NEW YORK—As job cuts continue around the world due to the global economic downturn, the International Labor Organization (ILO) expressed worry that market demand will wither to such an extent it will slow down recovery.

The ILO “Global Wage Report 2009 Update” released on Tuesday says inflation-adjusted wage growth fell sharply around the world last year to 1.4 percent, from 4.3 percent in 2007, adding that wages continue to fall in a number of countries this year.

“The continued deterioration of real wages worldwide raises serious questions about the true extent of an economic recovery, especially if government rescue packages are phased out too early. Wage deflation deprives national economies of much-needed demand and seriously affects confidence,” said Manuela Tomei, director, ILO Conditions of Work and Employment Program, and lead author of the study.

This year “the picture on wages is likely to get worse,” with figures from the first quarter of 2009 indicating that real wages in nearly 20 countries are now falling outright, often because of cuts to the number of hours worked.

“Minimum wages, social dialogue and collective bargaining are all ways of avoiding deflationary wage spirals and their impact on society,” said Tomei. She described minimum wages as “an important policy tool for social protection” and called for the involvement of social partners in setting the level; she proposes that minimum wages be combined with other income-support measures such as tax reductions.

The current deterioration in wages follows a decade of wage moderation before the global economic crisis. The report considers that years of stagnating wages relative to productivity gains together with growing inequalities have contributed to the crisis by limiting the ability of many households to increase consumption other than through debt.

According to the ILO, the regional unemployment rate this year in Southeast Asia and the Pacific, which includes the Philippines, could increase to between 6.0 percent and 6.4 percent from the 5.5 percent in 2007—an increase of 2 million to 3 million unemployed people in the region.

Economic growth in the Philippines, for instance, has shown a sharp decline from 7.2 percent in 2007 to 4.5 percent in 2008, and is expected to fall further to 3.4 percent in 2009.

The report emphasized that the Philippines, through the National Wages and Productivity Commission, has requested continued ILO technical support in improving the current minimum-wage system, with the aim of protecting nonstandard workers.

“In the future, restoring the link between productivity growth and wage increases is essential for economic and social sustainability. Companies should be able to achieve competitiveness through rising productivity rather than by cutting labor costs, and workers should have sufficient bargaining position to defend their wages. This will go a long way toward addressing income inequalities,” said Tomei.

While concerns about the impact on labor costs were widespread during past downturns, in the current crisis a number of countries have adjusted their minimum wages upwards.

Patrick Belser, coauthor of the report, said, “A large number of countries, including major economies, such as the US, Brazil, Russia and also Japan, have increased minimum wages by more than inflation figures in 2008, and these countries have also adjusted their minimum wages further in 2009.”