| Direction: Read the following passage carefully and answer the questions given. Certain words/ phrases have been given in bold to help you locate them while answering some of the questions. Defenders of globalization often say that whatever distress it may cause for rich-world, workers, it has been good for poor countries. Between 1988 and 2008, global inequality, as measured; by the distribution of income between rich and poor countries, has narrowed, according to the World Bank. But within each country, the story is less rosy: globalization has resulted in widening inequality in many poor places. This can be seen in the behavior of the Gini index, a measure of inequality. (If the index is one, a country's entire income goes to one person; if zero, the spoils are equally divided.) Sub-Saharan Africa saw its Gini index rise by 9% between 1993 and .2008. China's soared by 34% over 20 years. In few places k has fallen. Economists are puzzled: the data contradict the predictions of David Ricardo, one of the founding fathers of their discipline. Countries, said Ricardo, export what they are relatively efficient at producing. Take America and Bangladesh now. In America the ratio of highly skilled to low-skilled workers is high. In Bangladesh it is low. So America focuses on products requiring highly skilled labour, such as financial services and software. Bangladesh focuses on down-market products such as garments. Comparative advantage predicts that when a poor country starts to trade globally, demand for low-skilled workers will rise disproportionately. That, in turn, should boost their wages relative to those of higher-skilled locals, and so push down income inequality within that country. The theory neatly explains the impact of the first wave of globalization. In the 18th century, Europe had a high ratio of low-skilled workers relative to America, when Euro-American trade took off, European inequality dully-tumbled. In France in 1700 the average real incomes of the top 10% were 31 times higher than the bottom 40%. By 1900 (admittedly after several revolutions and wars) they were 11 times larger. But growing inequality in developing countries leaves Ricardo's disciples befuddled and suggests the theory needs updating. Eric Mask in of Harvard, University has attempted just this at the Lindau Meeting on Economic Sciences, a get-together of economists in a Bavarian lakeside town featuring many Nobel laureates. Mr. Maskln's theory relies on what he calls worker "matching". Assigning a manager (skilled) to a group of workers (unskilled) can do more for total output than just adding another worker. He places workers into four classes: high-skilled workers in rich countries [A]; low-skilled workers in rich countries [B]; high-skilled workers in poor countries [C]; and low-skilled workers in poor countries [D]. Crucially, he thinks low-skilled workers in rich countries (the Bs) are likely to be more productive than high-skilled workers in poor ones (the Cs). Before the current wave of globalization started in the 1980s, skilled and unskilled workers in developing countries? the Cs and Ds?worked together. However, the latest bout of globalization has jumbled the pairings: high-skilled workers in poor countries can now work more easily with low-skilled workers in rich ones, leaving their poor neighbours in the lurch. Globalization in its latest guise means such workers come into more regular contact with less-skilled people in the rich world. The Anglophone Indian cited by Mr. Maskin may go 'to work in an export factory where he meets tight deadlines laid down by its American owners. The Cs work with Bs and end up being more productive. The Ds are left by the wayside. The result of booming trade in intermediate goods is higher demand and productivity for skilled poor-country workers. Higher wages ensue: multinationals in developing countries pay manufacturing wages above the norm for the country. One; study, showed that in Mexico export- oriented firms pay wages .60% higher than non-exporting ones. Another found that foreign owned plants in Indonesia paid white-collar workers 70% more than locally owned firms Globalization, though, does-apt boost wages for all. The least skilled cannot "match" with skilled workers in Rich countries worse they have lost access to skilled workers in their own economies. The result is growing income inequality. |
| [A] Some experts opine that when a poor country begins trading globally, the result is increased income-inequality. |
| [B] With Gini Index of one, it is perceived that income is fairly distributed within the country. |
| [C] International firms operating in developing countries are better playmakers as compared to local ones. |
A) Only A
B) Only B
C) Both A and C
D) Only C
E) None of the given options is true
Correct Answer: B
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