The International Labor Organization (ILO) warned on Friday that cutting wages in a bid to boost competitiveness and cut unemployment may turn out to hurt economic growth.

The warning was issued after the European Central Bank (ECB) called in its monthly report for August for more flexibility in the wage determination process, such as lowering minimum wages.

Patrick Belser, a senior economist with the ILO said that decrease in wages does tend to lead to an increase in exports, but it also decreases domestic consumption, which affects growth.

Given the level of economic uncertainty at the moment, it is unclear whether wage cuts would generate enough incentives to raise investment, the expert said.

The ILO also warned that seeking to regain competitiveness through lower unit labor costs by slashing wages or letting productivity grow faster than wages would be unsustainable globally.

"If competitive wage cuts are pursued simultaneously in all countries, competitive gains will cancel out and the regressive effect of global wage cuts on consumption could lead to a world-wide depression of aggregate demand and employment," Belser said.

VietNamNet/Xinhuanet