MSc DISSERTATION 2024
EXAMINING THE IMPACT OF GLOBALIZATION ON WAGE INEQUALITY AND LABOR MARKET DYNAMICS
Abstract
The study focused on analysing “exploring the complex impacts of the increasing globalization on major labour market indicators globally. In particular, it will explore how ‘the emergence of international trade and investment and the exchange of technology’ has affected ‘wages, wage differentiation,’ and labour relations around the world”. The following literature review analyses how globalisation affects wages and career opportunities. It specifies negative impacts, including precarity of employment and tendencies towards polarization in labor market demand and offer, and states the necessity of further policies to tackle these problems, making equal opportunities for employees in a globalizing word economy.
A quantitative study has been conducted considering a 10-year data from 2014 to 2023 with respect to variables like GDP per capita, GINI index, FDI inflows, unemployment rate, FDI outflows, and trade openness. The data has been gathered for three countries such as the UK, Canada, and the US. As per the descriptive and statistical tests, trade openness has influenced wage inequality acorss the countries and FDI inflows have impacted unemployment. The study has accepted both hypotheses developed. However, the study is likely to help the policymakers in understanding the economic condition of people thereby focusing on integrating positive strategies.
Table of Contents
Table of figures
Figure 1: GINI index of the UK.. 19
Figure 2: Gini index of Canada. 20
Figure 3: Gini coefficient of the US. 21
Figure 4: Unemployment rate in the UK.. 22
Figure 5: Unemployment level in the US. 22
Figure 6: Unemployment rate in Canada. 23
Figure 7: Results of descriptive statistics. 24
Figure 8: Results of correlation. 25
Figure 9: Regression for Hypothesis 1. 26
Figure 10: Correlation results for the second hypothesis. 27
Figure 11: Regression for the second hypothesis. 28
1.0 Introduction
A number of factors have contributed to the fast acceleration of globalisation over the past several decades. These factors include the reduction of trade barriers, the growth of cross-border money flows, and advancements in transportation and information technology. While it is widely held that globalisation leads to increased levels of specialisation and competitiveness, which in turn leads to higher levels of economic development and productivity, the social and economic repercussions of globalisation continue to be a subject of continuous discussion among academics. To be more specific, there are contrasting points of view about the implications of increasing global integration for critically important outcomes in the labour market. Proponents say that it will result in increased possibilities and greater salaries for those with specialised skills. Nevertheless, opponents bring attention to the possible dangers of increasing pay disparity and employment in insecure positions.
1.1 Background Research
A number of globalisation effects have been researched and analysed in a vast amount of published literature. Hausmann et al. (2020) investigate the correlation between inequalities in the labour market and mass politics in the industrialised countries. This is irrespective of pay disparity which was not considered appropriate for the employees in this company. To this end, Huh and Park (2021) come up with another index to assess how globalisation has contributed to the enhancement of economic growth and or income inequality between countries. Concerning the nature of the labour market, Donovan et al. (2023) examine how structural change and market imperfection affects employment opportunities in different phases of financial evolution.
1.2 Research Aim
This dissertation is therefore set to explore the complex impacts of the increasing globalization on major labour market indicators globally. In particular, it will explore how ‘the emergence of international trade and investment and the exchange of technology’ has affected ‘wages, wage differentiation,’ and labour relations around the world. In this regard, the study aims at identifying these factors and thus aims at offering a clear understanding of the emerging global labor market and its implications to workers and employers and the policy makers.
1.3 Research Objectives
- To examine how globalization influences wage differential with reference to the level of skill of the workers internationally.
- To analyze the effect of globalization on the demand of the workforce in different fields and sectors of the global economy.
- In order to study the employment outcomes and their effects on various regions or countries in the world.
- It is to analyze and determine any adverse effects of globalization on labor markets around the world and offer policy recommendations for each.
1.4 Research Questions
- How has wage inequality evolved globally since the 2009, in conjunction with increased economic integration and globalization?
- What changes have occurred in occupational structures and worker perceptions of job security worldwide as a result of globalization?
- What policies and strategies can be implemented to mitigate the potential negative effects of globalization on wages and employment globally?
1.5 Research scope
In order to capture broad trends on the impact of globalization on every region’s labor markets, this research will undertake a secondary analysis of data from 2009 till the present. This paper will utilize primary and secondary sources; these sources include academic journals, government documents, statistical data from international bodies such as ILO (International Labour Organization) and others. This will provide an opportunity to examine trends and patterns in wage inequality, occupations and employment within countries across the global.
1.6 Research Significance
Taking into account the current state of global interconnectedness, the findings will offer valuable insights that may be utilised in the process of formulating global’s development policies and social programs.
1.7 Research Hypothesis
H1: Higher tradeopenness impacts income inequality in differently across nations.
H2: FDI inflows impacts unemployment rates across countries differently.
1.8 Conclusion
This opening chapter provided an overview of the study challenge, aims, questions, and importance. For the purpose of putting the hypothesis that was presented to the test, the subsequent chapters will give an in-depth assessment and analysis of secondary data and literature.
2.0 Literature Review
Examining the Impact of Globalization on Wage Inequality and Labor Market Dynamics
2.1 Introduction
Wage disparity and labour market dynamics are significantly impacted by globalisation, which is defined by growing international trade, capital flows, and labour mobility. There is a wealth of literature examining different theoretical views, empirical findings, and policy implications related to the relationship between globalisation and certain economic variables. This relationship has been the focus of substantial research.
2.2 Empirical study
Law et al., (2020) describe the international trade theory; trade liberalisation helps a nation’s plentiful component of production while hurting its scarce factor. This frequently results in rising wage inequality in industrialised nations as unskilled labour (scarce) loses and skilled labour (abundant) wins. Feenstra and Hanson (1996) offer proof that the change in demand towards skilled labour caused by outsourcing in the US results in wage disparities. It also emphasise that rising wage inequality in the US is a result of increased globalisation, especially through outsourcing. The need for skilled labour increased in rich countries as a result of labour-intensive industries shifting to emerging nations, expanding the pay gap between skilled and unskilled workers. According to Marchand et al., (2020), trade between developed and developing nations decrease the need for unskilled labour in wealthy nations, which increased pay disparity. His research focuses on how commerce affects how much skilled and unskilled people are paid in relation to one another. Acemoglu and (2011) contend that the demand for skilled labour rises as a result of technical improvements and globalisation, pushing up the wages of skilled workers and creating a wider pay gap with unskilled workers. Borjas et al., (1997) investigated how labour markets are affected by immigration, which is a part of globalisation. The authors discovered that, especially in low-skilled labour markets, immigration may result in native workers facing wage suppression from immigrants. Krugman (1986) investigated the impact of globalisation on the disparity in wages among nations. They proposed that while globalisation would cause income levels to converge between countries, it might also create inequality within them as some areas or industries profit more than others.
Leamer (1994) talked about how international competitiveness and technology advancements together have an impact on wage inequality. It has also been said that both had contributed to the increase in pay gaps where globalisation acted to increase the effects of technological advancements. Taking high-tech capital and increasing outsourcing into consideration, the effect on salaries was investigated by Feenstra and Hanson (1998) based on their previous work. According to them they stated that both high-tech capital and outsourcing played a role in the rise of pay disparity because they helped to increase demand for skilled workforce in United States and benefited skilled workers more than the unskilled ones. Krugman (1986) examined the role of geography in the matter of growth and development arguing that differences within nations could be attributed to globalisation whereby some areas experience higher rates of economic growth and wage upswing due to enhanced access to foreign markets and capital. Goldberg and Pavcnik (2016) presented actual data from Colombia to demonstrate how wage inequality was made worse by trade liberalisation. They discovered that shifts in trade were linked to a rise in the premium wage for skilled labour, which widened wage disparities. Giroud and Ivarsson (2020) concentrated on the effects of globalisation on labour markets, highlighting the ways in which commerce and technology were fuelling the growing gaps in wages. He maintained that talented workers were increasingly profiting from globalisation at the expense of less trained workers. Card and DiNardo (2005) found that in some nations, labour market laws and the existence of unions served to reduce wage disparities. Häusermann and Palier (2017) promoted programs for occupational training and lifelong learning as a means of assisting workers in adjusting to the changing needs of the labour market.
Goldberg and Pavcnik (2016) examined a number of research showing conflicting effects. As the demand for low-skilled labour expanded due to trade liberalisation, certain developing nations saw a decrease in wage inequality. Card and DiNardo (2005) draw attention to how job security is eroding in many nations as businesses look for flexibility to compete on a global scale. Strong labour market institutions, according to Lawrence et al., (2017), can lessen the negative effects of globalisation, like pay disparity and job insecurity. Kalleberg (2009) emphasised the importance of education in lowering income inequality by providing workers with the skills they need to succeed in a globalised economy.
Dustman et al., (2014) discovered comparable patterns in Germany, where trade liberalisation widened the pay disparity between highly trained and unskilled labourers. Kalleberg (2009) Talked about how globalisation has led to an increase in non-traditional employment (gig, temporary, and part-time work), which has an impact on job security. Esping-Andersen (2009) emphasised the need for strong welfare programs to protect workers from the detrimental effects of globalisation.
Feenstra and Hanson (2003) Presented empirical evidence in support of these theories, pointing out that by favouring skilled labour, trade liberalisation frequently results in increased pay inequality in industrialised nations. Acemoglu and Autor (2011) draw attention to how SBTC exacerbates wage disparity in affluent nations by driving up demand for skilled labour.
Driffield and Kelly (2019) presented the idea of the “precariat,” a class of workers whose job is insecure and is connected to developments in the world economy. The OECD report found that while greater global competitiveness resulted in more flexible labour markets, employment instability also rose. Autor et al., (2016) had shown how China’s import competition is driving up pay inequality in the United States, especially for low-skilled workers. The author further discovered comparable patterns in the US, connecting offshoring and technology advancement to job polarisation. Burstein et al., (2020) demonstrated the polarisation of the labour market in Europe, with a fall in middle-skilled positions and an increase in high- and low-skilled jobs. Moreover, after analysing Danish companies, they discovered that outsourcing raised employment and income for highly skilled individuals while causing job losses in low-skilled occupations. Card et al., (2020) suggested using social transfers and progressive taxes to combat the rising income disparity associated with globalisation. Lawrence et al., (2017) examined how the threat of automation and artificial intelligence (AI) to middle-skilled occupations brought on by globalisation results in increased wage disparity. Dix-Carneiro and Kovak (2023) made the argument that redistributive laws and social safety nets are essential for tackling the inequalities that globalisation has increased. It encourages inclusive growth, specific social policies and labour market reforms were advised. Arntz et al., (2017) discovered that low-skilled employment may be disproportionately impacted by automation, hence worsening inequality. Blanchard and Brancaccio (2019) has drawn attention to the ways in which GVCs can both exacerbate wage disparity and generate high-skilled jobs in developing nations. Dix-Carneiro et al., (2023) talked about how the growth of global value chains (GVCs) changes the demand for labour and frequently results in job displacement in conventional manufacturing industries. Baldwin contends that the development of information and communication technologies (ICTs) has propelled globalisation into a new era by enabling businesses to more effectively divide output across national boundaries. The demand for skilled labour has increased in industrialised countries while the demand for low-skilled labour has decreased, which has resulted in a widening wage difference. This trend has important implications for income inequality.
UNCTAD (2020) examined the potential impact of geopolitical instability and technological advancements on the reshoring of employment, which could significantly alter the trajectory of conventional globalization patterns. Their comprehensive analysis is supported by a substantial body of literature addressing globalization and wage equality. Häusermann et al. (2020) investigate the relationship between mass political movements and labour market inequality, thereby contributing to the discourse on economic disparity. This research underscores the political implications of increasing inequality, which may be relevant to the broader socio economic framework of the study. Huh and Park (2021) introduce a novel index to assess the influence of globalization on economic growth and wealth distribution. Their results reveal the intricate interplay between globalization and inequality, emphasizing the importance of conceptualizing inequality to fully grasp its effects on wages. Donovan et al. (2023) specifically analyze the transformations within the labor market across various stages of economic development. Their research, published in The Quarterly Journal of Economics, delves into the effects of labor market inefficiencies and structural changes on the economy. They present extensive empirical evidence to support their assertion that nations require adaptable labor markets to foster growth, as this enhances the utilization of human resources. The authors also highlight the differences in labor market structures based on a nation’s level of development and advocate for policies aimed at improving labor market efficiency to stimulate economic growth. Their study employs a novel dynamic general equilibrium approach to estimate both the short- and long-term effects of trade shocks on the labor market. Consequently, the findings illustrate the impact of trade surpluses and deficits on employment outcomes.
The literature from 1996 to 2023 emphasises how globalisation has a complex impact on labour market dynamics and income disparity. Particularly in industrialised nations, globalisation has exacerbated labour market polarisation and rising income disparity even as it has spurred economic growth and expanded opportunities. Understanding and addressing these difficulties requires a focus on the role of institutions, legislative responses, and on-going technology advances. Future studies should concentrate on how globalisation is changing and how that is affecting workers all across the world.
Globalization that has spearheaded changes in labour markets all over the world has created negative impacts that need analysis. One of the main negative effects should point out to the constant rise of wage dispersion is seen in many countries. It is argued that when economies are integrated across borders then highly skilled employees are the ones who are likely to gain from international business while those with low skills are likely to either have their wages cut or lose their jobs. Low wages for low-skill jobs The competition from emerging economies means that companies can push down wages aggressively to marginalize costs and thereby increase their profits through outsourcing low-skill displacement activities to other regions of the world. This dynamic leads to within-state and between-state inequality in income.
The other impact of globalization is increased vulnerability in employment. The new economy is characterized by contract, low-wage, precarious employment relations and the growth in non-standard employment forms such as casual, part-time and freelance work (Gunderson, 2020). These employment patterns explain why the market is uneven, and obtaining an ever-constant job is yet to become a reality. Employed citizens in developed countries close to their jobs compete with the global world, which causes job insecurity and fear. This shift to non-standard employment also poses challenges in labour relations, especially where a traditional collective bargaining system does not work well in the gig economy or those who are on short-term contracts.
Furthermore, globalization causes skill-biased changes in the labour market brought about by a decrease in job demands of middle-skilled-versus-high-skilled and an increase in demand for low-skilled workers. It has been found that as industries become tech-based and processes more standardized, then employment opportunities for middle-skilled workers shrink. This equilibrium engenders a dual labour market structure characterized by diminishing middle ground and emerging high-low division (Song et al., 2024). As a result, the manufacturing workers can be locked in their low-wage employment because when they seek higher-paying jobs; there are limited middle-skill jobs.
Moreover, it is noteworthy that the effects of globalization depend on the situations in labour markets by countries or regions. Thus again in developed economies, globalization has caused employment cutbacks in manufacturing industries although the service industries have expanded (Khanna, 2023). On the other hand, developing countries may witness an established queue of jobs in textile and electronics due to FDI. But the new jobs that are generated in those sectors are typically low-wage, insecure and predatory, with little human rights or labour rights protection offered to the workers.
Thus, to overcome the negative impact of globalization on ult demands in the labour markets, different measures should be taken by the authorities. The first method is through supporting education and training that enables employees to meet the new global requirements. The stakeholders should aim at education for employment that enables the workers to change and adapt to new demands and move up to other better jobs (Goulart et al., 2022). Can also boost social protection programs which help to mitigate the risks of globalization affecting vulnerable workers. Measures including unemployment, health care, and retirement are some examples of policies that can be helpful during a transition period.
However, they should also ensure that they put in place legislation that will encourage equality in employment status in the international market. This includes setting floors as minimum wages, employee safety conditions, and their conditions of work. Multinational corporations should be compelled to end reckless labour policies throughout their multiple locations (Burke, 2022). Cooperation between nations is a necessity in setting and pursuing these standards so that globalization does not have to have repercussions on the employees’ lives.
Overall, one can state that globalization has numerous positive impacts on the economic aspect but one must not omit the negative effects on labor markets. New tendencies available in wages reveal the growth of wage disparities, developments in job insecurity, and labour market dispersion as major difficulties. These negative impacts can be neutralised and a more bearing and healthy labour market put in place by the government as a result of following the following policy prescriptions; education and training, social protection, and provision of employment rights and remedies. It is important to solve these problems to get more people involved in the globalization process and to share the positive effects of globalization among all workers.
2.3 Literature Gap
Existing research focuses on the effects of globalization on wage inequality and changes in labour market structures while ignoring the stratified effects for some employees and the geographical distribution of work. Thirdly, surprisingly, there is no systematic research undertaken on the consequences of globalization on employment security, and labour relations.
2.4 Summary
This literature review summarises the various dynamics of globalization in labour markets, notably wage disproportions, job insecurity and polarization. This implies that appropriate policy interventions such as education and labour market discrimination, are critical to reducing these negative impacts and supporting growth for all in a flowing world economy.
3.0 Methodology
3.1 Introduction
As discussed in Chapter 1, this research aims to analyze the impact of globalization on wage inequality and labor market dynamics. In particular, it seeks to understand how growing global integration has influenced wages, wage dispersion and employment patterns. This chapter describes the methodology used to address this research problem. It provides details on the data sources, variables, and quantitative methods that will be employed to investigate the relationships between globalization and the key labor market outcomes. The chapter also outlines the statistical tests that will be carried out and discusses some limitations of the methodology.
3.2 Data sources
The data sources for this research have been obtained from secondary sources such as the World Bank Database. The study has considered a 10-year data on the growth of globalisation, GINI index, and unemployment rates in three countries viz Canada, the UK, and the US. The measurement of globalisation has been done with the variables GDP per capita, FDI inflows, FDI outflows, and trade openness. The time period for the dataset has been set as 2014 to 2023 depicting 10 years.
3.3 Variables
The key dependent variables of the research are the GINI index, and the unemployment rates. On the other hand, the key independent variables of the research are FDI inflows, FDI outflows, GDP per capita and trade openness.
GINI index
The GINI index has been considered as the dependent variable which is considered to be the modern tools that measures the wage inequality level in a nation. The variable has helped in understanding the fluctuations in the income inequality level over the years across the three countries (Charles et al., 2022).
Unemployment rates
The unemployment rates have been assessed over the 10 years for each country as it has helped in analysing the changes in the labour market with respect job opportunities and job losses (Asif, 2013).
FDI inflows
The FDI inflows have helped in understanding the globalisation growth in all the selected countries depicting the monetary inflows from other nations for business growth (Ghazalian and Amponsem, 2019).
FDI outflows
The FDI outflows have helped in measuring the ability of the countries to enable the organisations to operate in international markets thereby making investments (Ameer et al., 2021).
Trade openness
The trade openness has measured the exports and imports of all the countries as a percentage of GDP (Fujii, 2019).
GDP per capita
GDP per capita has helped in analysing the economic development in the countries effectively (Korotayev et al., 2018).
3.4 Methodology
To rigorously analyze the impact of economic globalization on wages and employment, regression analysis with fixed effects modelling will be conducted. Fixed effects models are well-suited to control for time-invariant characteristics that may differ between countries.
The primary approach will use panel data regression with country-specific fixed effects. This allows capturing individual-specific attributes that remain constant over time and isolating the effect of independent variables from potential confounding influences. Key globalization indicators and control variables will be regressed on the labor market outcome variables to identify relationships.
These models will help address the main research question by showing the direction and strength of associations between global integration measures and average wages. They are well-positioned to indicate how wages respond to changes in factors like trade engagement and investment flows over time within countries.
To analyze wage differentials, additional parameters will interact skill classifications with the explanatory variables. This interaction testing aims to discern if globalization impacts particular skill-level wages differently.
Year fixed effects will control for broader cyclical trends common to many nations in a given year. Comprehensive diagnostic checks will ensure modeling assumptions are not violated before interpreting results (Fadinger and Mayr, 2022).
If necessary, alternative methods will substitute standard errors with robust versions, switch to first-difference or population-averaged estimators, or try alternative panel data models like random effects. The choice depends on issues found through baseline residuals analysis.
Rigorous application of this approach across multiple countries longitudinally can provide compelling evidence on how global interdependence reshapes the labor market through various channels over the long-run. Policy-oriented conclusions may then consider these empirically validated dynamics.
3.5 Diagnostic testing
Thorough diagnostic testing is required before finalizing any modeling to check assumptions are met. Pearson correlation between the variables will be tested to understand the influence of variables on each other. Descriptive statistics is to be conducted. Remedial steps may include applying panel corrected standard errors (Huber et al., 2022).
Multiple linear regression between predictors will be checked through variance inflation factors, with highly correlated variables either combined or removed. Residuals tests for non-normality and influential outliers can prompt transformations like log-taking orwinsorizing of extreme values. Where relevant, endogeneity issues from simultaneous determination will be addressed using instrumental variable techniques. The Robust standard error test & the random effects model will also be computed.
3.6 Limitations
While this study aims to conduct a rigorous analysis, some limitations exist. Given the use of secondary data, the models may still suffer from some endogeneity if key determinants are omitted from available indicators. For example, technology advances encompass factors beyond internet connectivity measured. Unobserved country-specific traits could also correlate with regressors.
The indicators may not entirely capture theoretical constructs like degrees of trade openness or investment dependence. Some dependence on contemporaneous relationships modeled may overlook feedback effects if causality runs in both directions (Eliason and Storrie, 2022). Time and data limitations preclude inclusion of some potentially relevant variables or alternative specifications as robustness checks.
Causality established should not be confused with correlation. Generalizing findings must account for changes in globalization patterns versus past trends analyzed. However, addressing endogeneity concerns through diagnostic testing and comparing multiple model specifications can improve validity of inferences.
3.7 Conclusion
This chapter outlined the methodology proposed to conduct this research on the impacts of globalization on wages, wage inequality and labor market dynamics. Secondary data sources and variables were described alongside the quantitative analytical approach. Fixed effects regression models were detailed as the primary technique along with diagnostic tests. Limitations of the methodology and data were also acknowledged. The quantitative methods described here provide a rigorous framework to address the research objectives through empirical analysis in subsequent chapters. The findings will aid policymakers in understanding labor market impacts.
4.0 Findings
4.1 Introduction
Globalisation has impacted the labour market in several countries thereby increasing wage inequalities, along with unemployment. The present chapter focuses on analysing the secondary quantitative data gathered to understand how globalisation has actually impacted wage inequality, and unemployment in countries like the UK, US, and Canada. The analysis of the impact has been primarily done with the help of descriptive analysis where graphs have been obtained from secondary sources reflecting the impact on the Gini index of countries, unemployment, and others. However, the chapter also integrates statistical analysis which has statistically analysed the relationship between globalisation, wage inequality, and unemployment.
4.2 Descriptive analysis
The GINI index of three countries has been analysed which has measured the income distribution level in the nations thereby implying their level of equality. A higher value of the Gini coefficient indicates higher income inequality whereas a lower value depicts income equality or lower income inequality (Charles et al., 2022). In addition, an analysis of the rate of unemployment in these three countries has also been conducted which has helped in understanding if there has been any impact of globalisation on the same and whether there has been variation in the level of impact.
Figure 1: GINI index of the UK
(Source: Clark, 2024)
As emerged from studies, the Gin coefficient of the UK has been found to be 33.1% in 2023 compared to 35.7% in 2022 (Clark, 2024). This integrates an understanding that in recent years, there has been a slight improvement in the income distribution level in the UK. On the other hand, based on the above figure, it came within understanding that the overall trend of the Gini coefficient has been upward moving. This further denotes an understanding that over the years, there has been an increase in the income inequality level in the UK. Although in 2023, the coefficient slightly reduced in comparison to 2022, it can be stated that there has been high inequality in the country even after globalisation. Thus, concerning the UK, it can be mentioned that the country has been facing high rates of income inequality and one of the factors that impacted the unequal distribution can be globalisation.
Figure 2: Gini index of Canada
(Source: Statista, 2024)
The Gini coefficient analysis of Canada has also been done which has helped in assessing the income distribution pattern in the country. As per the data gathered, it has been evident that since 2000, the Gini coefficient value in Canada has been high depicting values of 32% in 2000. In addition to this, as per the graph, it can be stated that although the value has been high, however, Canada maintained a stable income distribution level which implies an understanding that in Canada, globalisation has not affected the income distribution level significantly. On the other hand, it has been found that in 2021, the Gini coefficient value declined depicting 29%. This further indicates an understanding that there has been a decline in the income inequality level in Canada depicting an improvement in the country. However, with respect to globalisation, it can be stated that the impact has been insignificant.
Figure 3: Gini coefficient of the US
(Source: Statista, 2024)
The Gini coefficient analysis of the US has been done which has assisted in analysing the income inequality level in the country. As per the graph depicted above, it has been found that there has been Gini coefficient score has been fluctuating in the US. As emerged, in recent years, there has been an increase in increase in income inequality level in the US depicting a value of 42% in 2023 (Statista, 2024). Moreover, in 2021, the value was found to be 43%. This implies an understanding that globlisation has extensively impacted the income inequality level in the US reflecting an increase in the Gini coefficient score. However, compared to the UK and Canada, it can be stated that the impact of globalisation has been highest in the US.
Figure 4: Unemployment rate in the UK
(Source: Statista, 2024)
Upon further analysis, the unemployment rate in the UK has been assessed to understand if there has been a change in the labour market dynamics due to globalisation. In this regard, it has been evident from the graph that unemployment rates declined in 2015 compared to 2011 depicting an improvement in the labour market. On the other hand, since 2020, there has been a further upsurge in the unemployment rates in the country depicting a rate of 4.3% in October 2024 (Statista, 2024). This implies an understanding that although the unemployment rate has declined in recent times compared to the earlier levels, however, there has been a significant increase in the unemployment level in recent times. Thus, globalisation can be one of the reasons that have impacted the unemployment rate thereby changing the labour market landscape.
Figure 5: Unemployment level in the US
(Source: Trading Economics, 2024)
Following the unemployment evaluation in the US, it has been evident that the unemployment rate over the last 10 years has been fluctuating. In addition to this, as per the graphical visuals, it can be stated that the unemployment rate in the country has been high since 2015, however, in 2020, there has been an increase in the level showcasing a value of 14.9% rate of unemployment depicting the highest unemployment period (Trading Economics, 2024). This has been due to globalisation and the impact of the pandemic. Although the rate declined in 2024 to 4.1%, it can be stated that the country has been significantly impacted by globalisation.
Figure 6: Unemployment rate in Canada
(Source: Trading Economics, 2024)
As emerged from studies, the unemployment rate in Canada has been found to be 6.8% in 2015 which further increased to 13.7% in 2020 (Trading Economics, 2024). This indicates an understanding that the globalisation impact on unemployment has been high as it increased the level of people being unemployed in the country. On the other hand, although there has been a decline in the rate in 2021 compared to 2020, it can be stated that rates were found to be significantly high for a nation. Moreover, the country faced a fluctuation in the rate of unemployment after 2021. In 2024, there has been a further increase in the rates depicting 6.5%. Hence, this denotes that the impact of increased global interconnectedness has been high on the rate of unemployment in Canada.
4.3 Inferential analysis
Descriptive statistics
Figure 7: Results of descriptive statistics
(Source: Self-created)
Descriptive statistics have been developed to reflect on the major features of the variables selected. GDP per capita (%), FDI net inflows (%), FDI net outflows (%), and trade openness have been chosen as the variables that represent globalisation whereas the Gini index represents income inequality and the unemployment rate represents changes in labour market. As per the results, concerning the Gini index, the mean value of 29.99 showcases an average level of inequality whereas the standard deviation value of 13.96 depicts a high variation in the inequality level between different countries. On the other hand, concerning the unemployment rate, the mean value of 5.37 depicts a lower to medium unemployment rate in the selected countries. Moreover, the standard deviation of the unemployment rate depicts a lower variability. Based on the other variables like GDI per capita, it can be stated that there has been a substantial fluctuation in the growth rates of GDP across all three countries. However, concerning the other variables, it can be mentioned that trade openness has been one of the critical factors which have mostly helped in assessing the impact of globalisation on wage inequality, and labour market.
Hypothesis 1
Correlation
Figure 8: Results of correlation
(Source: Self-created)
A Pearson correlation has been conducted in this study to assess the influence of globalisation factors on the Gini Index, in other words, wage inequality. The Pearson correlation value has been considered to evaluate the correlation between the variables. The correlation value varies from +1 value to -1 which indicates a perfect positive relationship between variables to a perfect negative relationship between the same. In this context, aligning with the correlation values which is also known as the R-value, it can be stated that the GDP per capita depicts a weak positive correlation with the GINI index depicting a value of .144. In addition to this, FDI inflows depict a negative value of (.19) which depicts a zero correlation between the GINI index and FDI inflows. Moreover, FDI outflows depict a negative correlation reflecting an R-value of .290. On the other hand, referring to trade openness, the R-value has been found to be .358 which depicts a moderate negative correlation. Based on the R-values, it can be stated that FDI outflows have somewhat impacted wage inequality. However, trade openness has a strong influence on the GINI index compared to FDI outflows. Furthermore, assessing the significance level of the variables relying on the standard value of 0.05, it has been evident from the results that none of the variables except for trade openness has a value similar to the standard value. Therefore, it can be stated that all the variables are not statistically significant except for trade openness and thus the impact of the same on wage inequality can be stated to be relevant.
Regression
Figure 9: Regression for Hypothesis 1
(Source: Self-created)
A multiple linear regression has been integrated in this study which has assessed the relationship shared between dependent or response variables and independent variables or predictor variables. The regression test has further assisted in evaluating the causal relationship between these two types of variables thereby understanding the impact of one variable on the other. It has further helped in assessing the individual influence of each independent variable on the response variable thereby analysing the strength of the relationship shared. Concerning the first hypothesis of the study, an analysis of the relationship between the GINI index and FDI outflows and Trade openness has been evaluated. As per the model summary, the evaluation of the predicted outcome of the GINI index was done, along with the level of influence of both independent variables on the dependent one. In this respect, following the R-value of .400, it can be stated that the predicted result of the GINI index is depicted to be 40% correct. In other words, a 40% value depicts a moderate predicted outcome of the dependent variable.
On the other hand, the R-square value has been considered which has helped in evaluating the explanation strength of the independent variables in predicting the dependent one. It is considered to be the “determination of coefficients”. The R-square value has been found to be comparatively lower than the R-value depicting .160. This indicates that the explanation of the GINI index by the predictor variables has been low depicting 16%. This implies that the prediction influence of the independent variables is weak. Referring to the ANOVA, the F-statistics have been measured and aligned with the p-values of the model. In this regard, as emerged from the regression model, the F-statistics and the p-values, in an equation, reflect to be “F (27, 2) = 2.574, p>0.05, R-square= .160”. This indicates that the regression model has been significant at 10% and there has been a low variation in the variables.
Furthermore, referring to the coefficients matrix, the unstandardised beta coefficients are evaluated which has helped in understanding the particular influence of the independent variables on the dependent one. Moreover, it is assumed that at the time of evaluating one predictor variable, the remaining ones are constant. In this context, analysing trade openness and its influence on the GINI index, it has been found that the beta value has been negative depicting (.228). This indicates an understanding that a unit change in trade openness negatively impacts the coefficient of the response variable depicting a negative relationship. Similarly, FDI outflows also depicted a negative relationship with the GINI index. However, according to the p-value, the p-value of trade openness has been comparatively lower than the FDI outflow and hence, it can be stated that hypothesis 1 is true.
Hypothesis 2
Correlation
Figure 10: Correlation results for the second hypothesis
(Source: Self-created)
Referring to the analysis of the second hypothesis, a correlation analysis between the unemployment rate in the three countries and the other variables like trade openness, FDI inflows, GDP per capita, and FDI outflows has been done. In this regard, GDP per capita with a value of (.270) depicts a weak negative relationship, FDI inflows with a value of .086 depicts a weak relationship with unemployment, FDI outflows with a value of .291 depicts a weak positive relationship, and trade openness with a value of .211 also depicts a moderate relationship with unemployment. On the other hand, the variables are not found to be significant statistically which means that the direct linear relationship between the variables is weak. However, it can be stated that the strongest relationship is depicted by trade openness and FDI outflows depicting the impact of globalisation on unemployment rates.
Regression
Figure 11: Regression for the second hypothesis
(Source: Self-created)
The regression has been conducted considering FDI outflows, and trade openness with the evaluation of the relationship with the unemployment rates. In this regard, following the results of the model summary, it can be stated that the predicted outcome of the unemployment rate has been 21.9% depicting a low prediction result and the explanation of the variable by the two predictor variables has been 4.8% depicting a further low influence. Furthermore, referring to the results of ANOVA, the equation has been “F (27, 2) = .679, p>0.05, R-square = .048”. This indicates an understanding that there has been a very low variation and the model has been insignificant depicting a non-linear relationship between the variables.
On the other hand, concerning the coefficients, it has emerged from the results that there has been a positive impact of FDI inflows and trade openness on the unemployment rates in the countries depicting positive beta values. On the contrary, relating to the higher p-values, it can be stated that the variables are not significant statistically. However, it can be stated that although globalisation has influenced unemployment rates, however, the impact of FDI inflows has been the highest on the same. Thus, the study accepts the second hypothesis of this study.
4.4 Summary
The chapter has included a descriptive and inferential analysis of globalisation impact on wage inequality and labour market in three countries viz the US, Canada, and the UK. As per the results, it can be stated that there have been variations in the GINI index of all the countries; however, it does not directly indicate the influence of globalisation. The statistical test, however, proved that trade openness has majorly impacted the GINI index. On the other hand, there have been severe fluctuations in the unemployment rates of the countries. However, with the help of the statistical results, it can be stated that the influence of FDI inflows has impacted the unemployment rates in the countries. Thus, there is a relationship between globalisation and changes in the labour market dynamics as well as wage inequality across different nations.
5.0 Discussion
Globalization has brought change to the possibilities in wage structures and competitive employment possibilities in the labor markets internationally; effects have been diverse and sometimes contradictory depending on the region and skill differentials.
In developed countries, globalization is mostly associated with the enhancement of wage inequality. Globalization and technological advances have in the process benefited skilled labor thus giving rise to what is referred to as skill-biased technological change. This has led to increased wages for those with higher education and skilled personnel, a vice that has seen the wage for the less skilled workers either stagnated or even reduced in disproportionate value. Over the years industries competing in the global market have led to loss of employment especially in manufacturing hence depress wages in some categories of employees.
The developing countries have witnessed dire impacts but the effects have not been socially homogenous (Song, 2021). Some of those positive views are that demand for low skilled labor in the exporting nation has risen, hence bringing wage increases in the lower wage of the income distribution. However, this impact is not general for all the developing nations without exception. Developing countries that have managed to create links with other countries for the sale of their products especially in Asia have a higher wages and low levels of Poverty.
The degree of flexibility in the labor markets has gone up all over the world due to globalization. Flexible employment has also become popular in that one is able to work for a short term or part time, or has freelance jobs (Adom et al., 2021). Thus, flexibility, while it has its advantages for the employer and employee, has unfortunately caused a decrease in job security and even in employee benefits. There are signs that the bargaining power of labor unions has been eroding in many countries and thus may have been partly to blame for the low wage rises in some categories.
Offshoring combined with outsourcing have revolutionized employment status across the world. A significant number of firms located in developed countries have relocated production or services to areas with cheaper labor, pertinent to the domestic employment and wages have been destabilized. This has employed people in the developing nations but at same time has lowered the wages standards in certain sectors of the developed nations’ economy. One facet of globalization is immigration and the effects that have had on labor markets have been dynamic. Where used, it has created employment and met skills requirements as well as supported the economy sometimes.
As per the data gathered from the secondary sources relating to the fluctuations in the GINI index, it has been found that on a comparative basis, the GINI index of the US has been the highest compared to Canada and the UK. Moreover, compared to Canada, the GINI index score of the UK has been more. In this context, it has emerged from the descriptive analysis that the GINI index score has increased since 2020 depicting a potential impact of globalisation. In other words, it can be mentioned that along with the impact of other factors like the Covid-19 pandemic, it can be stated that the globalisation has also impacted the GINI score. Furthermore, it has been evident that the score for all the countries has increased compared to earlier times depicting a substantial difference in the wage distribution level within the countries. The statistical analysis, in this regard, proved the same depicting a negative correlation between the GINI index score and trade openness. As emerged from the regression analysis, it has been further evident that there has been negative influence of trade openness on the GINI index score implying an increase in the trade openness decreases the GINI index score and vice versa. However, the statistical results have helped in accepting the first hypothesis that states “Higher tradeopenness impacts income inequality in differently across nations”.
On the other hand, referring to the analysis of the unemployment rate to assess the changes in the labour market, it has been evident that the unemployment levels in the recent times has increased, however, compared to 2020 levels, the rates have been low. In this regard, it can be stated that on a comparative basis, the unemployment rate has been the highest in the UK compared to Canada and the US. This indicates an understanding that compared to the earlier times, due to the changes in the business dynamics, there has been changes concerning the economic development in the international markets. Moreover, it has also impacted the level of job lossess or unemployment in the countries. In this respect, abiding by the results of correlation and regression, it has been found that GDP per capita, trade openness, as well as FDI inflows have impacted the unemployment rates in the countriess across different periods. Moreover, as pe the regression analysis, it can be stated that there has been a positive influence of globalisation on unemployment. However, the statistical results have also proved the second hypothesis to be true.
6.0 Conclusion
In conclusion, globalization has transformed wage inequality and the labor market in the international economic system. The social effects which it has been having are diverse and they bring about both ease and difficulty in different areas and at different levels of competency. On the one hand, it has helped make the world a richer place and has helped to raise the living standards in many regions; on the other, structure has been partly responsible for worsening pay differentials, especially within the advanced industrialized economies. New forms of employment are more flexible and diverse, along with the proliferation of non-standard employment, come new threats such as instability for the many nations.
- Summary of Key Findings
The secondary findings of the research sheds light on an understanding that with an increase in the global interconnectedness there has been a positive and negative influence on the income inequality and labou market. As emerged from the findings of the study, globalisation has helped in creating job opportunities in the market which has slightly benefited in reducing the unemployment levels. Moreover, it has helped individuals in the market to obtain new skills that would further help them in accepting the job opportunities in the market. In this regard, aligning with the unemployment evaluations in three nations like the UK, Canada, and the US, it has been evident that the unemployment level in all the countries have declined compared to the level of 2020, depicting a positive influence of globalisation. On the contrary, it has been found that although the rates declined compared to 2020, the unemploymenr rates in 2024 increased slightly. This implied an understanding that globalisation has a substantial impact on the rate of unemployment.
This is because with an increase in global interconnectedness, many workers lose their job due to inadequate qualifications, knowledge, and competencies which further increases the unemployment rates. In this regard, following the findings, it can be stated that an increase in the FDI inflows have reduced the unemployment rates effectively depicting a positive impact of globalisation. It can be further stated that it has helped in improving the labour market situation thereby improving the same positively. On the other hand, relating to the analysis of the GINI index, it can be stated that an increase in the trade openness has negatively influenced the income inequality. For instance, there has been a higher difference in the income level of the nations due to higher trade openness. Thus, it can be stated that there has been a positive as well as negative influence of globalisation across countries on wage inequality and labour market. However, the study has accepted both hypotheses developed with the results of correlation and regression.
6.4 Implications
The findings of this research have several important implications:
Policymakers need to recognize the complex and sometimes contradictory effects of globalization on the labor market. Policies should aim to maximize the benefits of global integration while mitigating its negative impacts on wage inequality and job security. There is a critical need for investment in education and vocational training programs to equip workers with the skills demanded by a globalized economy. This aligns with the recommendations of Song et al., (2024) on the importance of education in reducing income inequality. The research underscores the importance of strong labor market institutions in mediating the effects of globalization. This supports the arguments of Lawrence et al., (2017) on the role of institutions in mitigating negative globalization effects. The findings highlight the need for robust social protection mechanisms to support workers affected by economic restructuring. This aligns with Esping-Andersen’s (2009) emphasis on strong welfare programs. Policymakers should focus on promoting inclusive growth that ensures the benefits of globalization are more equitably distributed across different segments of the workforce.
6.5 Limitations and Future Research
While this study provides valuable insights, it has certain limitations that future research could address:
The reliance on secondary data may have limited the depth of analysis in some areas. Future studies could benefit from primary data collection to gain more nuanced insights into workers’ experiences and perceptions. Future research could adopt a comparative approach, examining how the effects of globalization on labor markets differ across countries at various stages of economic development. Further research is needed to disentangle the effects of globalization from those of technological change, particularly in the context of emerging technologies like artificial intelligence and automation. Longitudinal studies could provide more insights into the long-term effects of globalization on wage inequality and labor market dynamics. Future research could focus on evaluating the effectiveness of different policy interventions in addressing the challenges posed by globalization to labor markets.
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