Labour 7 Statement to G7 Finance Ministers and Central Bank Governors

Labour 7 urges G7 countries to put green and decent job creation at heart of economic policymaking

Workers in the Crossfire: Inflation, Austerity, Precarious Jobs and Rising Insecurity

Workers in G7 countries have faced a series of compounding shocks in recent years that have significantly strained household incomes and undermined job security. The 2022- 2023 surge in inflation led to a pronounced cost-of-living crisis that remains ongoing. As prices for essential goods and services soared, wages failed to keep pace, sharply eroding the purchasing power of working families. In response, central banks raised interest rates aggressively in an effort to rein in inflation, which subsequently increased borrowing costs and dampened both business investment and household consumption. In many countries, high interest rates have fuelled increases in capital income, widening income and wealth inequality as well as social polarisation.

While easing inflation has seen interest rates lowered over the past year, previous rate hikes continue to weigh down the credit supply. A significant share of corporate and mortgage debt taken out during a period of low interest rates is yet to mature and will need to be refinanced in the near future. This will come at a higher cost, leading to increased interest payments and additional strain on household and corporate finances. Restrictive monetary policy, coupled with austerity policies or overly cautious fiscal policy, have also had profound effects on the labour market. Unemployment rates have increased in several G7 countries, particularly in sectors such as construction and manufacturing, which are acutely sensitive to higher interest rates and rely heavily on sustained consumer demand and public and private investment. Many firms have postponed or cancelled projects, leading to restructuring and layoffs, hiring and wage

freezes, and weakened employment prospects. Meanwhile, the share of precarious, part- time, and non-standard forms of work has grown in many countries, reflecting a broader shift toward poor quality and more insecure employment — an issue that disproportionately affects vulnerable groups, including women, youth and migrants, who are overrepresented in these forms of work.

Widespread uncertainty, driven not only by high living and borrowing costs and weak employment prospects, but also exacerbated by the changing geopolitical landscape, conflicts and trade disruptions, continues to cast a shadow over the global economy. The recent introduction of highly disruptive trade tariffs has already unsettled supply chains and increased financial pressure on producers, investors and consumers. While the current global trading system has led to a race to the bottom in wages and working conditions, the use of trade tariffs as an aggressive political tool will disproportionately affect low-income groups, due to their heightened vulnerability to rising prices and increased risk of job losses.

As a result of these and other external pressures, economic activity has slowed across most G7 economies and beyond. This deceleration is feeding into the labour market, where employment growth is losing momentum and hiring plans have become increasingly cautious. It is therefore critical to adopt concerted economic, trade and labour market policies that take into account the evolution of the labour market and prioritise the rights and needs of workers, including the creation of quality jobs.

A Path Forward: Supporting Inclusive and Employment-rich Economic Growth

While inflation has been the primary concern in recent years, the greater threat now lies in prolonged economic stagnation and labour market deterioration. The Labour 7 is concerned that the continuation of restrictive monetary policy risks stalling economic activity, suppressing demand, and even pushing inflation below target in several G7 countries, including Canada, Germany, France and Italy. Excessively tight monetary policy may also exacerbate existing labour market weaknesses, potentially triggering a cycle of employment restructuring. To avoid such a scenario, the Labour 7 calls upon central banks in G7 countries to reduce interest rates at an accelerated pace. To minimise the risk of sharp inflationary spikes in the future and prevent firms from marking up prices and widening margins, it is essential to expand the policy toolkit with measures that address monopsonic or oligopolistic markets, strengthen appropriate rent and price controls, expand strategic commodity reserves and shore up labour market institutions, including collective bargaining, to coordinate wage and price setting.

Moreover, fiscal policy plays a key role in stimulating aggregate demand and supporting job creation. In many countries, however, restrictive fiscal policy and austerity measures have delayed necessary investment and led to cuts in social investment. Strategic public investment combined with a strong public sector, with sufficient human, financial and material resources, is essential — not only for boosting consumption, fostering employment and advancing a just transition, but also for cushioning against economic

downturns and counteracting the adverse effects of rising trade protectionism ensuing from the current trade war. With inflation now largely under control, the Labour 7 calls for a shift towards expansionary fiscal policy. Governments must prioritise recovery, economic and social resilience, climate action and long-term stability, ensuring that workers’ rights and livelihoods are protected.

This can best be supported by fairer and more progressive tax policies, including progressive taxation of wealth and capital income, increased corporate income effective tax rates, a financial transaction tax and a clear and stable legal framework for taxation of windfall profits realised in a context of economic recessions at the expense of workers. These must be accompanied by increased investment in health, social protection, education and other essential public services, active labour market policy, skilling and lifelong learning programmes, affordable housing, clean and affordable energy, and green infrastructure and technologies. Governments need to invest in social policy and guarantee universal access to public services and welfare for all. This would increase the resilience of economies in a time of uncertainty and turmoil. Public investments must be conditional on respect for workers’ rights, first and foremost collective bargaining and freedom of association, as well as compliance with Environment, Social and Governance (ESG) standards. Despite limited fiscal space and increases in military spending, the Labour 7 urges G7 members to meet their commitment to dedicate at least 0.7% of GNI to official development assistance to address the dramatic development setbacks and emerging debt crises in developing countries.

Last year, G7 Finance Ministers and Central Bank Governors agreed “that countries’ policy mix for a just transition should be designed in a way that encourages innovation, finance and investment in green technologies, reflects equity considerations, and promotes social and political support for climate action” (Stresa, May 2024). It is now time to take further steps by implementing policies that advance climate action while fostering green and decent job creation and upholding fundamental labour rights — particularly the right to collective bargaining, in line with the ILO 2015 Guidelines on Just Transition.

The Labour 7 call upon G7 Finance Ministers and Central Bank Governors to:

• Reduce interest rates at a faster pace and implement expansionary fiscal policies to stimulate demand and quality employment and to avoid stalling economic recovery.
• Coordinate fiscal and monetary policy to stabilise prices and preserve long-term affordability, including through measures that address monopsonic and oligopolistic markets, strengthen appropriate rent and price controls, expand strategic commodity reserves and shore up labour market institutions, including collective bargaining.
• Implement fairer and more progressive tax policies to enhance fiscal space and reduce inequality, including progressive taxation of wealth and capital income, higher corporate income effective tax rates, a legal framework for windfall profits taxation and a financial transaction tax.
• Reinforce active labour market policies, skilling and lifelong learning programmes to reduce unemployment and improve labour market adaptability.
• Increase investment in health, social protection, education and affordable housing to safeguard livelihoods, improve mobility and tackle poverty and segregation.
• Expand investment in clean and affordable energy, green infrastructure and technologies to stimulate green and quality job creation and advance a just transition.
• Uphold fundamental labour rights, particularly the right to collective bargaining, including as a tool to promote real-wage growth, as recognized by G7 Leaders in the 2023 Hiroshima Communiqué.
• Comply with the internationally agreed UN target of dedicating 0.7 percent of GNI to official development assistance.