Essay Unit 4 - Globalisation and The Share of Wages
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Course
Unit 4 - The Global Economy
Institution
PEARSON (PEARSON)
This essay uses chains of analysis to discuss the statement that "Globalisation is solely responsible for the trend in the share of wages as a proportion of GDP.
Globalisation is solely responsible for the trend in the share of wages as a proportion of GDP.
Knowledge = red
Application = blue
Analysis = green
Evaluation = purple
Globalisation is the process by which different cultures and economies become
increasingly interconnected and interdependent.
Globalisation may be responsible for the trend in the share of wages as a
proportion of GDP. As seen in figure 4, the share of wages as a proportion of
GDP has seen to be falling since 1976. Line 3 of extract 3 states “The drop in
the labour share is due to the entry of labour-abundant economies into the
global economy.” As the supply of labour increases, this causes a fall in the
wage rate. As depicted in the diagram, the initial equilibrium point is at P1Q1.
Due to an increase in the supply of labour this causes the supply curve to shift
outwards from S1 to S2. Consequently, this causes price to fall from P1 to P2
and quantity increases from Q1 to Q2. The new equilibrium point is now at
P2Q2. For example, the integration of populous countries, such as China and
India, into the global economy has driven down wage rates as the supply of
labour has grown. Therefore, it can be argued that globalisation is solely
responsible for the trend in the share of wages as a proportion of GDP. On the
other hand, the trend may be due to “decreasing trade union density” as
stated in extract 3. As trade union density decreases, this causes a fall in the
bargaining power of workers. As a result of lower bargaining power, this may
lead to a fall in wages, and could be the reason for the decrease in the share of
labour. However, this depends upon the magnitude of the fall in density. If the
decrease in trade union density is not that significant, then it would be difficult
to argue that is solely responsible for the trend.
Additionally, the drop in the share of wages is due to trade globalisation, as
stated in extract 3. As a result of trade globalisation, countries have become
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