Over the past few decades, America has reaped the benefits of expansion and automation with little worry of repercussion. As the world becomes more interconnected, technology is advancing beyond what was previously imaginable. While the US continues to make advancements, however, it is beginning to see the surprisingly negative effects of globalization and technological advancement on income equality.
America’s economic success has come, in large part, as a result of such widespread globalization and technological advancement–but at what cost?
What are Globalization and Increased Automation?
In broad terms, globalization is the international spread of products, technology, information and jobs crossing both countries’ borders and cultures. In economic terms, however, it is the utilization of free trade to create an interdependence of global nations.
Globalization has allowed corporations to outsource their manufacturing and service jobs to lower-cost international locations, where they can pay lower salaries and provide little to no benefits. This allows for economic output to be much higher, as companies receive much more than they are paying. In fact, globalization in the world has increased to the point where the volume of exports today is more than 40 times larger than in 1913.
Increased automation is an increase in creating and applying technologies to produce and deliver goods and services in a way that is almost completely independent of human workers, and instead relies on technology.
This greatly improves the efficiency of jobs by increasing output and productivity, as well as further ensuring stability in product quality. Before the mass increase of automation in the 1900s, the average work week was approximately 70 hours. However, mechanization and automation played a significant role in reducing the average work week to about 40 hours.
Income Inequality as a Result of Globalization and Automation
Globalization, while not the sole cause for income and wealth inequality, does play a role in it. This is partially due to the fact that the global elite continue to experience substantial gains from globalization, while the poorest in the world have not seen much growth at all.
Specifically, people living around the 80th percentile of global income (poor-middle class of developed world) see little real income gain from globalization, whereas many of the poor and middle class of the developing world have benefited greatly.
International trade also plays a role, as it leads to a cycle that often favors highly educated workers at the expense of those with less education. This means that people with more completed education receive higher salaries than those with less. This perpetuates a system in which those with wealth and privilege remain that way and those without cannot move up any higher on the economic ladder–furthering the income inequality gap.
Automation, on the other hand, has also played its part in increasing income inequality as it replaces many once high-paying blue collar jobs, leading to layoffs. These recent technological advances tend to favor educated workers over less educated workers. This is because many of the tasks that less educated workers had done could now be done more efficiently by machines, meaning the jobs open require individuals to have specialties.
However, since most specialties require higher levels of education and skill, companies value these workers more. This process drives up the wages of highly educated workers, while holding stagnant or even lowering the wages of the less educated workers.
Not only this, increased automation leads to the displacement of workers and new tasks come in slower, while benefiting high-skill workers. Many of these new technologies replace jobs as opposed to enhancing them. In other words, while they reduce costs a little for the company, they don’t increase productivity by much. Therefore, they still lead to the displacement of workers, but don’t benefit existing workers, and firms have no reason to increase wages or hire more workers.
How Can We Balance the Pros and Cons?
Globalization and automation are very complex subjects in the realm of income inequality– both their advantages and disadvantages are significant. Just as income inequality has no sole cause, there is no single way to utilize globalization and automation perfectly so that we only reap the benefits.
However, that is not to say that we can leave them unaddressed. We’ve seen what can happen to income inequality if there is not a suitable balance in the lengths to which we globalize or automate. That is why this is an issue that we must continue to be aware of and educated on. We must shift our focus towards the enhancement of jobs as opposed to the replacement of them.
Income inequality cannot be solved with a single solution. As we’ve seen, there are a myriad of identified and unknown underlying issues that make up America’s income inequality. It is for this reason that instead of looking for a singular, overarching answer to the inequality in income, we should try our best to first address its components: the racial and gender gap, the decline of unions, and globalization and increase in automation. As we know, these factors are complex in their own nature (they wouldn’t still be issues if they weren’t), but time has proven that, with effort, there is potential for things to improve. That is why we need to put in the effort to learn, understand and speak up for a better future.
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