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In certain cases, globalization has proven to reduce inequality in developing countries through cheaper communication and quicker, more accessible transportation. However, other countries are not so lucky and an increase in globalization has shown a rise in inequality. There are economic theories that support each case.
One theory predicts the first case, which states that inequality falls when globalization is apparent in a country. Since less-developed or poor countries tend to produce goods that need a large amount of unskilled labor, while developed or richer countries are seen to hire more skilled labors, and provide more complex services. As there is an increase in globalization, there is a high demand for unskilled workers, which then raises the wage rate for those labors, while the skilled workers wage remains more or less the same, thus reducing inequality.
There is another theory that explains how inequality has risen in developing countries. This one emphasizes outsourcing as a major factor, and how in poor countries, multinational companies hire skilled labors and pay them with high wages. A study showed that multinational companies pay their employees 40% more than those of local companies. Furthermore, these employees are given more opportunities and responsibilities, which increases productivity, which then leads to a boost in wages. On the other hand, unskilled workers don't have such opportunities, so there is no increase in productivity and ultimately no raise in wages, deepening the inequality gap.
In the end, globalization struggles to bring equality in developing countries.
Do you think that this increasing inequality is also a factor of the lack of resources or demand for goods/services in poverty stricken countries? Also, do you think inequality could be reduced in countries facing these issues had more incentives for skilled workers to stay there instead of leaving for other nations economies?
ReplyDeleteSomething the article fails to mention is the idea that developed nations have some policies put in place by their governments to battle economic inequality. Welfare benefits, progressive taxes, and minimum wages all battle this inequality. Perhaps devloping countries don't use these policies as effectively, or perhaps not at all.
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