Globalization and Economic Welfare: The Presence of an Unfair Gap Between Skilled Workers

Abstract

By focusing on the unfair gap between skilled workers of uniform quality, where unionized older workers are employed
permanently with higher wages, but younger workers fail to occupy permanent positions and are employed as uncertain temporary staff
on lower wages, we investigate the effects of the two types of globalization caused by the increasing immigration of foreign unskilled
workers and trade liberalization. Under certain conditions, the immigration of unskilled workers might expand the income gap between
the two types of skilled workers, but it would have a positive effect on national welfare. Thus, with adequate income re-distribution
policies by the government, immigration could be a welfare-improving policy. In contrast, although trade liberalization may reduce the
wage gap between the two types of skilled workers, every worker may lose out, and the welfare-improving possibility of trade
liberalization may be relatively small. We also suggest that every worker may gain from an increase in the legal minimum wage.