Globalization does not Exacerbate Rich/Poor Income Gap:

Defining Aspects of Globalization and Its Effects on Income Equality

Sierra Dakota Gerber
Portland State University

Introduction
Globalization is the near all-encompassing term used in today's world by economists,
corporations, organizations, and educators alike, to describe the immense amounts of interactions
between the plethora of dynamic systems that affect people at every rung of the socio-economic
ladder. Google, (whom defines itself as an American multinational technology company with a
net worth of about $364.99 billion), defines Globalization via Wikipedia as follows:
Globalization is the process of international integration arising from the interchange of world
views, products, ideas and other aspects of culture (Globalization, 2015). The new rules of
todays global economy are clearly supporting development in undeveloped and developing
countries. International trade, foreign direct investment (FDI), and immigration, all key parts of
Globalization, have proven to increase wealth in countries. The International Monetary Fund
(IMF) also has a key role in stabilizing economies and affects most, if not all of the countries
across the globe (Cite). Financial and industrial globalization is increasing substantially and is
creating new opportunities for both industrialized and developing countries. The largest impact
has been on developing countries, who now are able to attract foreign investors and foreign
capital (Mohr, n.d.) All of this is evidence which supports that Globalization through many
facets is the best way to help economies spread wealth.
Research Process
One approach that I was tempted to use was using evidence to support that Globalization
actually helps strengthen and rectify the wage gap disparity on a global scale, i.e. it does more
good than bad when considering social classes, economy, and international trade and relations.
There was quite a bit of evidence to support this, including a journal article that does a much
better job at highlighting the situation that the Global Market and Economy found itself in

before, during, and after the major market recession. The authors state who they believe hits to
the market and global inequality hurt the most directly, and reason/provide evidence to how
Globalization of markets has began to repair and mend slowly over time income inequality. They
suggest that Globalization can support a stronger net to help prevent disastrous future recessions
by interweaving, integrating, and balancing markets globally. The inequality trend Openness to
trade, investment, and technology, as well as increased migration toward advanced countries,
have been associated with rapidly rising living standards in many developing countries (Shaw,
W., & Dadush, U., 2012). It was in this article that I found that not only does Globalization aid
undeveloped and developing countries, but fully developed countries (such as the United States)
as well.
When I began to reformulate my ideas and arguments, which had some part to do with
my consultation with the other group members in my topic area, I began to see how hard it
would really be to argue my original position. Consulting my mentor also had a lot to do with
how I reformulated my topic. I started to believe that there was no way that I could argue the fact
that Globalization has a part in making the wage gap wider. Data for the contrary is significantly
strong as in the United States, when we have over 30 years worth of growth that equates to
nearly $177,000 in the top 5th of households incomes on average, and only $17,000 in the
lowest 5th. This equates to about 60% growth in the lowest pre-tax income, and over 100%
growth in the top (U.S. Census, n.d.). However, a study found that the wealth gap between
upper-income and middle-income families has increased during the recovery. In 2010, the
median wealth of upper-income families was 6.2t mas the median wealth of middle-income
families. By 2013, that wealth ratio grew to 6.6. (Fry, R., & Kochhar, R., 2014). While this may

be true, it is primarily due to the structure and convolution of the government in the United
States, and the tendencies of that specific economic system to favor the wealth.
I used the United States Census Bureau, and I examined data tables on historic income
limits in households and revenue of corporations, and this is where I started finding the intricate
dynamic that corporations present when in place in a democratic society. In my research, I found
that the laws begin to change in relation to (usually favorably) those with investments in these
powerhouse industries that dominate the market (U.S. Census, n.d.). No longer is the game to
favor the society as a whole, but to favor private investors, profitable markets, and the people
that regulate them, i.e. the government. The argument began to hit a brick wall, so I decided that
it was necessary to redefine the terms involved, in order to focus on a much more specific
demographic. Globalization is a term directed at more internationally related issues, which is
another piece of the puzzle that my groups peers helped me understand. By looking at worldwide
trends and interactions, it helps to focus on the issues at hand that are less related to specific
functions of a single countries economic system, and focuses more on international trade,
development, investment, and wealth distribution.
Literature, Discussion and Analysis
I
One of the biggest factors affecting the wealth distribution of the global market is a
process known as Foreign Direct Investment, or FDI. This is the process of a company
controlling ownership in a business enterprise in one country, while being based in another
country. For example, Kawasaki, Siemens and other European and Japanese companies began
producing high-speed trains in China. They now have competition from domestic companies,
which means an overall increase in competition, technology development, job development, and

advancement in domestic industries (Hill, A., 2012). The theory is that the technology,
knowledge, and techniques brought in by experienced foreign investors and managers will spill
over to locally-owned firms (Hill, A., 2012). Similarly, these previously developed and typically
prosperous companies residing in a foreign company benefit the economy through the taxes and
tariffs imposed on them by the domestic government.
Black, S. E., & Brainerd, E. (2004) essentially examined the impact of globalization on
gender discrimination in manufacturing industries. They did a study that compares the change in
the gender wage gap between 1976 and 1993 in concentrated industries, and compared that data
to data they collected on competitive manufacturing industries in the same way. This was one of
the main conclusions: They find that while trade increases wage inequality by modestly
reducing the relative wages of less-skilled workers, at the same time it appears to benefit women
by reducing the ability of firms to discriminate. This is clear evidence that not only does
Globalization help aid the wage gap of social classes, but also the gender wage gap between men
and women, which has been an issue in the United States (a highly developed country) since its
formation.
Braeuninger, D. (2008) provides evidence to support globalization as a driving factor in
balancing markets. Many people argue that Globalization is the driving force of the increasing
wage gap between classes, genders, and other social groups internationally, (depending on the
place and the system.) This article provides evidence for the contrary, that Globalization is
actually key to a balanced mer t. The globalization of labor affects the industrial countries in
three ways: It leads to a strong expansion in trade, more extensive direct investment and
manifold migration. Another quote to support this, and that summarizes the direction of the
study quite well follows:

A dynamic economy finds it easier to achieve equitable participation in the

benefits generated by globalization. Hence, much depends on sound economic
policy that strengthens the growth forces and uses prosperity generated by
globalization to provide a basic safety net, with health and retirement benefits. All
in all, much can be done to increase the number of globalization winners in the
industrial countries.
Here we see that, however, that economic policies play a pivotal role in keeping markets
balanced and healthy, and mending wage gaps internationally. Certain policies can either greatly
help or hinder the overall fluidity of the global economic web. The IMF posted in their April
2015 Global Financial Stability Report in response to the recent spike in economic risk factors:
First, accommodative monetary policies should help support private sector deleveraging,
including by boosting asset prices and generating wealth effects. But these will likely not be
sufficient if potential growth remains low. In such cases, countries need to enhance their longerterm growth potential through a comprehensive program of structural reforms (IMF, 2015).
Second, debt restructuring and write-offs can improve the financial and economic response to
unconventional monetary policies by unclogging the monetary transmission mechanism(IMF,
2015).
You can see the effects of these policies through research done on the specific ones that
have been implemented in the United States as opposed to a country like China. The research by
Shaw and Dadush argues that Globalization is one of the reasons that the wage gap is gradually
getting smaller. More importantly, the study was also formulated on the basis of already existing
wage disparity, recognized internationally. This is highlighted by the fact that the median wage
for jobs in advanced countries is two and a half times the wage level for jobs with similar skill

levels in the most advanced developing countries ON AVERAGE. Disparity in specific cases,
like China, where in a 2009 study, a manufacturing worker earned just one twentieth of that
which a U.S. worker would have earned. I am not sure if these figures are adjusted to a countrys
specific economic inflation and costs, however. The authors also state: Globalization is clearly
contributing to increased integration of labor markets and closing the wage gap between workers
in advanced and developing economies, especially through the spread of technology. It also plays
a part in increasing domestic income inequality. (Shaw, W., & Dadush, U., 2012)
This Journal does a fantastic job at highlighting the situation that the Global Market and
Economy found itself in before, during, and after the major market recession. The authors state
who they believe hits to the market and global inequality hurt the most directly, and
reason/provide evidence to how Globalization of markets has began to repair and mend slowly
over time income inequality. They strongly suggest that Globalization can support a stronger net
to help prevent disastrous future recessions by interweaving, integrating, and balancing markets
globally.
II
Immigration is also a very beneficial aspect to the health of the global economy. The
United States, a world renowned melting pot, can illustrate this complex relationship fairly well
through the effects that we have seen in passing immigration policies. When immigrants are
introduced into the economy and allowed work permits, we see an increase in higher skilled
positions hiring for appropriate applicants, rather than overqualified applicants working lower
level jobs. In fact, as the studies show, when those low-wage, low-skill jobs go to immigrants,
native-born workers tend to move up the occupational ladder, filling jobs with higher language
skills and greater education requirements Fulwood, S, 2014).

Economically, there is a positive impact in the enrichment of companies that require mass
amounts of labor to produce products. Immigrants have become embedded in the U.S. workforce
and are vital to certain industries such as farming, construction and the service sector.
Immigrants constitute almost 40 percent of the workers in the farming, forestry and fishing
industries. About 20 percent of the construction industry is powered by foreign labor, and the
service industry is about 21 percent (Gans, J., & Murray, B., n.d.). Non-citizens are filling some
real gaps in the work force. This is a complementary workforce, not a replacement workforce,
Gans said. We have a larger workforce, so the economic pie is bigger.
These immigrants provide cost effective labor, which in any other sense, any american
would find beneficial. Say you could make a cellphone for $5, and turn a huge profit selling it for
$25-$30, everyone would be ecstatic. Its cost effective, its affordable, sales increase and plane,
and the consumers are happy. This is the same concept, except when applied to people there is
for some reason a lot of push-back and skepticism from the general public. Even though the
some of general public will continue to consume grocery items and demand them at reasonable
prices, all the while arguing that immigrant labor is bad.
This is a very policy dependent theory for each individual economy, however, and the
benefits are not always higher than the visible costs to the class system that every countries has
to varying degrees. A Journal Article I found illustrates the delicacy of this concept very well,
and very specifically, so here is the information quoted directly. The traditional Heckscher
Ohlin model and its companion StolperSamuelson theorem predict that integration into the
world economy increases the relative returns to unskilled labor in labor-abundant developing
countries. Therefore, the skill premium and wage inequality should decrease when a developing
country integrates into the world economy. Unfortunately, this prediction has not fared well

empirically. Although many developing countries have been increasingly integrated into world
markets, wage inequality has often risen. With this in mind, it is crucial to analyze each
economy in great detail before advocating for a certain policy change, or law.
Conclusion
All in all, Globalization is a great asset to our world today. Not only does it create ties
between cultures, and enrich our understanding of our fellow human beings, but it creates a
movement of ideas, technology, labor, and most importantly to the economic system, more fluid
capital interchange. Through Foreign Direct Investments, Regulatory Policies, Free Trade,
Immigration, and opening up markets to the Global Economy, our economic system will
continue to become more enriched, and the wealth and availability of resources will be expanded
to a enormous percentage of the population. Countries will continue to be faced with
developmental opportunities through Globalization, and both foreign and domestic companies
will benefit any given economy if these opportunities are taken. The spread of wealth will
increase bit by bit, and hopefully with newer more capable policies that are suited to todays
economy and the future, the wealth will inevitably make a bigger impact into the lower classes.

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