Openness and Industrial Pay Inequality
The environment of the global economy requires that the states operating in it should make the best use possible of their resources, including the human ones. Similarly, the regulations in the international trade department affect the quality of the essential economic processes. As the data retrieved from the UK and the US statistics shows, the current trends in the US and the UK economies can be deemed as slightly negative (see Appendix A (The World Bank 2016)).
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Particularly, the openness rates have been dropping slightly over the past few decades for the United States, whereas in the United Kingdom, the levels of openness to trade have been rather stable (see Appendix C) (Armingeon et al. 2016). The lack of progress in either state, therefore, can be viewed as troubling. Coupled with a recent increase of Industrial Pay Inequality levels in the UK and its steep rise in the US over 1985–2005, the economy trends require that immediate actions should be taken. The negative entropy of the Theil index in both states (-0.182 and -0.787 in UK and US correspondingly, see Appendix B (Galbraith 2016)) implies that, while the UK economy is comparatively safe, the US strategy needs a thorough reconsideration.
Data Analysis: What the Calculations Show
According to the Stolper-Samuelson Theorem, there is a direct correlation between the real wages and the protectionism rates in a particular country (Hillman 2013). In the case in point, protectionism incorporates the actions of the state government aimed at restricting trade. On the one hand, the concept might seem contradictory to the principles of the global economy and the importance of entering the area of the international competition.
On the other hand, the reasons for states to offer protectionism to the entrepreneurs operating in the local market are justified by the harsh competition rates on the global arena (Parmar 2013). Furthermore, the idea is tied directly to the concept of perfect competition. In light of the fact that the phenomenon is only possible in the local market environment currently, loosening the state regulations addressing the issue of foreign trade will trigger an immediate drop in employees’ wages. Apart from the possible profit loss, the subject matter is affected by the migrant labour and the associated issues.
The information represented in the graphs is a graphic proof of the Stolper-Samuelson Theorem. Indeed, the data obtained from the World Bank and UTIP shows explicitly that there has been a consistent drop in the US wages rate. The UK salaries rate is comparatively stable, yet the absence of the tendencies for the subject matter to increase shows that the globalisation process is taking its toll on the state economy (Grinols 2013).
Indeed, the Industrial Pay Inequality Rates are linked to the GDP of the states. For instance, in 1985-1990, when the UK GDP was dropping, the IPI index was comparatively low (0.015), yet, once the GDP started experiencing a gradual growth due to the integration into the global economy environment, IPI rose to 0.18-019. It could be argued, though, that the correlation is not perfectly direct in the UK case.
For instance, in 2005, when the state GDP reached an impressive mark of $13,304,180,000.00, and the openness rates equalled 56.73, the IPI rate was at its lowest (0.013). In case of the United States, however, the correlation is less explicit. The fact that the openness rates were reduced by nearly 12%, and that the wages of the employees remain comparatively the same, shows that there are minor discrepancies with the theory.
Therefore, claiming that the Stolper-Samuelson Theorem as the link between the wages and the openness of the state economy to the impact of the global market would be quite a stretch. Apart from the two variables mentioned above, an array of factors needs to be taken into account.
Armingeon, K, Isler, C, Knopfel, L, Weisstaner, D & Engler, S 2016, Comparative political data set. Web.
Galbraith, J 2016, UTIP-UNIDO. Web.
Grinols, E 2013, Uncertainty and the theory of international trade, Taylor & Francis, New York, NY.
Hillman, A L 2013, The political economy of protection, Taylor & Francis, New York, NY.
Parmar, I 2013, Foundations of the American Century: The Ford, Carnegie, and Rockefeller foundations and the rise of American power, Columbia University Press, New York, NY.
The World Bank 2016, World development indicators. Web.