Why globalisation may not reduce inequality in poor countries
The article I read on The Economist takes a look at the inequality gap in poor countries, and the effects globalization has on said inequality. Equality in countries around the world is measured in terms of the Gini Index, as we saw in our vocab. A Gini Index of 1 means perfect inequality, and a Gini Index of 0 means perfect equality. Economists are beginning to say that globalization has nothing to do with the falling of the Gini Index. Basic economic theory says that inequality falls as poorer countries enter the global economy. The Theory of Comparative Advantage states that poor countries produce goods requiring large amounts of unskilled labor, while rich countries require skilled workers for their services. When a country's economy improves, the demand for unskilled workers increases and so do their wages, allowing for increased equality.
However, there is still high inequality in poor countries, leaving economists puzzled. They are trying to understand why this is happening, and are thinking up theories to explain this phenomenon. One explanation that economists have come up with has to do with outsourcing. When countries shift their workforce to other countries, they generally give skilled employees high wages. These workers also have to meet rich-world deadlines which boots high productivity, and accounts for even higher wages. On the other hand, poor workers in the same countries have low wages and low productivity. This uneven balance of wages makes for even higher inequality in poor countries, as a result of globalization.
