CHRISTIAN APPOLOS examines the warning by the International Labour Organisation (ILO) Chief Economist, Sangheon Lee, that rising productivity is not translating into better wages for millions of workers, leaving many struggling with high living costs. Lee spoke on the ILO’s Future of Work podcast on the sidelines of the recent International Monetary Fund and World Bank Annual Meetings, in Bangkok, Thailand.
ECONOMIC growth and rising productivity do not always translate into better wages and improved living standards, the International Labour Organisation (ILO) recently said, identifying a cycle of low pay and low productivity that leaves millions trapped in jobs offering little opportunity for advancement.
Speaking on why rising productivity still does not translate into better wage for millions of workers years after COVID 19 pandemic, ILO’s Chief Economist, Sangheon Lee, said the disconnect between productivity and workers’ incomes had become a major concern, particularly as essential goods and services remained expensive despite moderating inflation in many countries.
The disconnect raises a fundamental question about whether economic growth is delivering meaningful improvements in workers’ living standards. ‘The fundamental question for us is whether workers’ incomes are growing sufficiently to improve their living standards,’ Lee said.
Why falling inflation has not eased pressure
For many households, the difference between slower inflation and falling prices remains critical. Lee explained that a decline in inflation does not mean prices have returned to previous levels. It means prices are increasing more slowly, while essentials such as food, housing and energy may remain considerably more expensive than before the pandemic.
Where wages have failed to keep pace with these increases, workers can continue to experience financial pressure even after inflation moderates. ‘Wage growth has been relatively weak,’ Lee said, adding that wage increases in many countries had failed to match inflation during the recent period of rising prices.
This is particularly significant for low-income households, which spend a larger proportion of their earnings on necessities and have less room to absorb further price increases. The challenge is not simply to bring inflation down, but to ensure that workers’ earnings recover sufficiently to improve their living standards.
Productivity gains not reaching workers
A central part of Lee’s argument is that productivity growth has not consistently translated into proportionate wage increases.
Productivity broadly refers to how much output is produced from the labour and other resources used in an economic activity. Higher productivity can help businesses expand, improve efficiency and generate additional income. However, those gains do not automatically result in higher wages.
Lee said the relationship between productivity and workers’ incomes appeared to have weakened, with gains not fully translated into higher wages, particularly for workers in the middle and lower parts of the income distribution. One indication, he explained, was the decline in labour’s share of global income.
‘Globally speaking, the share of incomes going to labour declined from around 54 per cent in 2004 to 52.6 per cent in 2025,’ he said.
Labour income share measures the proportion of economic income accruing to workers through their labour, rather than to capital and other sources.
Lee attributed the trend to factors, including technological change, globalisation, changes in labour-market institutions and weakened collective bargaining power in many countries. He also identified market concentration as a concern, with a relatively small number of large firms becoming increasingly dominant in some sectors.
Such concentration can influence how productivity gains are shared between businesses and workers, and between large and small enterprises. Where smaller businesses struggle to compete, invest and expand, their ability to create productive jobs and improve earnings may also be constrained.
Nigeria’s informal employment challenge
The argument has particular relevance to Nigeria, where informal employment accounts for a substantial proportion of the workforce. The National Bureau of Statistics reported that informal employment represented 93 percent of total employment in the second quarter of 2024, up from 92.7 percent in the first quarter.
The figure does not mean that 93 percent of Nigerian workers earn low wages. It highlights the scale of informal employment, where secure earnings and social protection may be limited.
A World Bank analysis published in March 2024 found that more than three-quarters of employed Nigerians worked in establishments engaging fewer than five people. It identified limited access to finance and infrastructure as constraints on small-business growth, noting that small size can restrict specialisation, demand for higher-skilled labour and the creation of more advanced jobs.
These conditions show why employment numbers alone cannot explain the labour market: people may be working but still struggle to meet their needs, while small businesses operate with limited capital and technology.
The challenge is not simply to create more jobs, but to help workers and enterprises move towards more productive activities offering better earnings and working conditions.
Low-pay, low-productivity trap
Lee described the relationship between low productivity and low pay as a cycle that can reinforce itself. A small informal business, for example, may lack finance, modern technology, infrastructure and skills development. These constraints can keep output low and limit its capacity to pay higher wages.
But the relationship also works in the opposite direction. Where workers receive low pay and face poor conditions, businesses may struggle to attract, retain and develop skilled employees. Workers themselves may lack the resources to acquire new skills or improve their employment prospects.
Low earnings and limited profits can consequently restrict investment in the improvements needed to raise productivity. ‘The causality runs really both ways,’ Lee explained. ‘Low productivity contributes to low pay, while low pay also can itself become an obstacle to productivity growth.’
The ILO’s Employment and Social Trends 2026 report estimates that approximately 2.1 billion workers worldwide remain in informal employment, representing about 58 percent of the global workforce. Many face limited access to basic rights, social protection and income security.
Lee argued that improving workers’ conditions is not solely a social policy objective. Better jobs can also support growth by strengthening household purchasing power, increasing demand and encouraging investment.
Low and insecure incomes constrain spending, while weak demand can discourage investment and reinforce the cycle. Better productivity and wages can support stronger demand and economic activity.
AI could widen existing inequalities
Artificial intelligence presents another challenge to the distribution of productivity gains. Although AI tools can help workers perform some tasks more efficiently, the benefits are unlikely to be distributed evenly without the necessary skills, infrastructure and investment.
Lee warned that AI could widen divisions between advanced and developing economies, large and small businesses, and workers with different levels of access to technology and training.
Advanced economies generally have better access to digital infrastructure, AI technologies, investment and specialised skills. Many developing countries face greater constraints, potentially widening productivity and income gaps. Large companies may have resources to adopt AI and reorganise their operations, while smaller enterprises may struggle with the costs of technology, training and implementation.
Workers, who can use AI effectively, may improve their productivity and employment prospects, while those without access to the necessary tools and skills risk being left behind.
An ILO research brief published in May 2026 also highlighted the uneven distribution of AI-related productivity gains. It found that improvements observed at task and individual-worker levels had not yet translated into clear productivity growth across entire firms, sectors or economies. The research identified wider technology adoption, investment in skills and workplace reorganisation, and effective competition policies as important conditions for spreading gains.
Technology alone will not determine who benefits; how AI is introduced, worker training and the distribution of gains also matter.
For Nigeria, where many businesses operate with limited resources, helping smaller enterprises access appropriate technology, finance and skills development will be important to ensure that technological change does not deepen existing inequalities.
NLC seeks a fairer transition for workers
The question of who benefits from technological change has also become a concern for Nigeria’s organised labour movement, which has called for workers to receive the training and support needed to adapt to automation and artificial intelligence.
Nigeria Labour Congress (NLC) president, Joe Ajaero, called in October 2025 for comprehensive retraining and upskilling programmes to prepare workers for changes associated with artificial intelligence and automation.
Speaking at the Labour Writers Association of Nigeria’s conference in Ibadan, Ajaero proposed that the programmes be funded through a tax on the profits of technology giants and automated industries.
‘We must bargain for comprehensive retraining and upskilling programmes, funded by a tax on the excessive profits of the tech giants and automated industries,’ he said.
Retraining must be relevant to available jobs, and employers need the capacity to invest in workers. Improved skills should lead to better opportunities and appropriate compensation.
ILO demands investment in better jobs
The ILO has urged governments and development institutions to place job quality and workers’ incomes at the centre of economic policy. In a statement to the IMF and World Bank Group Annual Meetings on October 12, ILO Director-General, Gilbert F. Houngbo, called for policies to ensure that productivity gains, including those generated by AI, are more widely shared. The statement highlighted workers’ incomes, job quality and social protection, while identifying market concentration, weak collective bargaining and constraints facing small and medium-sized enterprises as factors that can prevent productivity gains from reaching workers.
The ILO proposes stronger collective bargaining, evidence-based minimum wages, social dialogue and support for smaller businesses to access finance, skills and technology.
For Nigeria, this means combining wage policy and social protection with support for small enterprises to access finance, infrastructure, technology and training.
Workers need skills development, fair conditions and institutions that enable them to negotiate wages. Social protection can also help people facing illness, unemployment or old age avoid poverty.
Lee argued that policymakers should move beyond focusing only on investment that creates jobs to investing directly in improving the jobs themselves. He identified workers’ skills, working conditions, wage policies, labour-market institutions and social dialogue as important areas for investment, alongside social protection and measures to ensure that productivity gains are more widely shared.
Growth must improve people’s lives
The debate over productivity ultimately concerns the purpose of economic growth.
Higher output and more efficient production can create the resources needed to improve living standards. But where workers’ incomes remain weak, the benefits may not be felt in their daily lives.
For workers, meaningful progress means affording housing, food, education and healthcare, with greater security during unemployment, illness and old age.
Lee’s central argument is that productivity and job quality should not be treated as competing priorities. Better jobs can themselves help drive productivity by strengthening skills, household demand and investment. Without these measures, growth can coexist with insecurity, leaving workers excluded from the gains their labour helps generate over time.
The task facing policymakers, employers and workers’ organisations is to build an economic environment in which rising productivity translates into improved earnings, better working conditions and greater economic security.
Economic performance should ultimately be judged not only by how much an economy produces, but also by how much people’s lives improve.