Globalization's New Underclass

In case you haven't noticed, you are probably competing with workers on the other side of the world, workers that are equally or probably better educated and, perhaps, more highly skilled, yet working for a much lower wage. Globalization, outsourcing, and the age of the internet are to blame.

Billed as the great equalizer between the rich and the poor, globalization has been anything but. An increasingly integrated global economy is facing the strains of widening income disparities - within countries and across countries. This has given rise to a new and rapidly expanding underclass that is redefining the political landscape. The growing risks of protectionism are an outgrowth of this ominous trend.

It wasn't supposed to be this way. Globalization has long been portrayed as the rising tide that lifts all boats. The surprise is in the tide - a rapid surge of information-technology-enabled connectivity that has pushed the global labor arbitrage quickly up the value chain. Only the elite at the upper end of the occupational hierarchy have been spared the pressures of an increasingly brutal wage compression. The rich are, indeed, getting richer but the rest of the workforce is not. This spells mounting disparities in the distribution of income - for developed and developing countries, alike.

The United States and China exemplify the full range of pressures bearing down on the income distribution. With per capita incomes of US$38,000 and $1,700, respectively, the US and China are at opposite ends of the global income spectrum. Yet both countries have extreme disparities in the internal mix of their respective income distributions.

This can be seen in their so-called Gini coefficients - a statistical measure of the dispersion of income shares within a country. A Gini index (the Gini coefficient multiplied by 100) of zero represents perfect equality, with each segment of the income distribution accounting for a proportionate share of total income. Conversely, a reading of 100 represents perfect inequality, with the bulk of a nation's overall personal income being concentrated at the upper end of the distribution spectrum. In other words, the higher the Gini index, the more unequal the income distribution. The latest Gini index readings for the US (41) and China (45) are among the highest of all the major economies in the world - pointing to a much greater incidence of inequality than in economies with more homogeneous distributions of income, such as Japan (25), Europe (32), and even India (33).

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