Friday, February 20, 2015

How Globalization begets Inequality

            The article talks about how globalization brought on inequality. When you look back through China’s history, you can notice a large change from 1980, when the average income was $200 U.S. dollars. In 2013 the average income for China was nearly $7,000 U.S. dollars. China’s Gini index has grown from .3 to .45. The Gini index is a measure of income distribution where 0 is perfect equality and 1 is perfect inequality. Before globalization countries had to hone the skills they already had and had to deal with the lack of other skills or teaching others how to do it. After globalization, countries could easily trade workers who were in high demand for workers that the country needed in their own job locations. Eric Maskin and Michael Kremer tried to create a theory named “Skills Matching” but realized that their model just helped to explain the upheavals of globalization. The explanation is of how globalization interacts with inequality begins with groups of workers. There are four groups of workers: high- and low-skilled in developed countries, and high- and low-skilled in developed countries.

            I believe that Maskin and Kremer were on to something when they started to make this theory. I believe that the inequality is based off of the fact that the countries would trade their good skilled workers and trade those workers for other skilled workers. The lower skilled workers would be unable to be trade until they were trained better and that was not easy to be done because the workers they needed were already there. Lower skilled workers did not need the training because they just were not needed. There was very little incentive to have them trained, so this caused a negative result in the long run. After labeling the problem, Maskin asked a great question and I ask it too. “Now that we know this problem, how do we tweak this system so that the inequality is changed?”

Elizabeth Causby
Friday February 20, 2015

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