Globalization, Social Welfare, and Labor Market Inequalities

Economic Theory, Applications and Issues (Working Paper N° 20)Income inequality has increased sharply in higher income countries. Theories attributing this to bifurcation of labor markets are examined. Some theorists attribute this bifurcation primarily to technical change with influence from globalization. Others take an opposite viewpoint. A contrasting view presented here is that globalization is strongly linked with technological change more significantly even if globalization increases economic efficiency and growth in high-income countries, it can raise income inequality and reduce social welfare. International fiscal competitiveness may, it is argued, contribute to income inequality and make all nations worse off. Trends in public social expenditure and in taxation receipts in higher income countries, including Singapore, are examined to determine the empirical support for the theory