Second Draft of ES1102 Globalisation essay

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 the tremendous benefits a country can gain from participating in globalization; China’s economy has been improving rapidly since its adoption of open-door policy in 1978 for foreign businesses (Toshihiko, 2003) 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, for instance, the reduction of unemployment rate and more income equality. However, 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 phenomenon is raising minimum wages of the poor and increasing a higher tax on the rich to reduce their net income.

Income inequality, in layman terms, refers to the rich getting richer and the poor getting poorer. This issue can be reasoned to be due to the increase 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. While this indeed reduces unemployment, the pay for the workers are actually rather low; it is even lower than the wage in 1960s, (Peter & Dan, March 2014) after on adjustment for inflation. On the other hand, the rich get more income and hence richer, as they work in the tertiary industry, their final goods and services will cost much more than the resources used to manufacture them. This is how income inequality arises in spite of hoping that globalization would help 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. (Peter & Dan, March 2014) This ensures that the poor have 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. Many supported this announcement as it means a significant increase in the low incomes, and at the same time, due to higher wage 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 result in another issue. With a decrease in net income levels, the companies may just reduce the number of workers to ensure a minimal loss. This means an increase in unemployment rate and the initial hope to reduce income inequality would be to no avail. My suggestion to this possible backfire is for government regulations for minimum workers with minimum wages to be enforced according to the size of companies. This ensures that the companies do not just lay-off the workers when faced with an increase in minimum wages and the current workers will not overstrained for doing more work for the same 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 to the poor. This can be done so by giving the poor a subsidized rate for their 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, the income gap narrows. An example will be Singapore’s education system where students under Financial Assistant Scheme (FAS) will have a large fee subsidy and at the same time, and are ensured of receiving equal opportunities in overseas exchange despite facing financial troubles. 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 a more manageable living.

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

References:

Toshihiko, H. (2003). http://sjc-r.stanford.edu/research/publication/DP/pdf/DP2003_001_E.pdf

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