Question

Some people believe that globalization is causing the increase in the wage premium in the U.S.

a) What is the wage premium?

b) What is the argument for why globalization could have increased it?

c) Consider a poor country with very few college educated workers. Nevertheless, this country also saw the wage premium increase after it opened itself up to global markets. Does thefact that the wage premium increased in this country make the argument that globalization is raising the wage premium in the U.S. more or less strong? Explain

Answer 1

a) In case of unionized labour market , unions bargain for better wages collectively . so union wages sometimes exceed non unionized or market wages . The degree to which it exceeds is called wage premium .

b) Globalization has increased international trade , outsourcing of work manifold . Globalization has caused outsoucing of low skilled labour intensive jobs to poor countries where wages are low . So wages in US market has also fallen . But high skilled labour intensive , organized labour force has formed unions to protect themselves again this exploitation . So wage premium has increased . Wage premiums of college educated workers have increased .

c) In a poor country there are more number of low skilled workers . Unionization in such countries look after the benefits of such workers . Wage premiums mainly depend on the strength of union's collective bargaining power . So the argument here does not weaken .