Impact of Globalization on InCome Inequality

Impact of Globalization on Income Inequality of OECD Countries

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1. introduction

The world in which society lives nowadays could not have become what it has without the help of globalization (Pavcnik, 2011). Globalization has allowed for an exponential increase in trade and integration of economies, which in turn have brought along many positive as well as negatives effects (Preble, 2010). The increase in competition, cultural interaction and technological advancements have brought along many new opportunities for individuals. However, it has also brought along many negative implications on topics such as income inequality, the environment and cultural sovereignty to name a few (Preble, 2010).

When looking into income inequality it becomes evident that there are many ways in which it is measured and analysed. All ways of measuring income inequality indicate that there is evidence to suggest that globalization widens the income inequality gap in Organisation for Economic Co-operation and Development, hereafter OECD, countries (Atkinson, 2003). The countries, which signed the convention on the 14th of December 1960 and the countries that joined later on are all economically developed countries (List OECD member countries, 2017).

This paper will look into the impact of globalization on income inequality in these countries and seek possible explanatory factors, which could have caused the increase in income inequality. The main questions, which will be discussed in this paper, will be whether or not globalization is responsible for increasing income inequality in OECD countries.^[a]

In order to investigate whether globalization is responsible for increasing income inequality, this paper first looks into globalization and income inequality as concepts and how these are measured and defined exactly. Second, this paper seeks possible explanations such as workforce competition, skill level workforce, top income and policymaking and highlights certain key elements, which influence income inequality by means of globalization. Finally, all parts are to concluded in order to see which factors impact income inequality the most.

1. globalization and Income Inequality

1. Globalization

When looking into the history of globalization, it is evident that globalization can be divided up into three main components. The evolution of transportation opened up borders in the late 1800s up till 1914 (Preble, 2010). The second era of globalization dates back to post WWII after which record growth in export was realised due to a multitude of trade agreements which were agreed upon such as the GATT in 1947 (Pavcnik, 2011). The final globalization change is currently happening as technological breakthroughs and global supply chains are opening up new possibilities and presenting new opportunities to expand (Preble, 2010).