Income Inequality results from rapid Globalization
Globalization is the international connection of countries that results 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 as seen in China’s economy. It has been improving rapidly since its adoption of the open-door policy in 1978 for foreign businesses (Toshihiko, 2003). Supporters of globalization may be quick to argue that globalization has resulted in huge improvements in various aspects, for instance, the reduction of unemployment and more income equality. Yet, this is likely not the case. Income inequality is actually happening within many countries. Current solutions to deal with this phenomenon are to raise minimum wage of the poor and impose a higher tax on the rich to reduce their net income.
Income inequality, in simple terms, refers to the rich getting richer and the poor getting poorer. This issue can be reasoned to be due to the increase of foreign businesses in countries. With an increase in foreign investments, there 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 is actually rather low; it is even lower than US wages in 1960s, (Shumlin & Malloy, March 2014) after the adjustment for inflation. On the other hand, the rich recieve more income and hence become richer, as their final goods and services will cost much more than the resources used to manufacture them. This is how income inequality has arisen in spite of the hope that globalization would help promote income equality.
Many countries adopt minimum wages for the poor like the United States of America (USA) where it is $7.25 per hour. (Shumlin & Malloy, March 2014) This ensures that the poor have enough to sustain their daily life and at the same time, reduce income inequality. 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 wage and increase it when necessary. An example would be the recent announcement made by President Barack Obama in March to increase the minimum wage to $10.10 per hour by 2017. Many supported this announcement as it means a significant increase in the income for the poor, and at the same time, due to higher wage expense incurred by companies, the rich will experience 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 the unemployment rate and the efforts to reduce income inequality would be to no avail. My suggestion for this possible issue is to have government regulations which says that companies require to hire minimum number of 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 be overworked because of doing more work for the same wage.
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 have a minimum amount or even no tax 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 rates and technological progress. Yet, there is a need to tackle the issue of income inequality cautiously with the above-mentioned solutions to ensure that workers, regardless of financial status, enjoy the benefits of globalization.
References:
Toshihiko, H. (2003). http://sjc-r.stanford.edu/research/publication/DP/pdf/DP2003_001_E.pdf
Shumlin, P. & Malloy, D., (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/
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