Intriguing Article of the Day
Via Mark Thoma – Can Offshoring Lead to Reduced Inequality?
What are the lessons for policy? The analysis of the opposing impacts of globalisation makes clear that what matters for the impact on wage inequality is the degree of international integration. The bell-shaped evolution of the relative wage goes hand in hand with falling trade and communication costs. Hence, any policy initiative that would aim at dampening negative distributional effects of globalisation by impeding free trade is misguided. In fact, it may very well be that promoting globalisation is not only good for efficiency, but for equality as well. The increased competition that follows from further international integration affects the wages of those who so far have been relatively sheltered from competition. This involves skilled workers much more than unskilled workers, who are already exposed to fierce competition. Increased focus on abolishing remaining protective measures that impede the free movement of goods and services should therefore be the way ahead. Not only for the sake of economic efficiency, but also to promote equality.
For some reason, I don’t think that politicians should be saying “But globalization means that the wages of skilled workers will go down to!” if they want to push through any trade pacts or globalizing economic policies. An interesting piece nonetheless.
