need to support productivity growth actually where it is most needed, as we discussed, particularly in developing countries and among MSMEs, through investment in infrastructure and technology and skills.
Second, we really need to invest directly in better jobs, in workers' skills, working conditions, wage policies and labour market institutions, including social dialogue. Of course, we also need to pay more attention to market concentration issues so that productivity gains are more widely shared. The third one is also an obvious one – social protection and adequate fiscal capacity, which are
really essential to workers to navigate economic transition and support inclusive development. So there is a sort of strong economic case for this approach. Better jobs can actually raise productivity, strengthen household demand and encourage greater investment. We discussed all of this now. And, in other words, investing in better jobs can itself become a driver of growth. So I think moving from investment for jobs to investment in jobs – not replacing the former, I
mean together – but moving in that direction will be a very, very productive direction for the ILO's collaboration with the World Bank and IMF and the other international financial institutions. And finally, Sangheon, what would it mean for everyday people's lives if the benefits of economic growth were shared more widely? I think the difference would be really enormous, and also very tangible. It would mean that people
could afford decent housing, for example, more healthy food, quality education and health care, without actually being worried about their next bill, for example. So it also means that workers could expect their living standards to improve as the economy becomes more productive. It also means greater economic security. Losing jobs, becoming ill or growing older will not necessarily actually push a family into poverty.
When people work hard, but they do not see much improvement in their lives, even when actually the economy is growing, it is quite a frustration for them. And it would undermine confidence in our economy and social institutions. So for me, sharing the benefits of growth more widely is not just about economic efficiency. I must say this is really all about building a society where people can live with dignity,
feel secure and have confidence in their future. So ultimately, this is how we should judge our economic growth, right? Not simply how much actually an economy produces and/or consumes, but how much actually people's lives improve. At the end, this should be our ultimate test for economic growth. Sangheon Lee, Chief economist at the International Labour Organization, thank you for joining us.
And to our listeners, if you'd like to find out more about the ILO's work on global economic and labour market trends, please visit our website at www.ilo.org. You can also follow the ILO on YouTube, Facebook and LinkedIn at @International Labour Organization, and on Instagram, X, Bluesky and Threads at @ILO.org. But for now, thank you for listening and, until our next episode, here's goodbye from the ILO's Future of Work podcast.
