Globalization

The global economic scenario has undergone considerable changes and dynamics over the years, with the integration and inclusiveness of the economies of different countries with one another. Much of this integration and interdependencies of the economies of different countries can be attributed to the international phenomena of considerable importance, which include events like Globalization, Liberalization of the economies of most of the countries as well as the development of technological and infrastructural aspects, which have contributed significantly in setting up robust communication and multi-lateral trade channels among different nations (Hewitt 2012). Over time, with the increase in the complexity and expanse of economic activities between the nations and with the development of a Capitalistic trend in these economies, various rules and regulations have been formed by the governments of the countries to secure the interests of all the groups. International organizations have also been developed with the objective of facilitating fair trade and economic transactions across countries (Hirst, Thompson and Bromley 2015).

There however remains significant debate regarding the implications of Globalization and the establishment of the institutions across countries. While some argue that these events and the development of the global as well as country specific institutions have strengthened the economic growth trends, others highlight that the same have led to increment in two of the most bothering and concerning issues in capitalism- unemployment and income inequality (Beck 2018). Keeping these views into consideration, the essay tries to analyse and explain the actual effects of globalization and institutions on income inequality as well as unemployment across nations as well as in the global scenario. 

The term “Globalization”, economically refers to the dissemination and inter-nations transfer of economic activities, businesses, technologies, capital and human resources. In short, globalization has four basic aspects, which are as follows:

• Transactions and trade relations
• Movements of capital and investments
• Inflow and outflow of knowledge and technological innovations
• Migration of labours across the world

Globalization is seen to have mixed effects on unemployment scenarios, with different implications for different countries. Globalization has led to shift in the job patterns, wage levels as well as immigration of labours, especially from the developing countries to the developed ones. This has led to creation to employment opportunities to some extent. This is evident from the growth of the different sectors of and increase in the rate of employment in countries like India, China and other Asian countries. The level of minimum wages as well as robust labour contracts, which have not been prevalent in the earlier times has been greatly facilitated by the phenomenon of Globalization.

Effects of Globalization on Unemployment

However, there has also occurred significant outsourcing from the developed to the developing economies, which in turn has led to reduction of mid-level employments in the developed economies (Kaplinsky 2013). The infiltration of foreign multinationals in the developing countries, owing to globalization, has led to destruction of many small scale indigenous industries, thereby leading to loss of economic and employment scopes in these regions. This is clearly evident in case of the African countries as since the advent of Globalization, South Africa has lost nearly 150000 jobs in the manufacturing sector, 11000 jobs in the retail sector, 57000 in the agricultural sector and nearly 116000 jobs in the informal sector (Ukpere 2011).

The supporters of Globalization often argue that the increasing scopes of expansion of businesses and economic activities across different countries, facilitated by globalization, has led to the creation of considerable productive activities, thereby employing larger share of the global workforce, which has also led to creation of income (Asteriou, Dimelis and Moudatsou 2014). However, there are evidences of considerable income inequality in the global scenario in the current period, which can be attributed to globalization. Since the advent of globalization and especially after the second world war, the average income of the developing countries has increased by nearly two times while the life expectancy has doubled.

The poorest have remained poorest and the rich people has become even richer. This can be explained by the Capitalistic structure which has been even facilitated by Globalization, as the same has helped the owners of the productive resources to expand their activities in different countries, thereby earning economic benefits, which have not percolated to the poorest sections (Milanovic 2016). Another interesting trend can be seen in this respect. The primary countries enjoying the fruits of globalization are the developing and emerging economies like China and India, who has been benefited hugely by the inflow of investment, technologies as well as outsourced jobs from the highly developed countries (Krusekronicle.com 2018). This can be seen from the rising incomes in these countries, probably at the cost of welfare decline of the middle-class citizens of developed world, who has been losing their job prospects. As can be seen from the empirical evidences that nearly 80% to 85% of the total world population living in the less developed countries and gets even less than 20% of the total income earned which indicates towards the increase in the inequality.

Effects of Globalization on Income Inequality

As has been discussed above, with the increase in the magnitude and complexities of economic activities of the countries, the governing frameworks of the countries across the world have also modified considerably. In the contemporary economic scenarios, the economy of most of the countries show capitalistic trends. This in turn implies that the businesses and the productive resources in these countries are mostly going under private ownership rather than remining under the control of the states themselves (Gazier 2013).

The emergence of this new era of capitalism implies that the production activities are operated and undertaken with the intension of personal profit maximization of the owners of the productive resources. This in turn leads to implementations of various cost minimizing processes, which in turn may lead to exploitation of the resources of production, mainly labour resources. To prevent the same and to ensure that the welfare of the labours is maximized various labour market institutions are implemented by the government of the countries (Hancké 2013). There also exist several international organizations which operate with the intension of maximization of economic welfare and development of the economies of the member countries. One such organization is the European Union, under which the member countries operate in same currency and same economic policy zone, in order to maintain parity and facilitate trade among the countries.

These local as well as international governing organizations use several institutions for the welfare of the labour population of the countries, which are mainly as follows:

• Minimum wage
• Unemployment benefit
• Employment securities
• Union coverage
• Centralization of wage bargaining
• Tax wedge
• Active policies in the labour market

While some of these institutions are targeted to reduce the unemployment in the economies, the others are used to address the problems of income inequalities in the economies. However, often there arises a trade-off between unemployment and income inequality in the economies as a result of the impositions of these institutions in order to reform the labour market discrepancies (Lehmann and Muravyev 2012). These are discussed as follows:

Unemployment is often reduced in the economies by regulating the aggregate demand and aggregate supply scenarios, especially at the times of recessions or economic stagnations. This is especially possible in those countries where there remains a floating exchange rate for the local currency. At times of recession, the institutions often devaluate the currency, which makes imports costly and forces the customers to buy domestic goods, thereby boosting productivity and creating employment scopes (Meer and West 2015).

However, the currency unions like that of the EU cannot float the currency freely as the periods of recession and booms vary across the member countries. This in turn hampers the prevention of cyclical unemployment in the member countries. This is even more evident from the empirical evidences present showing the unemployment dynamics in the member countries of the European Union. The regulations imposed by EU has been seen to increase the unemployment rate of the UK, Ireland and some other countries considerably higher than their predicted rates while some other countries like France and Denmark has been seen to be benefiting (Lisdatacenter.org 2018).

Institutions: National and Global

However, several currency unions like that of the United States of America have various institutional mechanisms like the social security programs, unemployment benefits and transfer of money from high prosperous zones to the high unemployment ones, which helps in boosting employment in the countries (Rumford and Buhari 2012).

Thus, from the above discussion it can be asserted that the presence of various institutions in the contemporary economic scenarios have mixed implications on the income inequality and unemployment trends in the global scenarios, with some countries getting benefitted and others getting negatively affected. However, the presence of such institutions often leads to a trade off between the unemployment and income inequality scenarios across different countries.

One of the primary policy frameworks which are most commonly used by the governing institutions in different countries as well as the international regulatory systems like the European Union, to address the situations of income inequality present in the employment sectors of the economies, is the policy of minimum wage.

The imposition of such wage slabs (if greater than the equilibrium wage rates) often leads to increased economic welfare of some sections of the workers but are often detrimental to the marginal workers as higher wage rates decreased the demand for labours on part of the employers and they tend to employ skilled labours only (TheCollegeConservative.com 2018). This in turn contributes to the problem of unemployment but does not considerably reduce income inequality as many labours face the threat of loss of entire economic stability.

The problem becomes even severe in the international unions of countries like that of the European Union and others. This is because the regulations and wage levels are set commonly for all the countries but the same may not be have equal implications on all the economies as different economies have different traits and cost structures. The empirical evidences of the member countries of the European Union show that there exists significant inequality in the countries and the inequality has decreased for some countries like Finland, Belgium, Portugal and Netherlands while it has also increased considerably for some other countries with years, the countries being Ireland and Spain (Source: Milani 2018)

Conclusion

From the above discussion, it can be asserted that the institutions as well as international economic phenomena like Globalization and liberalizations have mixed effects on the contemporary capitalistic forms of economies, especially in terms of implications on the income inequality and unemployment scenarios. While in some places the regulations and institutions as well as globalization has led to the growth of employment and income opportunities, especially in the newly emerging global economies, the same has led to negative implications on some other countries. The multi-country unions are also seen to have different mechanisms to address to these problems which has resulted to differences in the implications of the same on different regions.  

References

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