SO684 Globalisation

Answer:

Globalization and income inequality

In today’s world, the two most contested aspects are globalization and inequality. Dissatisfaction regarding these two aspects are mostly shaping in developed world (Soergel, 2018). The impact of globalization on top income class is of great importance as it affects willingness of the society to tolerate unequal income distribution.

The spread of globalization accelerates free movement of goods and services between different nations across the globe. Globalization has undoubtedly results in an increased average income for countries. The increased average income however has achieved at the cost of increased inequality in the distribution of income (Baldwin, 2016) Income has increased within the nation because of increasing openness and so is the income inequality.

Globalization has caused many people to lose jobs in the developed country like United State. It has been observed wage of manufacturing workers in developing world is only a small fraction of that in developed world. This has led to job loss of manufacturing workers depressing wages not only in manufacturing sector but also in other sector as well who have to compete with displaced workers in manufacturing (Baker, 2018). There are many highly educated workers in developing countries who demand a much lower compared to their counterpart in United State.

There are two existing views in favor of increased inequality resulted from globalization. One view is less- worse than other. In the less-worse version, inequality is seen as an obvious side effect of economic prosperity within the nation. In the process of globalization, wage in one group of labor increase but the same does not happen to other group. Consequently, income gap increases result in an increasing inequality.

The worse version points out that because of globalization demand for one group especially for the low skilled workers reduces (Iyall Smith, 2013) On the other hand, specialization and trade increase demand and wage of high skilled labors. The worse version is of more concerning.

The extent of inequality however depends on how the available skills match with changing need of production. Better the skill matching lesser is the inequality. The equality also differs across the countries depending on skills of the existing workers. Globalization reduces bargaining power of the low skilled workers which further aggravates inequality (Steger, 2017) High skilled workers because of increasing international demand enjoy a higher wage. The benefits of globalization thus come at the cost of lower income for some segment of workers.

Inequality in income distribution further increases following spread of trade and related policy measures. One such instance that has led to increase in inequality is China’s integration to the world economy. Studies found evidences of growing executive compensation following cross border expansion of businesses. Empirically it was found that as export increases by 10 percent, there is an increase in executive compensation by 2 percent (Keller, W., & Olney, 2017)

References list

Baker, D. (2018). Income Inequality and Globalization: The Protectionists Rule! | Beat the Press | CEPR. Retrieved from https://cepr.net/blogs/beat-the-press/income-inequality-and-globalization-the-protectionists-rule

Baldwin, R. (2016). The great convergence. Harvard University Press.

Iyall Smith, K.E. (2013). Sociology of globalization. Cultures, economies, and politics. Routledge

Keller, W., & Olney, W. W. (2017). Globalization and executive compensation (No. w23384). National Bureau of Economic Research.

Soergel, A. (2018). Study: Globalization Has Boosted Income Inequality. Retrieved from https://www.usnews.com/news/articles/2017-05-08/globalization-boosted-income-inequality-study-says

Steger, M. B. (2017). Globalization: A very short introduction(Vol. 86). Oxford University Press.