Growing Inequalities, Globalization and Trade Unions

A broad range of countries has witnessed a substantial increase in income inequality in the past 30 years. One of the major hypotheses put forward to explain increasing income inequality is the impact of globalization. International trade and international investment have increased considerably during the same period. Furthermore, by consecutive waves of new industrializing countries becoming integrated within the world economy, the share of trade and investment between emerging and developed economies has risen at the expense of trade and investment between developed countries. The attempt to explain rising income inequality (primarily considered in terms of the wage inequality between high- and low-skilled workers) by the impact of globalization led initially to a remarkable revival of the Heckscher-Ohlin-Samuelson (HOS) model, initiated by Wood (1994). Increasing skill inequality linked with international comparative-advantage-driven specialization can be plainly understood in terms of the Stolper-Samuelson theorem. This predicts that international trade will imply an increase in the relative demand for the relatively abundant production factor, and hence a decline in the reward for the factor(s) a country is relatively poorly endowed with. Such is the case for respectively the high and low-skilled labour in developed countries.