Reasons for world’s income inequality
December 1st, 2011
Currently there are global protests against corporate greed, and the top 1% of earners in the world. People are concerned the gap between the rich and the poor is growing so large it is unbridgeable.
The Atlantic magazine has been looking at why the top 1% of people have made such huge gains in income in the past few decades, while the middle and low end haven’t. It says there are two key reasons for this – trade and technology.
Technology. In the long run, tech tends to grow economies. In the short run, it can create a lot of carnage. If humans don’t find skills which aren’t more easily performed by non-human bots, they’ll either go without work or have to work low-skill service jobs which haven’t been automated yet.
Trade. Economist Nouriel Roubini says a basic principle of international trade theory is greater trade with a labour-abundant economy will reduce the wages of workers in a capital-abundant economy.
This is why so many clothing manufacturing jobs have gone to China, and why even some Chinese jobs have gone on to still poorer countries. Cheap stuff is good for consumers, but not always good for workers in high-wage countries like the US.
The tradability of services also threatens jobs. With better information technology, more services are tradable and susceptible and this is what sucks manufacturing jobs from economies.
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