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Globalization, Labor Markets, and Wage Inequality

February 4, 2012

The Carnegie Endowment for International Peace released a bulletin yesterday, Globalization, Labor Markets, and Inequality, which is a timely commentary on global wage inequality, coming on the heels of the New York Times series on the iEconomy which explored the working conditions in Chinese factories.

The Carnegie bulletin makes the point in the first paragraph

Globalization is clearly contributing to increased integration of labor markets and closing the wage gap between workers in advanced and developing economies, especially through the spread of technology.

The bulletin examines some factors contributing toward wage convergence among nations (the best indicator of a global labor market) and determines that migration is probably a less significant factor that capital flows among countries. Labor is simply much less mobile than capital.

The bulletin authors also point out, in an earlier article, Is the Labor Market Global?, that

There is no doubt that increased international integration of labor markets reallocates humanity’s most important resource, labor, more efficiently along lines of comparative advantage, and thus expands the world’s production frontier, potentially improving everyone’s welfare. But globalization and its handmaiden, technological change, have also been associated with labor churning (the combination of jobs opening up and being eliminated) and a widening of domestic income distribution in most countries.
Although globalization has increased trends toward wage convergence (or, stated another way, the wage gap between workers in developed and developing nations is gradually shrinking), national income inequality has risen over the past several years. This is particularly true of developed nations. The Organisation for Economic Co-operation and Development (OECD) has stated

At present, across OECD countries, the average income of the richest 10% of the population is about nine times that of the poorest 10%. While this ratio is much lower in the Nordic countries and in many continental European countries, it rises to around 14 to 1 in Israel, Turkey and the United States, to a high of 27 to 1 in Chile and Mexico.

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