Globalization and Social Inequality

Effects of Globalization
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Running head: EFFECTS OF GLOBALIZATION
The Effects of Globalization on Social Inequality in
China and the United States
Kevin Rogers
Western New England University
In partial fulfillment of the requirements for SO 413-01
Dr. Michaela Simpson
11/17/14

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Abstract
This research review studies two countries in particular, the United States and China, and
the effects globalization has had on both of these countries. First, this research review examined
the political and economic atmospheres of each country in the years leading up to the onset of
globalization. After the history of each country was established, the effects globalization has had
on each country were examined. To do this, the responses of each government to increasing
pressures from the global economy were scrutinized and why they responded in such a way have
also been studied. Data is then provided to support these claims. The results are shocking and are
discussed with reference to contemporary sociological theory.

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The Effects of Globalization on Social Inequality in China and the United States
Recently, many governments have realized the importance of using globalization to
promote social good. The G8 Social Impact Investment Task Force released its first report this
year, discussing the importance of impact investing (Russell, 2014). Through impact investing
governments and businesses could make smart, profitable investment decisions all while helping
tackle social problems (Russell, 2014). Impact investments are different than traditional
investments, in that they are made to companies with aims to address social issues instead of
only maximizing profits. The G8 Task Force calls on governments to undertake tax and
regulatory reforms which will incentivize businesses into impact investing (Russell, 2014). If this
is done, billions or even trillions of dollars may be made available to help with the issue of
increasing social inequality.
This is a radical step, as globalization itself has been the cause of increasing social
inequality in many nations, developed and developing. Before the onset of globalization, many
countries enjoyed eras of increasing social equality and emphasis on social good. These countries
had strong welfare states which provided many benefits to their citizens. Once globalization
began to invade these nations, periods like this did not last long. Societies once characterized by
a concern for the general good transformed into capitalist ravaged states with no concern for the
public. Two countries that display this trend are the United States and China, who both have
been subjected to the forces of globalization.
This research review will be broken down into three sections, which will then each be
broken down into two more sub-sections, one for each of the countries in study. The first section
will focus on the history of each nation in the 30 to 40 years leading up to the onset of

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globalization. This is to inform the reader of the political and economic climates of the country
before so that the changes brought about by globalization are more apparent. The next section
will focus on globalization, the effects it has had on each country, and why they occur. The last
section will provide and discuss the data to support the claims made in the second section. It is
the purpose of this paper to show that globalization has significantly changed political and
economic policy in each country to favor the corporate elite and their corporations, causing
increasing social inequality.
History before Globalization
United States
After coming to life in 1936 through John Maynard Keynes’ General Economic Theory,
Keynesianism became a central component of the American economic and political systems
(Jenkins & Eckert, 1989). Central to Keynesian economics is the belief in a mixed economy,
characterized by a main private sector with government and public sector intervention to
promote economic stability (Beckert & Zafirovski, 2006). Just beginning to recover from the
Great Depression and hit with the Recession of 1937, many economists and policy makers were
starting to see the importance of the state in economic stabilization and that the market could not
correct itself (Jenkins & Eckert, 1989). Jenkins and Eckert (1989) claim that, “the national
government should adopt the strategy of systematically intervening with simulative fiscal and
monetary policies to boost aggregate demand and thereby establish an equilibrium at a higher
employment level” (p. 124). Focusing on reestablishing demand, economic and political policy
in the late 1940s shifted towards a focus on tax reform, specifically progressive taxation,

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collective bargaining in the form of labor unions, and federal regulation of product quality and
prices (Beckert & Zafirovski, 2006; Jenkins & Eckert, 1989).
Emerging from World War II in the 1940s the United States was enjoying an era of
prosperity, compounded by new economic policy. Being one of the few nations emerging from
the war with its economy still intact, the United States was ready to begin massive business
expansion internationally (Doob, 2013). It was in the 1950s and 60s that this expansion began,
with many private American firms establishing multinational firms abroad (Thurow, 1984). In
order to solidify the domination of American business in the international setting, the
government developed the Marshall Plan, a $22 billion financial aid package to western Europe
(Doob, 2013). This was done with the belief that American economic superiority would last and
domestic firms would not have to worry about international competition (Thurow, 1984). For
almost 30 years this was true, with the United States responsible for two thirds of the world’s
industry and three fourths of its invested capital (Doob, 2013). The benefits of this economic
prosperity were significant and spread to a large amount of people (Morris, 1999). Income
inequality remained stable, and the income of the median worker increased by more than double
from 1950 to 1970, with those at the bottom experiencing the greatest increases (Morris, 1999).
These post-war years of prosperity and international economic advantage did not last
forever though, and by the mid-1970s countries with previously destroyed economies, such as
Germany and Japan, had recovered and were becoming prominent industrial nations (Doob,
2013; Thurow, 1984). Because of their rising industrial power, these nations began importing
less industrial and agricultural goods from the United States, and at the same time began
exporting quality goods to the United States. As a result, US firms saw a decline profits, with

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return on investment falling from 15.5 percent in 1960 to below 10 percent in 1975 (Doob,
2013). Politicians, corporate leaders, and media personalities were quick to criticize everyone but
themselves, attributing the decline in American business to several factors. First being organized
labor, claiming their push for higher salaries and greater benefits caused American products to be
too expensive (Doob, 2013). Second, they stated that strict environmental, health and safety, and
product quality standards raised business costs (Beckert & Zafirovski, 2006; Doob, 2013). In
response, policy intellectuals from various business backed groups such as the Business
Roundtable, Hoover Institution, and Heritage Foundation began developing new economic
policy which would completely change the American economy. It was at this time in 1975 that
many Americans started to experience declines in income, employment, and union support
(Doob, 2013). This was only the beginning, with major changes occurring in the 1980s under the
Regan administration.
China
Marking the begging of a new era, Mao Zedong, the chairman of the communist party
declared the establishment of the Peoples Republic of China in 1949. With the civil war finally
over, many Chinese citizens were desperately poor and in need of assistance. The new
government recognized this fact and began to form a modern social welfare system in the early
1950s (Xinping, 2001). For the next 30 years, until globalization began to affect social policy,
the Peoples Republic of China developed a multiple-tiered system for social welfare. The first
level consisted of a safety net for the general population, which entailed full employment,
collective farmland arrangements for rural areas and in urban areas a ration system providing
basic sustenance to all citizens (Xinping, 2001). This first level of social welfare was an

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incredible step for the Chinese government, as they were providing more services to their
population in its entirety than they ever had before. The second level provided public personal
services and social assistance systems to help support individuals who were having trouble
meeting basic living requirements through either work or family support (Xinping, 2001). The
last level focused on government and urban state workers, and provided welfare provisions such
as, but not limited to, public housing, pensions, and free medical care (Xinping, 2001). These
provisions were essential to the newly developing state enterprises, which were the main
components of the countries industrialization effort (Xinping, 2001). Because China was still a
poor country however, it could not extend all aspects of the social welfare system to all citizens,
and had to disproportionally focus its resources to urban areas (Xinping, 2001). This caused
urban residents to become dependent on these benefits, and it was very detrimental when they
were stripped away.
Also developing in the 1950s, China began to reform its economic system in conjunction
with its social welfare system. The new economic system followed a Soviet socialist model
which emphasized public ownership and a centrally planned economy (Xinping, 2001). Being
restructured to coordinate with each other, the new economic and social welfare systems became
very closely intertwined. We can see this in the required pensions and free medical care in the
new state enterprises brought about by the new economic system (Xinping, 2001). China was
now following a statist welfare model, which was seen as most compatible with its socialist
ideology emphasizing equality, social justice, and collective action in both social and economic
spheres (Xinping, 2001). Under this new statist welfare model, it was the government’s

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responsibility to protect all of its citizens from malnourishment and to provide social services
and security to people in need (Xinping, 2001).
Up until the late 1970s, China’s new social welfare strategy performed reasonably well.
Xinping (2001) states that “Most Chinese people were assured of basic security, and China as a
whole witnessed great achievements in social development, as measured by its people’s higher
than average life expectancy, lower illiteracy rates, etc., by comparison with most other
developing countries” (p. 250). The new social welfare program was working, but the new
centrally planned economic system it was formed in conjunction with was not, and was proving
to be relatively inefficient in the context of rising globalization (Xinping, 2001). In order to
increase economic efficiency and presence in the global setting, China began economic reforms
in the late 1970s, and because the welfare system was designed in conjunction with the economic
system, welfare reforms began in the early 1980s (Xinping, 2001).
United States
With Ronald Regan being elected president, the 1980s brought about significant change
in the political and economic landscape of the United States. The American economy began to
stagnate in the 1970s, and as stated before politicians, corporate leaders, and media personalities
were quick to criticize everyone but themselves. Businesses saw this opportunity, and began to
greatly influence government policy to their advantage. Jenkins and Eckert (1989) explain that
“an ‘inner circle’ or an ‘upper tier’ of the capitalist class dominates the policy system, controlling
the largest corporations, using campaign contributions to select the leading candidates and

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directing the policy organizations that have the major impact on policy changes” (p. 123). These
policy organizations consist of foundations, think tanks, universities, and policy-making groups.
Foundations are tax-free organizations which expend money on various activities, mostly
research, and provide the funding and initial direction for think tanks (Doob, 2013). Foundations
are headed by corporate leaders and are funded by dividends from corporate stocks, so in essence
they directly represent the interests of businesses (Doob, 2013). Think tanks are the next step in
the process, as they provide the detailed research and analysis for the policy making process
(Doob, 2013). In addition to research and analysis, think tanks influence public opinion by
promoting favored policies through the media in the form of reports, newsletters, and interviews
(Doob, 2013). It is not surprising that conservative think tanks outnumber their liberal
counterparts two to one, and they receive much better funding, at about $275 million from 2003
to 2005, compared to the $75 million given to liberal think tanks (Doob, 2013).
While this country contains around 4,000 colleges and universities, only 62 qualify as
billion dollar universities, and these schools receive about two thirds of all college and university
endowment (Doob, 2013). The most prominent schools such as Harvard, Yale, Stanford, and
Princeton provide education for the future corporate and political leaders who will eventually run
foundations, think tanks, and policy-making groups (Doob, 2013). Most of the trustees of these
schools come from major corporations, and many of their presidents work as board members for
those same companies (Doob, 2013). These are not the only connections universities have with
big business however, as they provide much of the research used by foundations, think tanks, and
policy-making groups (Doob, 2013). These policy-making groups are organizations that examine
the research made by foundations, think-tanks, and universities and use it to form economic and

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political policy (Doob, 2013). They implement this economic and political policy by influencing
the general public and politicians through speeches and interviews at press releases, books,
journal articles, and lobbying (Doob, 2013). The membership of these policy-making groups
consists of heads of corporations, law-firms, banks, universities, foundations, media, and high
ranking government officials (Doob, 2013; Jenkins & Eckert, 1989).
It was in 1980 that prominent corporate campaign funders and conservative policy
organizations offered their support of the Reagan campaign, locking in their influence on
government policy (Jenkins & Eckert, 1989). In 1981 when Reagan took office, policy-making
groups such as the Business Roundtable and the Committee for Economic Development had
already developed a policy plan to help stimulate the declining economy of the 1970s. This
policy plan focused on supply side incentives, instead of the demand side policies central to
Keynesian economics (Jenkins & Eckert, 1989). Specifically, the new plan proposed major max
rate reductions, mainly for income tax, reductions on social spending in order to provide
incentives for private sector activity, restricting monetary supply to control inflation, and reduced
governmental regulation in terms of product quality and price, health and safety, and
environmental standards (Jenkins & Eckert, 1989). In other words, they wished to reverse
Keynesian policy tools to create a recession instead of economic growth (Jenkins & Eckert,
1989).
On February 18, 1981, President Ronald Regan revealed his “America’s New Beginning,
A Program for Economic Recovery” which entailed all of the policies discussed above (Jenkins
& Eckert, 1989). When brought before the political system, Regan’s plan passed with almost
unanimous support, and the largest tax cut and peacetime defense buildup in United States

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history were passed through the White House (Jenkins & Eckert, 1989). The new policies were
working for businesses and the rich, who were seeing unbelievable increases in profits and
income, but not for the economy (Doob, 2013; Jenkins & Eckert, 1989; Morris & Western,
1999). Jenkins and Eckert (1989) noted that “As the Federal Reserve restricted money supply in
response to the inflationary stimulus of the growing deficits created by the tax cuts, the economy
stalled” (p. 130).
These changes in political and economic policy in response to globalization greatly
increased social inequality in the United States, as those at the top changed policy to favor them,
mostly from tax cuts, while those at the bottom suffer the most from reductions in social
spending. Globalization itself has also changed the dynamics of US employment for those at the
bottom. Because globalization allows for increased movement of capital, goods, labor, and
investment, countries with low-wage labor (regardless of their proximity to the home market)
will draw off investment (Ho-Fung & Kucinskas, 2011; Morris & Western, 1999). This takes the
form of outsourcing, a company subcontracting certain services to third-party companies instead
of performing them themselves (Doob, 2013). This takes jobs away from the home country in
search of opportunities that provide better financial gains. With this comes an increase in imports
from less developed countries, and as these imports involve large amounts of unskilled labor, the
demand for local unskilled labor is decreased and their wages fall, and inequality rises (Morris &
Western, 1999). Morris & Western (1999) state that “The cost of an increase in the supply of
low-wage labor, for example, could be paid either by shareholders in the form of lower profits,
by workers in unemployment or lower wages, or by consumers in the form of higher prices” (p.

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650). It is known that shareholders are not experiencing lower profits, and prices have not raised
enough to account for the increase in the supply of low-wage labor, so who is incurring the cost?
This increase in the supply of low-wage labor also affects employer-employee
relationships in profound ways. Globalization forces businesses to reduce their market risks by
passing them on to their employees through increased flexibly in their relationship (Buchholz,
Hofäcker, Mills, Blossfeld, Kurz, & Hofrneister, 2009). These relationships are characterized by
part-time jobs with flexible hours, low pay, minimal autonomy and responsibility, negligible
promotion opportunities, and high risks of unemployment (Buchholz et al., 2009). This type of
relationship is not bilateral however, as employees are expected to be sturdy, reliable, and
productive. If they are not, employers will reduce their market risks through layoffs or
outsourcing, forcing employees to accept the asymmetric relationship or lose their job (Buchholz
et al., 2009). Proof of these relationships is demonstrated through the fact that from 1995 to
2006, the increase in national worker productivity surpassed real wage growth by 340 percent
(Doob, 2013).
Here we can see the direct and indirect consequences of globalization on the American
political and economic systems. As the United States economy began to stagnate in the 1970s
because of an increased presence in the global market from countries such as Germany and
Japan, American business started to impact the political system (Doob, 2013; Thurow, 1984).
Through foundations, think tanks, universities, and policy-making groups businesses
significantly influenced politicians and the policies they would implement, most notably the
Regan administration (Doob, 2013). These changes came in the form of tax cuts, decreased
social spending, and reduced governmental regulation (Jenkins & Eckert, 1989).

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China
Globalization has had very prominent effects on the social and economic landscape of
China. While globalization has resulted in a great accumulation of wealth for China and a steady
increase in per capita household income and consumption, it has been marked by an even greater
increase in income and consumption inequality and less social mobility (Hongbin, Yuyu & Li-
an, 2010; Yuegen, 2012). It is widely accepted that rising levels of inequality are associated with
an increase in Foreign Direct Investment (FDI) or globalization, as evidenced by increasing
internal inequalities in most countries since globalization gained traction in the 1980s (Hongbin
et al., 2010; Ho-Fung & Kucinskas, 2011; Lee, Nielsen, & Alderson, 2007; Morris & Western,
1999; Buchholz et al., 2009; Xinping, 2001; Yuegen, 2012). Most notable of the countries with
rising inequalities are ones that have moved from a centrally planned economy to a market-based
economic system, a category which China falls into (Ho-Fung & Kucinskas, 2011).
Globalization is the cause and consequence of this move away from state-socialism and statist
welfare models, which in turn increases internal inequality (Ho-Fung & Kucinskas, 2011; Lee et
al., 2007). It is in these countries with small public sectors that high levels of foreign investment
increase social inequality because of the absence of tax and social policies that buffer the effects
of unequal distribution (Lee et al., 2007). Since its onset of economic and social reform in the
late 1970s, China has changed from one of the world’s most egalitarian countries to one of the
most unequal (Ho-Fung & Kucinskas, 2011).
Beginning in the late 1970s, China began to feel the pressures of globalization and slowly
started to react. The initial changes were minor, with fundamental changes begging in the mid-
to-late 1980s. These fundamental changes were made to the economic and social systems in an

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effort to increase economic efficiency, which China was falling behind in. The changes began
with the government no longer promising full employment for the urban labor force, one of the
first changes made in the 1950 reforms (Xinping, 2001). Continuing the trend, the government
stopped accepting full responsibility for providing social benefits and required individuals to
share in the financing of medical care and pensions (Xinping, 2001). All of the benchmark
policies implemented in the welfare reforms of the 1950s were now being stripped away, and the
economic and social landscapes were shifting.
Following these fundamental changes in the late 1980s, the 1990s brought massive
restructuring of the state sector (Hongbin et al., 2010; Xinping, 2001). Beginning in 1992, China
experienced massive increases in foreign investment and trade, with a 1,923 per cent increase in
FDI (Xinping, 2001). In order to keep state owned enterprises in market competition the
government had to increase efficiency, mainly by reducing labor costs which they accomplished
with substantial layoffs (Hongbin et al., 2010; Xinping, 2001). During this time more than 30
million workers were laid off, with many of those individuals remaining unemployed ever since
(Hongbin et al., 2010). While private export oriented enterprises were expanding during this
time, a result of increased FDI, they were not able to compensate for the losses in the state
sector, resulting in an overall decrease in jobs (Bhat & Rather, 2012; Ho-Fung & Kucinskas,
2011). Most of the employees who were laid off came from the low end of income distribution,
and as a result income inequality in urban China increased significantly (Hongbin et al., 2010;
Xinping, 2001).
At the same time of the layoffs, China was experiencing urbanization, or large amounts
of young individuals moving from rural to urban areas in search of employment. These two

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phenomena occurring at the same time increased the negative effects, because there was an
influx of young, unskilled workers at the same time that the jobs they were qualified for were
being eliminated, the lower end of the distribution of income was inflated and wages stagnated,
with no real increase at a time when FDI and foreign trade were increasing dramatically
(Hongbin et al., 2010; Lee et al., 2007). On the opposite end, demand for skilled workers rose,
and because of their limited supply, their wages increased, further increasing income inequality
(Hongbin et al., 2010). These technical and managerial personnel are paid a much higher salary
than their subordinates, even with reference to global standards (Xinping, 2001). This polarizing
effect is further compounded by ineffective tax policy, allowing high income individuals to avoid
taxes (Yuegen, 2012). This is especially prominent in the incredibly high incomes earned by
senior executives in the state sector and the almost nonexistent taxes they pay (Yuegen, 2012).
During this time medical expenses were increasing as well, and the 30 million workers
who were laid off no longer had the government to help with them. In 1992, medical expenses
contributed about 1%-2% to consumption inequality, which increased to 6%-7% in 2003
(Hongbin et al., 2010). The rising cost of medical expenses has been accompanied by decreasing
workplace conditions, namely sweatshops. Within these sweatshops, workers are exposed to
dangerous working conditions, specifically poor fire safety, working with toxic chemicals, and a
lack of clean water (Doob, 2013; Duhigg & Barboza, 2012). In 2010, workers at an Apple
manufacturing plant in Suzou were ordered to clean iPhone screens with a toxic chemical, the
result being 137 workers obtaining serious nerve damage, to which they incur the medical costs
(Doob, 2013; Duhigg & Barboza, 2012). Other incidents include explosions at multiple
manufacturing plants, in which hundreds of individuals are injured or killed (Duhigg & Barboza,

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2012). The most appalling aspect of these explosions however, is the fact that in many cases the
companies using these factories as suppliers had been warned of the dangerous conditions, yet
did nothing about it (Duhigg & Barboza, 2012).
In addition to terrible working conditions, these sweatshops are characterized by unstable
employment and extremely low pay, usually less than two dollars a day (Doob, 2013). This
unstable employment is the result of asymmetric employment relationships characterized by
flexibility on the side of the employer and stability on the side of the employee (Bhat & Rather,
2012; Buchholz et al., 2009). This forces employees to accept the terrible conditions they find
themselves in, or else the company threatens to fire them, as shown by the banners located in an
Apple supply plant stating, “Work hard on the job today or work hard to find a job tomorrow”
(Duhigg & Barboza, 2012). It was found that two Walmart factories would anticipate
investigator’s questions and require employees give pre-arranged answers, usually involving
hours, days off, wages, and working conditions (Doob, 2013; Duhigg & Barboza, 2012). If
employees did not give the required answers and deny sweatshop conditions they would be
threatened with termination.
The Chinese economy has no interest in improving these working conditions either. It is
these working conditions that entice multinational corporations to move operations to China in
the first place. Xinping (2001) states that, “One of the main inducements for most of the foreign
investors in China is the chance to utilize cheaper labour, and thus they hope to keep labour costs
as low as possible” (p. 249). As cheap labor is one of the main sources of China’s competitive
advantage, government and corrupted officials are inclined to allow the behavior of companies
neglecting workers’ rights (Xinping, 2001; Yuegen, 2012). The success of these private

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companies then causes the belief of unequal wage as a necessity for economic efficiency,
causing many state enterprises to follow suit (Xinping, 2001).
It is easy to see here to direct effects globalization has had on China’s economic and
political systems. Based mainly on permanent job tenure in the state sector, the social welfare
system and its benefits rooted in the centrally planned economy were largely dismantled after the
1980s and1990s market reforms (Yuegen, 2012). A system characterized by central tenants such
as equality, social justice, and collective action was transformed into a market based economy
focused on profits with almost no social benefits (Xinping, 2001). This shift to a market based
economy accompanied by a decrease in state sector employment has radically decreased working
conditions and polarized workers at the top and bottom. While unskilled workers have had their
jobs eliminated and wages decreased, skilled workers and senior executives have enjoyed
increased wages (Hongbin et al., 2010; Ho-Fung & Kucinskas, 2011; Lee et al., 2007; Morris &
Western, 1999; Buchholz et al., 2009; Xinping, 2001; Yuegen, 2012).
Data
United States
[Place Table 1 About Here]
As the focus of this paper is to explain how globalization affects social inequality within
countries, the first piece of data presented will be the Gini Index coefficient. The Gini Index is a
measure of a countries income inequality, with zero indicating complete equality in which there
are no differences in income between units and a one indicating complete inequality where one
unit owns all of the income (Encyclopedia of Sociology 2001). Table one displays the Gini Index

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coefficient in the United States over a period of time. In 1986, the Gini Index coefficient for the
United States was a .370, putting them behind 79 other countries with greater income inequality.
In 2010, this figure has rose to .450, now placing the United States behind 40 other countries.
This is a significant change, with the United States passing 39 countries in terms of income
inequality in a matter of 24 years, coinciding with the onset of globalization.
To get a better understanding of income inequality in the United States, Table two
presents income shares of selected segments of tax payers from 1980 to 2005. In 1980, the top
one percent, five percent, 25 percent, and bottom 50 percent owned 8.5 percent, 21 percent, 56.7
percent, and 17.7 percent of total national income respectively. In 2007, these figures had
changed to 22.8 percent, 37.4 percent, 68.7 percent, and 12.2 percent respectively. We see here
that while all groups at the top have increased their income, with the top five percent
experiencing the greatest increase (16.4 percent), the bottom 50 percent saw their share of
income drop 5.5 percent. Income inequality displayed here is still underestimated however.
Individuals in high ranking positions receive a lot of income through job-related benefits and
gray income, which is not always fully reported (Hongbin et al., 2010). Individuals at the top of
income distribution thus actually make more than what is showed; effectively underreporting
income inequality (Hongbin et al., 2010). It is clear that the changes brought about by the Regan
administration in a supposed effort to improve the economy were only an effort by the corporate
elite to boost their income at the expense of those at the bottom.

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A big component of this decrease in income share by the bottom 50 percent is
unemployment. In his theory of Capitalism and Social Stratification, Karl Marx discussed what
he coined a reserve army of labor, which was the “bourgeoisie’s purposeful maintenance of a
distinct level of unemployment as a bargaining chip for keeping wages low” (Doob, p. 29). Table
three shows this happening in the United States. In 1990, there were 7,047,000 unemployed
individuals in the United States, which was 5.6 percent of the workforce. This number increased
to 14,825,000 in 2010, or 9.6 percent of the workforce. In a matter of 20 years the amount of
unemployed individuals more than doubled with the unemployment rate almost doubling as well.
Increasing the amount of unemployed is not the only objective however, as corporations need to
keep people unemployed for periods of time. Table four shows the amount of long-term
unemployment (unemployment lasting a year or longer) as a percentage of total unemployment
from 1980 to 2010. In 1980, long-term unemployment only comprised 4.3 percent of total
unemployment. This figured jumped to 29.0 percent in 2010, a substantial increase. We see here
that while unemployment is growing, the amount of people unemployed for long periods of time
is growing as well. This deliberate ‘reserve army of labor’ allows corporations who provide the
majority of employment to keep their wages low because these unemployed individuals will
accept almost any job, even if the wages are small.
Much of this unemployment is the result of layoffs, the product of downsizing and
outsourcing. As discussed earlier in the review, the asymmetrical relationships imposed by
employers often leads to individuals losing their jobs. Table five displays mass layoff events and

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initial claimants for unemployment insurance as a result of those events. In 1996 there were
12,614 mass layoff events, resulting in 1,320,844 unemployment insurance claimants. This
number rose to 19,432 events and 1,995,027 claimants in 2008. As the globalization process gets
further and further, companies are laying off more and more individuals so they may keep their
wages low. As stated in the above paragraph, companies also have an interest in keeping those
individuals unemployed for extended periods of time. Table 5 also displays mass layoffs lasting
more than 30 days. In 1996 there were 4,760 events with 805,810 claimants, which increased to
8,259 events and 1,670,042 claimants in 2008. This demonstrates that while layoffs are
increasing, the percentage of those layoffs lasting more than 30 days is also increasing.
The result of this high level of unemployment and these massive amounts of layoffs is
decreasing union membership. Discussed above, in the years prior to the onset of globalization, a
period of decreasing social inequality was accompanied by increased union membership. When
the economy began to stagnate however, politicians and business leaders attacked unions,
claiming they were detrimental to the United States. In order to maintain the asymmetrical
relationships which benefit them, corporations have a vested interest in decreasing union
membership, which they enforce through unemployment if an individual joins a union. Table six
shows that union membership declined from 16,996,000 (18 percent of the total workforce) in
1985 to 14,715,000 (11.9 percent of the total workforce) in 2010. As union membership declines
employees are provided with less protections and businesses are able to reduce employees wages
and give them less benefits.
China

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This section of the research review will also begin with the Gini Index coefficient, as it is
a calculation of a countries income inequality. Table seven gives us Gini Index coefficients for
China from 1981 to 2010. In 1981, China had a Gini coefficient of .291, putting it behind 121
other countries out of 141, making it one of the most equal countries in the world with a
calculated Gini coefficient. This changed dramatically however, with China obtaining a Gini
coefficient of .421 in 2010, putting it now at number 50 on the list. China moved from a very
equal society before globalization to a very unequal one after integration into the world
economy.
To get a more comprehensive look at this trend, Table eight provides income share, as a
percent of total national income, of five different segments of individuals. In 1981, the bottom 20
percent, second 20 percent, and median 20 percent owned 8.7 percent, 13.1 percent, and 17.4
percent of the national income respectively. At the same time the fourth 20 percent owned 22.9
percent and the top 20 percent owned 37.9 percent, a fairly equal distribution of income with
such a large population. Over the course of the next 29 years this distribution did not last, and
groups were further polarized. In 2010 the bottom 20 percent, second 20 percent, and median 20
percent owned 4.7 percent, 9.7 percent, and 15.3 percent respectively. The fourth 20 percent now
owned 23.2 percent and the top 20 percent owned an astounding 47.1 percent. As the top 20
percent increased their share of income by 9.2 percent, all other groups, with the exception of the
fourth 20 percent whose share remained about the same, had their share of income decrease, with
the bottom 20 percent experiencing the greatest decrease.

22
It was in the 1990s that the top 20 percent experienced the greatest increase, with 5.4 of
their 9.2 percent increase happening during this time. This coincides with the massive
restructuring of the state sector, in which many individuals were laid off and forced to search for
work in the private sector. Table nine contains data pertaining to the number of people employed
in urban private enterprises. The reason the table shows urban private enterprises and not all
private enterprises, is because most private companies established themselves in urban areas,
with almost no existence in rural areas. In 1980, there were 814,000 individuals in private
enterprises with 95,000 of those individuals in manufacturing. These numbers increased to
6,705,000 and 913,000 in 1990, a significant increase, but nothing compared to what would
come in the 1990s. Come 2000, there were 34,040,000 people employed in private industries
with 6,327,000 of those individuals in manufacturing. Here we can see that the largest increases
in income inequality correspond with the increase in private sector employment, revealing the
nature of the change in the Chinese economy.
Last, Table ten exhibits data on out of pocket health expenditure in China from 1980 to
2005. Discussed earlier in the essay was the fact that prior to the state sector overhaul in the
1990s the government subsidized most health care costs for its citizens. The move to private
owned industries brought an end to this policy however, and many individuals had to pay for
their own medical expenses. In 1980, out of pocket health expenditure for the country was
¥30,350,000 which was 21.19 percent of total expenditure. These numbers increased to
¥267,010,000 (35.73 percent) which may seem like a large increase, but are relatively small

23
compared to the increase experienced in the 1990s. In 2000, the numbers had increased to
¥2,705,170,000 or 58.98 percent of total expenditure. While the government subsidized most
health care costs prior to the state sector restructuring of the 1990s, the burden shifted to
individuals who had to pay most health care costs on their own after.
One may point out the difference in the amount of data given for each country in the
study. I am aware of this fact and wish it was not the case. The difference in the amount of data
presented for the United States and the amount available for China is the result of differences in
availability, reliability, and relevance. Being a student in the United States I have much more
access to domestic databases, providing me with access to more data on the United States than
China. Second, while much data is available for China on the internet, without the assurance that
it is from an academic database, the reliability of a good portion of it was questionable. I had
decided not to use multiple sources of data because I could not verify that it was reliable and did
not want to risk using incorrect data in this review.
Discussion
Globalization has brought about many changes in the political and economy systems of
the United States and China. These changes have brought about an era of increasing social
inequality where the rich get richer and the poor become worse off. In the United States, the
post-war years of prosperity were brought to a halt in the 1980s with the Regan administration.
Changes brought about were major max rate reductions, reductions on social spending,
restricting monetary supply to control inflation, and reduced governmental regulations (Jenkins
& Eckert, 1989). The results of these changes were increasing social inequality, most notably
income inequality, reduced social programs, and increasing unstable employment. In China the

24
results were similar, with globalization bringing an end to the modern social welfare system put
in place in the 1950s (Xinping, 2001). Following the dismantling of the social welfare system
came huge losses in state employment, decreased social spending, increasing income inequality,
and horrific working conditions (Hongbin et al., 2010; Ho-Fung & Kucinskas, 2011; Lee et al.,
2007; Morris & Western, 1999; Buchholz et al., 2009; Xinping, 2001; Yuegen, 2012).
Examining the two countries in study and how globalization affects them reveals
interesting implications. It is apparent that in countries with smaller governments, the effects of
globalization can be very detrimental to social equality. If a country wants to integrate into the
world economy without sacrificing the welfare of its citizens, it must implement structural
policies to buffer the effects. While this may decrease efficiency and profits for companies, it is a
small price to pay for the welfare of its citizens. This can only be done if the government
operates independently and without influence from the corporate elite and multinational
businesses.
It is Domhoff’s Theory of the Upper-Class-Centered Corporate Community that can help
explain the phenomenon causing these social injustices (Doob, 2013). Based off Mill’s Power-
Elite Perspective emphasizing the interconnectedness of the political leadership, military circle,
and corporate elite, Domhoff emphasized the elite’s role in social reproduction (Doob, 2013).
His theory describes “the power elite as largely upper-class people who have leadership roles in
business and government and a major commitment to retaining the prevailing rules and laws that
sustain the current income and wealth distribution” (Doob, p. 40). The changes brought about in
these countries are perfect examples of this theory, as businesses and the corporate elite used
their influence on government policy to favor those at the top while hurting those at the bottom.

25
It is important that citizens of these countries see the injustices being done to them, and take the
appropriate steps to change their governments for the better and set them on the right path.
People have blindly accepted the social order believing it to be natural, but it needs to be realized
that none of it is, and it can change.
Conclusion
Globalization has brought about many changes in the political and economic climates of
many countries, including both developed and developing nations. In the 1980s when
globalization became a driving force, noticeable effects on political and economic systems
became apparent. These changes have brought about increased levels of social inequality, and
have helped to further polarize contrasting groups.
Before the onset of globalization, both countries displayed political and economic
systems particularly different from current day. The United States was experiencing a post-
World War II economy marked by such attributes as a growing middle class, increased union
participation, and shrinking income inequality. In similar fashion, after the Communist Party
took control in 1949 under the Peoples Republic of China, a period of social welfare followed for
the next 30 years (Xinping, 2001). This period was characterized by a multiple tiered welfare
system which provided social assistance systems, welfare programs, free medical care, and
public housing among many other things (Xinping, 2001). Globalization brought this period of
increasing social equity to a halt and reversed the trend, transforming these societies into what
we have today.

26
Why has globalization brought about these changes and to what extent has it affected
these countries? It is important here to examine how both governments responded to increasing
pressure from globalization and the effects of these responses. The United States responded by
decreasing government intervention in business and rewarding overseas investment and
outsourcing. The effects of these changes include increasing income disparity, massive layoffs,
increasing unemployment, and a decrease in job security. The Chinese government responded by
moving from its state centered economy to a more free market approach in an effort to increase
economic efficiency (Xinping, 250). In China however, income disparity increased along with
reduced social programs and poor working conditions.

27
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U.S. Department of Labor, Bureau of Labor Statistics. 2014. “Mass Layoff Statistics.” Retrieved
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30
Table 1
Gini Index Coefficient for United States from 1986-2010
Year Gini Coefficient
1986 .370
1991 .376
1994 .389
1997 .408
2000 .402
2004 .406
2007 .416
2010 .450
Change .080
Source: The World Bank. 2014. “World Development Indicators.” Retrieved November 5, 2014.

31
Table 2
Income Shares of Selected Segments of Tax Payers over Time in the United States.
Year Top 1% Top 5% Top 25% Bottom 50%
1980 8.5% 21% 56.7% 17.7%
1985 10 22 58 17.3
1990 14 27.6 62.1 15
1995 14.6 28.8 63.4 14.5
2000 20.8 35.3 67.2 13
2005 21.1 35.8 67.5 12.8
2007 22.8 37.4 68.7 12.2
Change 14.3 16.4 12 -5.5
Source: Doob, C. B. (2013). Social inequality and social stratification in US society. New York:
Pearson, 6

32
Table 3
Unemployed Workers in the United States from 1990-2010
Year Unemployed (in thousands) Unemployment rate (percent)
1990 7,047 5.6%
2000 5,692 4.0
2005 7,591 5.1
2008 8,924 5.8
2010 14,825 9.6
Change 7,778 4.0
Source: Proquest LLC. (2014). Statistical abstract of the United States 2014. Bethesda, MD:
Bernan, 425

33
Table 4
Long-term Unemployment (% of Total Unemployment) in the United States from 1980 to 2010
Year LTU LTU, Men LTU, Women
1980 4.3 5.2 3.1
1990 5.5 7.0 3.7
2000 6.0 6.7 5.3
2010 29.0 29.9 27.7
Change 24.7 24.7 24.6
*LTU = Long-term Unemployment
world-development-indicators

34
Table 5
Mass layoff Events and Initial Claimants for Unemployment Insurance, Private Nonfarm, 1996
to 2013
Source: U.S. Department of Labor, Bureau of Labor Statistics. 2014. “Mass Layoff Statistics.”
Retrieved November 5, 2014. (http://www.bls.gov/mls/home.htm)

35
Table 6
Labor Union Membership in the United States from 1985-2010
Year Union members (in thousands) Percent of total workforce
1985 16,996 18.0
1990 16,740 16.1
1995 16,360 14.9
2000 16,258 13.5
2005 15,685 12.5
2010 14,715 11.9
Change -2,281 -6.1
Source: Proquest LLC. (2014). Statistical abstract of the United States 2014. Bethesda, MD:
Bernan, 452

36
Table 7
Gini Index Coefficient for China from 1981 to 2010
Year Gini Coefficient
1981 .291
1984 .277
1987 .299
1990 .324
1993 .355
1996 .357
1999 .392
2002 .426
2005 .425
2008 .426
2010 .421
Change .130
Source: The World Bank. 2014. “World Development Indicators.” Retrieved November 17,
2014.
world-development-indicators

37
Table 8
Income Share (% of Total Nationwide Income) in China from 1981-2010.
Year Bottom 20% 2nd 20% 3rd 20% 4th 20% Top 20%
1981 8.7 13.1 17.4 22.9 37.9
1984 8.9 13.5 17.8 23.2 36.6
1987 8.0 13.1 17.6 23.4 37.9
1990 8.0 12.2 16.5 22.6 40.7
1993 7.4 11.3 15.8 22.3 43.2
1996 7.2 11.3 15.8 22.3 43.4
1999 6.4 10.3 15.0 22.2 46.1
2002 5.5 9.4 14.3 22.2 48.6
2005 5.0 9.9 15.0 22.2 47.9
2008 4.8 9.6 15.0 22.7 47.9
2010 4.7 9.7 15.3 23.2 47.1
Change -4.0 -3.4 -2.1 0.3 9.2
*Percentage shares may not equal 100 because of rounding

38
Table 9
Number of Employed Persons in Urban Private Enterprises in China from 1980 to 2000
Year Total In Manufacturing
1980 81.4 9.5
1985 450.1 51.4
1990 670.5 91.3
1995 2045.0 339.0
2000 3404.0 632.7
Change 3322.6 623.2
*One unit equals 10,000 persons
Source: National Bureau of Statistics of China. 2013. “China Statistical Yearbook 2013.”
Retrieved November 17, 2014.
(http://www.stats.gov.cn/english/Statisticaldata/AnnualData/)

39
Table 10
Out of Pocket Health Expenditure in China from 1980 to 2005
Year Amount (in millions) Percent of total expenditure
1980 ¥30.35 21.19%
1985 79.39 28.46
1990 267.01 35.73
1995 999.98 46.40
2000 2705.17 58.98
2005 4520.98 52.21
Change 4490.63 31.02
Source: National Bureau of Statistics of China. 2013. “China Statistical Yearbook 2013.”
Retrieved November 17, 2014.
(http://www.stats.gov.cn/english/Statisticaldata/AnnualData/)

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