Anıl Sural - Globalization and Income Inequality and European Perspective
Anıl Sural 080406051Business Administration
‘’ Globalization is widely believed to have had a generally positiveimpact on global economic growth. ‘’
There is growing concern in Europe over the impact ofglobalization on high and evenly shared living standards.These concerns have often surfaced in response to fallinglabor income shares in aggregate national income data.However, these data may tell little about the underlyingdistribution of incomes based on household disposableincomes. While summary measures of income distributionsalso suggest that inequality has increased in mostindustrialized countries, this development wasvery uneven and much less pronounced in euro-areacountries, suggesting that broad phenomena such as tradeliberalization and technological change may not be majordrivers of inequality.
Income inequality has increased in many advanced economies overthe past two decades. In some continental European countries,however, inequality rose only modestly, or even declined. Theinequality upswing was much larger in the United Kingdom andthe United States. Gini coefficient of net disposable householdincome rose from 27 in the late 1970s to 34 in the late 1990s,showing that inequality increased by almost30 percent. Trends inincome inequality across advanced economies have been quitedifferent. In the United States, which started out with a relativelyhigh degree of income inequality, it has increased even further.However, other countries with initially low levels of incomeinequality, including Denmark, France and the Netherlands, sawsome further decline.
What is the Gini coefficient ?The Gini coefficient (also known as the Gini index or Gini ratio)is a measure of statistical dispersion developed by the Italianstatistician and sociologist Corrado Gini and published in his1912 paper "Variability and Mutability" (Italian: Variabilità emutabilità).The Gini coefficient measures the inequality among values of afrequency distribution (for example levels of income). A Ginicoefficient of zero expresses perfect equality where all values arethe same (for example, where everyone has an exactly equalincome). A Gini coefficient of one (100 on the percentile scale)expresses maximal inequality among values (for example whereonly one person has all the income).
In recent years, theoretical research on the link betweenglobalization and world inequality has been intense.However, analysis of the link at the empirical level isscarce. The causal connections between globalizationand inequality in developing nations are bestunderstood by building on what we have learned aboutinequality change during the pre-globalization phase.Extensive empirical research points to two stylized facts.First, there is no structural relationship between growthand inequality. Second, income inequality levels in thepre-globalization phase were generally immobile andtrendless.
Income inequality can be affected by the composition ofthe workforce which has changed in many countries dueto increased labor force participation of women andimmigration. Also, changes in taxes and governmenttransfers often have a substantial impact on disposableincome and inequality. However, it is unclear to whatextent these developments and changes are driven bybroader economic pressures related to technology orglobalization, the hypotheses that are of greatest interestfor this paper.
In a regression analysis we investigate the relationshipbetween inequality and globalization. The results show thatour globalization index explains only 7-11 percent of thevariations in income inequality among the countries. Bydecomposing the aggregate globalization index into four sub-components, results show that personal contacts andtechnology transfers reduce inequality, while economicintegration increases inequality. Political engagement isfound to have no significant effects on income inequality. Incontrolling for regional heterogeneity, we find that theregional variable plays an important role in the explanationof variation in inequality.
The evolution of income and wage inequality is a complexphenomenon, driven by many factors that must have playeddifferent roles in different countries. In fact, developmentsin income and wage inequality differed appreciably acrossadvanced economies. In particular, changes in wageinequality occurred at different times and in different partsof the wage distribution across countries. Labor markets inthe United States and the United Kingdom witnessed somepolarization, but the evolution of wage distributions ineuro-area countries has not followed any common trend andhas remained relatively stable in several countries.
There is currently no consensus on why inequalityincreased in some industrialized countries, but not inothers. Some argue that increased inequality, where itoccurred, was driven by skill-biased technologicalchange and a changing distribution of job task demands,spurred directly by advancing information technologyand indirectly by its impact on outsourcing. This has ledsome observers to lay the blame squarely onglobalization and to call for protectionist measures.