Globalization, the source of income inequality?


It seems that, the world has become to more homogeneous, which is caused by the globalization. The number of years in education has increased all over the world. The purchasing power of construction workers wages has grown everywhere, in Britain it has grown ten times from 1820 till 2000. (Economist).

But there is one exception to this, though: inequality. You would think that we have come far from the 19th century. But research has shown that income inequality in China, Thailand, Germany and Egypt in 2000, was on the same level as it had been in 1820. Only in few developed countries the income inequality has declined e.g. France and Japan. (Economist).

How is this possible? Shouldn´t the economic globalization bring wealth to every nation, to every citizen?

There is a report by University of Utrecht, which states that in the 1914-70 globalization had been slowly started to subside, which caused that countries had more freedom in their domestic policies and it narrowed the differences between rich and poor. In the beginning of 1980s globalization started to spread again and the markets were freed in the poor countries. That caused the opposite effect. The globalization led to higher income inequality within the countries. While at the same time leading to decline of income inequality between countries.

So, globalization increases income inequality between the countries. But why is it leading income decline within a country?

When the rich countries trade with poor countries, the low-skilled workers in the rich countries may have reduced wages caused by competition with the poor countries workers. While the poor countries workers may have increased wages.

Paul Krugman, well-known economist estimates that trade liberalization has had effect on the rising inequality in the United States. However, he admits that the effect of trade on inequality in United States is minor compared to other causes, technological innovation e.g. automation of work.

Globalization seems to be only minor part of the income inequality. One of the major causes of income inequality seems to be technological innovation. This means that low-skilled jobs have been replaced by automation in wealthier nations.



List of references:

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2 Responses to Globalization, the source of income inequality?

  1. villesh says:

    Interesting subject! Great work!

  2. Ramp says:

    Poor workers =(

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