Essay Unit 4 - Impact of Globalisation on Income Inequality
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Course
Unit 4 - The Global Economy
Institution
PEARSON (PEARSON)
This essay uses chains of analysis and evaluation to discuss globalisation and how it has affected the increase in income inequality to a certain extent, using reference to specific countries
Discuss whether globalisation always increases income inequality within countries. Refer to specific
examples of countries in your answer.
‘While globalisation has led to an increase in average incomes, it has also increased
income inequality within some countries.’
Globalisation is the process by which different cultures and economies become increasingly
interconnected and interdependent. Income inequality exists when there is an unequal
distribution of income, rewards from the factors of production, amongst individuals.
Globalisation may also cause income inequality
as a result of increasing amounts of migration.
Due to globalisation, the cost of transportation
has fallen significantly. This has allowed for
more migration between countries. Before
globalisation, low skilled workers only had to
compete with other domestic workers. As a
result of increased globalisation, low skilled
workers in developed countries also have to
compete with international low skilled workers
from developing countries that migrate seeking
higher standards of living. Thus, there is an
influx of low skilled labour which depresses the wage rate. In the diagram above, the initial
equilibrium is at the point W1Q1. Due to an increase in migration, supply increases thus
causing the supply curve to shift outwards from S1 to S2. This leads to a fall in the wage rate
from W1 to W2 and an increase in quantity from Q1 to Q2. The new equilibrium point is
now at W2Q2. On the other hand, due to shortages in labour, there has been an increase in
the demand for highly skilled workers in developed countries. This also benefits migrating
workers as they are expected to receive higher wages and improved working conditions.
This encourages workers to move to more developed countries to seek employment, but
this is likely to widen the income inequality gap as highly skilled workers entering a country
will earn higher wages but low skilled workers are likely to earn very low wages. For
example, low skilled labourers in the UK previously earned relatively higher wages but due
to globalisation, they are earning much less, whereas high skilled earners in the UK are
earning even higher wages than previously as the demand for high skilled workers increases.
Further worsening income inequality. The UK in particular has seen an increase in its Gini
index score since 2016 and reached a score of 36.3 during 2019/20. However, as developing
nations start to see an increase in wages this may put less deflationary pressure on wages in
developed nations. Given that low skilled workers tend to migrate to earn higher wages, if
they are able to earn increased wages from the country they currently reside in, then this
may possibly allow workers to remain in their home country. This would then cause a fall in
supply developed countries and domestic workers are likely to see an increase in the wage
rate. Therefore, causing a fall in income inequality.
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