Globalization and Income Inequality in U.S. Globalization is the process of international integration, which the nation-states culturally, political, and economically interact with each other, creating a global society. Developing countries are modernizing, economies are constantly shifting, and technologies are advancing; however, as fascinating as globalization can be, it has several side effects. One of the key problems that is caused by globalization is income inequality between and within nations. The rich are getting richer and the lower class people are struggling to survive in this world. One example is the United States. Since the 1970s, its income inequality has been worsening, causing several major problems. This paper looks at US income inequality demonstrating the existence of this problem, the importance of addressing it, and the connection between such disparity and globalization, particularly economic and technological globalization. According to the data retrieved from the U.S. Census Bureau (See Appendix 2), it can be proved that income inequality exists. The real family data show that before 1975, all classes shared the prosperity, growing at a similar rate. Starting from 1973, the 95th Percentile (the level separating the 5 percent of the richest from the rest) rose at the same pace and increased approximately 60 percent; however, the growth of both the median (the level separating the half of the richer families from the other half) and the 20th Percentile (the level separating the 20 percent of the poor families from the rest 80 percent) slowed down. The Median only increased only 10 percent, while the 20th Percentile roughly grew (DeBot et al., 2015). This shows that the 1970s is the beginning of the income inequality and the US wage gap constantly widened since then, proving that income inequality exists in the US. It is very important to address this issue because it plays a major factor in several economic downturns. The growth of US income disparity means that the share of the US’s income is moving away from the lower class, favoring the higher income households. This also means that many lower income households are unemployed or receiving low salaries. According to the U.S. Congress Joint Economic Committee, such inequality will heavily impact the economy, causing a recession (Maloney et al., 2010). One good example is the Great Recession in the US. According to the Committee, the Great Recession was caused by two ways: middle-class incomes stagnated, causing the increase of demanding for credit that would fuel an unsustainable bubble, and the upper-class “amassed increasing sums of money to invest in new financial products” (Malonet et al., 2010). As a result, if the crisis happened in the US, then it would also prove the income disparity’s possibility to fuel other nation’s economic problems; thus, it is crucial that this global problem is to be addressed. One of the elements of globalization that fueled the US income inequality is the economic interdependence of the nation-states and the introduction of trade liberalization, implementing open markets in many states. One of the benefits of the neo-liberalist market is the ability to sell labors and services to foreign nation-states or make foreign investments. This form of economy encourages many corporations to offshore manufacturing plants to developing countries, such as China, and outsourcing a specific task to foreign company. As fascinating as outsourcing and offshoring are—giving economic opportunities to developing countries—there is a very serious side-effect. Outsourcing manufacturing plants to foreign lands would create a huge economic shift, causing a dislocation of many low-skilled native workers. Investing labor in developing countries is more profitable by paying lower wages; thus, Corporations are tempted to offshore their factories. Consequently, if the native factories are moved out of the nation, then the native workers will lose their jobs. Michael Spence (2011), said that relocating international supply chain would mean that “many job opportunities in the United States are shifting away from the manufacturing sectors and that would result in the “growing disparities in income and employment across the U.S. economy” (Spence, 2011); thus, they will have to compete for a limited spot in fewer domestic manufacturing plants. They will “have little choice but to accept jobs no matter how low the pay” (Krugman, 1994). Although globalization could be seen as giving employment opportunities to the poor in the developing countries, but it actually redistributed them, taking them away from the low-skilled US workers.
Since these US workers specialize in manufacturing labor, they do not have the flexibility to take on the jobs that require higher skills. While the manufacturing tasks are being outsourced, more companies are investing in skill-intensive sectors (Sachs, 1994); in other words, high-skilled US workers have more opportunities than the low skilled due to the international trade of labor. Many of these low-skilled workers lack the credential to perform certain techniques in the skill-intensive sectors; thus, the only option for them is to take on the limited opportunities in the manufacturing jobs. Spence also agreed that low-skilled laborers are struggling with the employment, while “highly educated, and only them, are enjoying more job opportunities and higher incomes” (Spence, 2011). Overall, the low-skilled workers are actually losing their jobs, instead of economically benefitting from the globalization (See Appendix 1). As a result, offshoring plants or outsourcing manufacturing labors to developing countries could cause serious damage to the US’s lower class workers that are not highly educated and lack the abilities or credentials to invest themselves in skill-intensive sectors. This international labor market proves that economic globalization and the US income inequality—specifically, the unemployment, or the dislocation, of unskilled native workers—are linked. Investing in developing countries is more profitable than local manufacturing production, so the US workers are forced to seek for limited opportunities in employment, despite the stagnated wages. This factor would widen the wage gap between the lower class and the educated higher class. Despite the positive effects, it is interesting how globalization could fuel the income inequality by hurting the lower class employment and widening the wage gap. Another element of globalization that is prolonging the income inequality in the US is technology. Technology has been advancing over time, and it has been contributing to the global communications and the productivity in processing information and completing tasks; these are the factors that help define one of the global elements. Computers and machineries are constantly modernizing. Companies in the US would apply sophisticated equipment to the manufacturing sectors for the sake of increasing productivity and profit. Indeed, implementing modern technology would create new jobs in the US; however, its side effects can come two ways: replacing low-skilled laborers with machineries and giving opportunities to highly educated people. There are several references from Hollywood movies, such as Terminator, expressing the concern of human replacement by robots; in fact, this myth may have become reality in the manufacturing sectors. More investment of machineries, instead of human labors, would mean fewer opportunities for the people who worked in these sectors. Companies would no longer depend on human laborers to produce their products; instead, they would buy a long assembly line of machineries for manufacture—technology can increase the speed of the production, and growing productivity would mean more money flowing into the pockets of the rich. R. C. Datta (1999) also agreed with the impact of technology. He claimed that the final phase of technological application is the removal of workers from the production process and that it will create “the potential to devalue workers, undermine their power and skills, and displace many workers from their jobs” (Datta, 1999). Another effect caused by technological implementation in the manufacturing sectors is the redistribution of the opportunities in labor of production. Implementing modern technology meant that the production process would require laborers with higher skills to control those mechanics; thus, this would snatch away the chances of low-skilled native workers to be employed in the new technological form of economy. This technological change in the US is biased in favor of skilled workers (Krugman, 1994). A young man with a college degree would make 30 percent more than another person who had great experience and a high school degree. In addition, Mark Doms et al. (1997) did a research to discover how the dynamics of the workforce in the US, in terms of wages, education, and productivity, vary with the adoption of new technology. The result shows that plants that apply sophisticated equipment hire workers with higher skills and education (Doms et al., 1997). This research proves that technological change can negatively impact the employment of unskilled workers. Overall, technological globalization shifted the US economy, causing dislocation of unskilled laborers and creating income disparity. The first phase is the economic shift in favor of skilled workers. The plants require workers with the skills to manage the machines and perform monthly maintenance to keep them working; thus, there would be more skilled workers to be employed. The second phase is the replacement of manufacturing workers. Since the machineries can perform physical labor, unskilled workers would be devalued and lose the opportunity to be employed. Skilled workers get greater opportunities while more unskilled workers are unemployed; this shift in employment opportunity is the cause of the US income inequality—it creates the system where the rich got richer and the poor got poorer. Economic and technological globalization may be seen as benign in the economic sectors; however, they are actually fueling the US income disparity. This income gap is caused by the redistribution of employment opportunity in favor of skilled workers. Outsourcing and offshoring manufacturing production will create a disadvantage for the US workers because they would have no choice but to search for any jobs that would help them survive, no mater how low the incomes are. Moreover, technological application in the manufacturing sectors would also create a similar outcome. This type of change would also increase the opportunity for skilled labors to be employed for managing complicated manufacturing equipment. These specific problems widened the US wage gap. Earning less money would mean consuming fewer products; therefore, the US economy would cause many issues similar to the Great Recession. It is very crucial to address this issue so that several countries can develop their economy without seriously damaging certain classes and create income inequalities that are similar to the US’s model.

Appendices

Appendix 1

Appendix 2

Reference

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