Globalization and Inequality - Trinity College Dublin

Complete income distributions are typically unavailable for the late 19 th century, but
Williamson (1997) constructed an alternative measure of inequality: the ratio of the unskilled wage
to GDP per worker hour, w/y. This measure compares the income of those at the bottom of the
distribution with a weighted average of all other relevant factor prices– skilled wages, but also
returns to such factors as capital and land, which were highly relevant both 100 years ago and in the
late 20 th century Third World. Williamson found that while inequality fell dramatically (w/y
increased, from 100 in 1870 to 153 or 154 in 1913) in poor European countries like Denmark and
Sweden, where w was initially low, it rose substantially in rich New World economies like the US
and Australia, where w was initially high (w/y fell, from 100 in 1870 to 53 or 58 in 1913). Inequality
also fell sharply in poor economies like Norway and Italy, while remaining more stable in the richer
European economies, as well as in peripheral economies which remained aloof from globalization
(such as Iberia).
The OECD evidence is thus consistent with the Heckscher-Ohlin prediction that
globalization should have raised inequality in rich equal societies and lowered it in poor, unequal
societies. The Third World evidence is more mixed, however. Wherever the data are available, they
show w/y falling during the late 19 th century– in Argentina, Brazil, Mexico, Uruguay, Japan, Burma,
India, Indonesia, the Philippines, Taiwan and Thailand (Williamson 2000, Tables 4, 5). In the Latin
American case, there is an explanation consistent with that given for other New World economies–
globalization lowered wage-rental ratios, which should boost inequality. Furthermore, countries such
as Argentina were not low-wage by late 19 th century standards. In the Asian case, however, things
are slightly more puzzling. First, inequality rose everywhere, even in undisputedly poor countries.
Second, inequality rose not only in land-abundant areas such as Burma and Thailand, where wage-
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