Bullet Summary, Essay Example

Chapter 27

Globalization and Inequality in the Late Twentieth Century

• Real wages of unskilled workers fell between 1973 and 1980 in the U.S.
  • Declining productivity growth among unskilled workers
  • Higher wages for workers with advanced schooling and experience
• Globalization also led to an increase in wage gap
  • Decline in skills levels of immigrants
  • An increase in exports to low income countries from 8% of output in 1965 to 18 percent of output in 1990
  • Globalization favors unskilled workers in low-income countries and skilled workers in high-income countries

Globalization and Inequality in the Late Nineteenth Century

• Global trade and immigration also led to narrowing in the economic distance between poor and rich countries
  • Real wage differences declined over the period 1854-1913
  • The decline in real-wage difference was even greater when rich countries like USA and Canada and poor countries like Spain and Portugal were excluded from the sample

Trade Issues

• Free trade increased during late nineteenth century
  • Advancements in transportation system such as railways and steamships
  • Europe moved towards free trade after Cobden-Chevalier Treaty
• Free trade generated several benefits
  • Significant decline in commodity prices in certain places such as Liverpool
  • Differences in real wage and workers’ productivity declined between nations
    • Free trade probably accounted for 10 to 20 percent of the overall decline

Migration Issues

• Migration usually occurs from poor to rich countries
  • Migration is usually positively related to real wages and workers’ average productivity
• Mass migration results in decline of real wage differences between rich and poor countries
  • Probably accounted for 70 percent decline during the nineteenth century
• Migration in twentieth century probably lowered real wages because many workers were unskilled

Establishing the Facts, 1870-1913

• Inequality rose in rich, labor-scarce New World countries
• Inequality fell in poor, labor-abundant Old World countries

The Impact of Globalization on Inequality Trends, 1870-1913

• Labor-saving technologies reduce wage-rental ratio in the New World countries
• Labor-intensive technologies increase wage-rental ratio in the Old World countries
• Globalization increases inequality in rich and reduces inequality in poor countries

Some Things Never Change

• Two major differences between late nineteenth and late twentieth century globalization
  • Decline in inequality was significant in poor countries in the late nineteenth century but has not been observed in certain Latin American and East Asian countries in the twentieth century
  • Mass migration had greater impact than trade on inequality in the late nineteenth century but same pattern has not been observed in the late twentieth century

Chapter 28

The Political Economy of Inflation and Stabilization

• Inflation expectations lead to social conflicts between groups to ensure a greater share of social product for itself
• Developing countries have historically attempted to manage inflation through wage policies
  • Evidence suggests fiscal policy is a better tool than wage policies to manage inflation
• Fiscal policies may benefit the country in the long term but they are not easy to implement
  • Often result in redistribution of wealth among groups and, thus, lead to conflicts

Contributions and Limits of the New Political Economy

• New political economy is characterized by interest group models
  • Each group spends its resources in such a way that the marginal cost of influence efforts equal the expected marginal return from desired policy outcome
• Constituents occupy demand side and politicians occupy supply side of the political market
  • Politicians view expenditures to their constituents as benefits, not costs
• High level of political instability generate high fiscal deficits
• Highly polarized political system also results in higher fiscal deficits

Bringing Institutions Back In

• Social groups’ ability to influence economic policies depend upon their ability to organize themselves
  • Smaller but well organized groups are more powerful than larger but loosely organized groups
• Party organization can aggregate interests in different ways

Politics and Inflation in Middle Income Countries

• Differences in density and composition of interest group organization may help explain the differences in inflation and debt level among developing nations
• Developing countries often try populist economic policies
  • Such policies include fiscal expansion, redistribution of wealth, and structural reform programs
• Size of popular sectors, political movements, and party structures usually have positive correlation to inflation
  • Such systems reinforce sectoral and class conflicts

The Politics of Stabilization

• Political stabilization has negative relationship with inflation and intensity of group conflicts
• The nature of economic problems has greater influence on economic policies adopted by the newly-elected government than the transition process
• The nature of political regime has little to do with the success of the stabilization programs
• Less polarized political systems also ensure continuation of economic policies