Globalization, Inequality, and Child Globalization, Inequality, and Child LabourLabour

By Amela KarabegovicBy Amela Karabegovic

Research EconomistResearch Economist

The Fraser InstituteThe Fraser Institute

2Globalization, Inequality, and Child Globalization, Inequality, and Child LabourLabour

The Fraser InstituteThe Fraser Institute

InequalityInequality

Child LabourChild Labour

3The Fraser InstituteThe Fraser Institute

An independent Canadian economic and social An independent Canadian economic and social research and educational organization;research and educational organization;

Offices in Vancouver, Calgary and Toronto;Offices in Vancouver, Calgary and Toronto;

Website: www.fraserinstitute.ca .Website: www.fraserinstitute.ca .

4Globalization and InequalityGlobalization and Inequality

Poverty refers to the percentage of population Poverty refers to the percentage of population living below a certain level of income;living below a certain level of income;

Income Inequality refers to the distribution of Income Inequality refers to the distribution of income.income.

5Income Inequality, 1998-2002Income Inequality, 1998-2002

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60

Pe

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ge

BottomQuintile

FourthQuintile

ThirdQuintile

SecondQuintile

TopQuintile

Poorest 20%, 1998-2002 2nd 20%, 1998-20023rd 20%, 1998-2002 4th 20%, 1998-2002Richest 20%, 1998-2002

Least Free …….. Most Free Least Free …….. Most Free

Percent of income accruing to thePercent of income accruing to the

Sources: The Fraser Institute; The World Bank, World Development Indicators CD-Sources: The Fraser Institute; The World Bank, World Development Indicators CD-ROM, 2005.ROM, 2005.

6

Per Capita Income of Poorest 10% and Per Capita Income of Poorest 10% and Economic FreedomEconomic Freedom

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

Bottom Quintile Fourth Quintile Third Quintile Second Quintile Top Quintile0.0

0.5

1.0

1.5

2.0

2.5

3.0

Income Level of the Poorest 10%, 1999-2003Income share of the lowest 10%, 1999-2003

Least Free …….. Most Free Least Free …….. Most Free Sources: The Fraser Institute; The World Bank, World Development Indicators Sources: The Fraser Institute; The World Bank, World Development Indicators

CD-ROM, 2005.CD-ROM, 2005.

7

Human Poverty Index, 2002, and Economic Human Poverty Index, 2002, and Economic Freedom QuintileFreedom Quintile

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40

Hu

man

Po

vert

y I

nd

ex

BottomQuintile

FourthQuintile

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SecondQuintile

Top Quintile

Least Free …………..…. Most FreeLeast Free …………..…. Most FreeSources: The Fraser Institute; United Nations Development Programmme, Human Development Indicators 2004, available at http://hdr.undp.org/statistics/data/index_indicators.cfm (accessed on July 5, 2005).

8Globalization and InequalityGlobalization and Inequality

Xavier Sala-i-Martin (2002). The Disturbing “Rise” of GlobalXavier Sala-i-Martin (2002). The Disturbing “Rise” of GlobalIncome Inequality. NBER Working Paper #W8904. NBER:Income Inequality. NBER Working Paper #W8904. NBER:Cambridge, MA (April). Cambridge, MA (April).

$1/day poverty rate has fallen from 20% to 5% over $1/day poverty rate has fallen from 20% to 5% over the last 25 years;the last 25 years;

$2/day poverty rate has fallen from 44% to 18%;$2/day poverty rate has fallen from 44% to 18%;

There were about 400 million less poor people in There were about 400 million less poor people in late 1990s than there were in the 1970s.late 1990s than there were in the 1970s.

9Globalization and InequalityGlobalization and Inequality

Xavier Sala-i-Martin (2002). The Disturbing “Rise” of GlobalXavier Sala-i-Martin (2002). The Disturbing “Rise” of Global

Income Inequality. NBER Working Paper #W8904. NBER:Income Inequality. NBER Working Paper #W8904. NBER:

Cambridge, MA (April). Cambridge, MA (April).

Computed seven different, most popular measure of Computed seven different, most popular measure of income inequality;income inequality;

Conclusion: income inequalities have declined Conclusion: income inequalities have declined substantially during the last two decades;substantially during the last two decades;

10Globalization and InequalityGlobalization and Inequality

Xavier Sala-i-Martin (2002). The Disturbing “Rise” of GlobalXavier Sala-i-Martin (2002). The Disturbing “Rise” of GlobalIncome Inequality. NBER Working Paper #W8904. NBER:Income Inequality. NBER Working Paper #W8904. NBER:Cambridge, MA (April). Cambridge, MA (April).

““[M]ost income inequalities in the world are explained by [M]ost income inequalities in the world are explained by differences in per capita incomes across countries rather than differences in per capita incomes across countries rather than differences within countries” (p. 39)differences within countries” (p. 39)

70% of world inequalities are across countries inequalities;70% of world inequalities are across countries inequalities;

““[t]he best strategy to reduce world inequalities is to induce [t]he best strategy to reduce world inequalities is to induce aggregate economic growth in poor countries” (p. 39).aggregate economic growth in poor countries” (p. 39).

11Globalization and InequalityGlobalization and Inequality

Berggren, Niclas (1999). Economic freedom and Berggren, Niclas (1999). Economic freedom and

equality: Friends or foes? Public Choice. Vol. 100, equality: Friends or foes? Public Choice. Vol. 100,

203-223.203-223.

““Increases in economic freedom influence equality Increases in economic freedom influence equality measures positively” (p. 217)measures positively” (p. 217)

Trade liberalization and financial deregulation Trade liberalization and financial deregulation mostly responsible for increases in equality.mostly responsible for increases in equality.

12Globalization and InequalityGlobalization and Inequality

Dollar, David and Aart Kraay (2004). Trade, Growth, andDollar, David and Aart Kraay (2004). Trade, Growth, and

Poverty. The Economic Journal. Vol. 114 (February), F22-F49.Poverty. The Economic Journal. Vol. 114 (February), F22-F49.

Found no relationship between changes in trade Found no relationship between changes in trade volumes and changes in household income volumes and changes in household income inequality;inequality;

Globalization leads to faster growth and poverty Globalization leads to faster growth and poverty reduction in poor countries.reduction in poor countries.

13Globalization and InequalityGlobalization and Inequality

Litchfield, Julie and Patricia Justino (2004). Welfare inLitchfield, Julie and Patricia Justino (2004). Welfare in

Vietnam During the 1990s: Poverty, inequality andVietnam During the 1990s: Poverty, inequality and

poverty dynamics. Journal of the Asian Pacific Economy.poverty dynamics. Journal of the Asian Pacific Economy.

Vol. 9(2), 145-169.Vol. 9(2), 145-169.

Found substantial reductions in poverty in Vietnam Found substantial reductions in poverty in Vietnam during 1990s;during 1990s;

Some groups benefited more than others.Some groups benefited more than others.

14ConclusionConclusion

Income inequality has declined during the last two Income inequality has declined during the last two decades.decades.

Globalization, on average, does not lead to Globalization, on average, does not lead to increases in inequality.increases in inequality.

15Economic Freedom and Labor force, Economic Freedom and Labor force, children 10-14 (% of age group)children 10-14 (% of age group)

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4 w

ho

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in

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BottomQuintile

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TopQuintile

Least Free ……………. Most FreeLeast Free ……………. Most FreeSources: The Fraser Institute; The World Bank, World Development Indicators Sources: The Fraser Institute; The World Bank, World Development Indicators

CD-ROM, 2005.CD-ROM, 2005.

16Child LabourChild Labour

Amin, Shahina, M. Shakil Quayes, and Janet M. Rives (2004).Amin, Shahina, M. Shakil Quayes, and Janet M. Rives (2004).

Poverty and Other Determinants of Child Labor in Bangladesh.Poverty and Other Determinants of Child Labor in Bangladesh.

Southern Economic Journal. Vol. 70, No. 4.Southern Economic Journal. Vol. 70, No. 4.

““[A] family’s poverty affects the probability that a [A] family’s poverty affects the probability that a child will work: keeping children away from work is a child will work: keeping children away from work is a luxury these families cannot afford” (p. 876). luxury these families cannot afford” (p. 876).

17Child LabourChild Labour

Dessy, Sylvain E. and Désiré Vencatachellum (2003).Dessy, Sylvain E. and Désiré Vencatachellum (2003).

““Explaining cross-country differences in policy responses toExplaining cross-country differences in policy responses to

child labour.” child labour.” Canadian Journal of EconomicsCanadian Journal of Economics. Vol. 36, No. 1:. Vol. 36, No. 1:

February.February.

““Only rich countries and those that are not “too” poor Only rich countries and those that are not “too” poor … benefit from adopting child labour laws” (p. 1). … benefit from adopting child labour laws” (p. 1).

18Child LabourChild Labour

Hussain, Mahmood and Keith E. Maskus (2003). ChildHussain, Mahmood and Keith E. Maskus (2003). Child

Labour Use and Economic Growth: An EconometricLabour Use and Economic Growth: An Econometric

Analysis. World Economy. Vol. 26(7): 993-1017.Analysis. World Economy. Vol. 26(7): 993-1017.

Ultimate solution to child labour is to increase the Ultimate solution to child labour is to increase the productivity and thus the incomes of parents.productivity and thus the incomes of parents.

19Child LabourChild Labour

Edmonds, Eric and Nina Pavcnik (2002). Does GlobalizationEdmonds, Eric and Nina Pavcnik (2002). Does Globalization

Increase Child Labor? Evidence from Vietnam. NBER WorkingIncrease Child Labor? Evidence from Vietnam. NBER Working

Paper #W8760. NBER: Cambridge, MA (January). Paper #W8760. NBER: Cambridge, MA (January).

Investigates the impacts of free trade on child labour in Investigates the impacts of free trade on child labour in Vietnam;Vietnam;

Child labour declined from 57% in 1993 to 38% in 1998;Child labour declined from 57% in 1993 to 38% in 1998;

The percentage of children not attending school also The percentage of children not attending school also declined.declined.

20ConclusionConclusion

Child labour will not be eliminated by simply Child labour will not be eliminated by simply banning it.banning it.

Solution lies in the promotion of policies that Solution lies in the promotion of policies that lead to economic growth and prosperity.lead to economic growth and prosperity.

21The EndThe End

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