Inequality: Globalization and international inequality, discrimination

Globalization

def.: worldwide flow and integration of culture, media, technology, and economic interests due to advances in communication

Ex.:

• watching Hollywood & Bollywood films globally

• studying abroad

• McDonald’s adapting menus for local tastes

• working on international projects

Main aspects of globalization

Acc. to IMF:

• Trade

• Capital movements (financial markets)

• Movement of people

• Spread of knowledge (and technology)

Theory of globalization—comparative advantage

def. a country should specialize in producing goods where it is relatively more efficient, even if it’s less efficient overall

Ex:

• UK is more efficient at making cloth

• Portugal is more efficient at making wine

→ Both countries benefit by specializing and trading

How does comparative advantage play out in practice between developed and less developed countries?

Less developed countries:

• comparative adv. in labor-intensive products (e.g. clothing), due to lower labor costs

Developed countries:

• adv. in R&D and services (e.g. software)

How has globalization affected global income distribution?

Over time:

• income distributions have shifted

• many people have been lifted out of poverty, but inequality remains

→ Developed regions continue to have higher incomes; developing regions see rising income but still lag behind

How does globalization affect inequaltiy?

1. Can reduce inequality between countries by increasing growth rates of poorer countries (cash out effect)

2. Can increase inequality within countries since not all sectors/regions benefit equally (China, megacities, and rural area)

→ More empirical support for decreasing between-country inequality

→ Within-country inequality is highly sensitive to initial conditions and public choices

Downsides of economic globalization

• MNC can shift operations to avoid taxes and regulations, gaining disproportionate power

• National gov lose leverage: law enforcement (like tax evasion) gets harder

→ Overall concern of “Race to the bottom”: countries lower standards (tax, environment, labor) to attract firms

Why do people migrate?

Main driver: expected income

• people move if expected wage in destination country > home country

Unskilled (low earners): tend to migrate from high-inequality/low-wage countries to lower-inequality/higher-wage countries (e.g. Mexico → USA)

Skilled (high earners): might migrate to higher-inquality countries if it offers higher pay (e.g. Germany → USA)

Non-economic reasons for migration

• war

• persecution

• climate change (not all migration is driven by wages or jobs)

Study: Does globalization reduce absolute poverty?

Data: 114 countries (1983-2007)

• Poverty: share living below $1 PPP/day

Expected effects:

• economic globalization: affects prices, wages, growth, human capital

• social globalization: affects info flows, social norms, lifestyle, tourism

Result:

• Globalization reduces absolute poverty (mainly via trade openness & information flow)

• Effect is positive but relatively small

Ex.: Bangladesh, glablization rise (1980-2000) reduced absolute poverty rate by 11 pp.

systematic group differences in labor market outcomes

• most societies: systematic differences among groups like gender and ethnicity in labor market outcomes (e.g. pay gaps, employement rates)

  • biggest gender pay gaps found in Asian countries with strong traditional norms

Reasons:

• meritocratic: productivity differences (e.g. education, skills

• personal preferences

• discrimination (unfair)

→ Some differences may be fair (productivity), others are unfair (discrimination)

What is taste-based discrimination?

Employers have a preference for certain groups (e.g. males)

→ will pay a price to avoid hiring certain groups, even if less qualified, & can also be driven by customers or other employees

Implication: Taste-based discrimination is economically inefficient

Statistical discrimination

Idea: employers lack info on individual productivity & use group averages (e.g. age, gender) to infer productivity

Ex.: Employers may expect women in their late 20s to soon take parental leave, so may avoid hiring

→ rational, not taste-based, form of discrimination & in the LR statistical discrimination reproduces itself

What are gender stereotypes & status beliefs and how do they relate to discrimination?

Gender stereotypes contain status beliefs (e.g. men seen as leaders)

→ beliefs limit women’s opportunities in the labor market (status beliefs legitimize discriminatory gender gaps)

Pollution theory: males want to keep females out of male-dominated jobs to protect their job status

How is discrimination measured empirically in the labor market & problems with regression-based approaches?

Method:

• usually via regression-based methods

  • regress wages on gender + controls (education, age, experience)

  • remaining wage gap (after controls) is considered discrimination

Ex: In Germany, gender wage gap drops to ~10% after controlling for observable characteristics

Issue:

• unclear where discrimination happens (job entry, wage, participation)

• unobservable factors may not be properly controlled (e.g. ability, personality traits)

• Cannot caputure all mechanisms behind the wage gap

How can field experiments be used to assess discrimination?

• Can reveal discrimination by controlling for all variables except group membership

Ex.: 127 CVs with identical content but different male/female names rated by US college faculty

• employers rated competence, hireability, mentoring, and proposed starting salary

• females preceived as less competent; proposed salaries for women were ~$3,500 lower (~11% gap)

Study: Police discrimination

Are minorities more likely to be subject to use of force by policy in the US?

Data: four police-civillian interaction datasets

Limitation: no data on how police choose whom to stop, so discrimination in stop rates can’t be measured

Results:

• blacks more likely to face use of force at any time of day

• no significant difference in lethal use of force

• even after controlling for non-racial factors (education, compliance), blacks are still 21% more likely to experience any use of force if perfectly compliant

→ taste-based discrimination