First Draft of Essay: income inequality resulted from rapid globalization

Income Inequality resulted from rapid Globalization

Globalization is the international connection of countries resulted from the flow of goods and services, human resources, concepts and other aspects of life. It is well known for its tremendous benefits a country can gain from participating in globalization; China’s economy has been improving rapidly since it adopts its open door policy in 1978 for foreign businesses to be able to venture to China. Supporters of globalization may be quick to argue that thus globalization has resulted huge improvements in various aspects like the reduction of unemployment rate and more income equality. However, I beg to differ. Income equality might arise when foreign businesses set up companies in the country and hire the locals with a market wage. Yet, this is likely not the case. Income inequality is actually happening within many countries. Current solutions to deal with this phenomena is raising minimum wages of the poor and a higher tax income on the rich to reduce their net income.

Income inequality, in layman terms, the rich gets richer and the poor gets poorer. This issue can be reasoned to be due to the increase of foreign businesses in the country. With an increase in foreign investments, it is no doubt that there will be an increase in demand for workers, especially in the manufacturing and food industries. This indeed reduces unemployment, yet, the pay for the workers are actually rather low; it is even lower than the wage in 1960s, ^[1] after adjusted for inflation. On the other hand, the rich gets more income and hence richer, as they work in the tertiary industry, their final goods and services will cost much higher than the resources worth to manufacture it. ^[2] This is therefore, how income inequality arises despite hoping that globalization would help to promote income equality instead.

Many countries adopt minimum wages of the poor like the United States of America (USA) of having $7.25 per hour. ^[3] This ensures that the poor has enough to sustain their livings and at the same time, hoping to reduce income inequality as in this way, the poor gets a higher pay than they may get if there is no such measurements adopted. These countries tend to revise their minimum wages and increase it when necessary. An example will be the recent announcement made by President Barack Obama in March to increase the minimum wages to $10.10 per hour by 2017. ^[4] Many supported this announcement as it means a significant increase in the poor incomes, and at the same time, due to higher wages expense incurred by companies, the rich experiences a reduction in net income. This helps to narrow the disparity in net income, and hence, promote income equality. However, this may resulted in another issue. With facing a decrease in net income, the companies may just reduce the number of workers to ensure a minimal drop in profit. This means an increase in unemployment rate and the initial hope to reduce income inequality would be waivered. My suggestion to this possible backfire will be government regulations of minimum workers with minimum wages according to the size of companies. This ensures that the companies do not just lay-off the workers when facing increase in minimum wages and the current workers will not be too taxed to do more work with the same amount of wages.

In addition, many countries also tax the rich a higher tax rate, so that the government can use the higher tax collected from the rich, and redistribute to the poor. This can be done so by giving the poor a subsidized rate in terms of medication and education benefits, using the tax collected to help them. In this way, a higher tax causes the rich to have a lower net income, and with the poor net income not changed under this policy, narrowing the income gap. An example will be Singapore’s education system whereby students under Financial Assistant Scheme (FAS) will have a large amount of fees subsidized and at the same time, ensuring that they receive equal opportunities in overseas exchange despite facing financial issues. The government uses the taxpayer’s money to do so, and the rich in Singapore would contribute a large amount, whilst the poor has minimum or even no tax rate to pay. This therefore helps to reduce the income gap in countries like Singapore and ensure the better poor-rich income gap.

In conclusion, globalization indeed helps the countries to improve in terms of employment rate and technologies benefit. This, we cannot deny. Yet, we have to deal income inequality cautiously with the above-mentioned solutions so to ensure that workers, regardless of their financial status, enjoy the benefits of globalization and improve together with the improved economy.

References:

[1], [3] and [4]:
Gov. Peter, S. & Gov. Dan, M., (2014,March) Three reasons why a $10.10 minimum wage is good for America. Retrieved from http://www.cnn.com/2014/03/05/opinion/shumlin-governors-minimum-wage/

[2]:
Retrieved from: http://www.res.org.uk/details/mediabrief/4381941/Globalisation-Increases-Wage-Inequality-By-Rewarding-Skills-More-Highly.html

(self-reference)

http://www.economist.com/node/8554819

http://www.globalization101.org/globalization-may-increase-inequality/