Which of the following best explains why globalization can lead to a reduction in wages in developed countries?

• A. Globalization causes inflation to rise rapidly in developed countries, lowering real wages.
• B. Globalization leads to higher tariffs on imported goods, which decreases demand for domestic labor.
• C. Increased competition from low-wage countries reduces the bargaining power of workers in developed countries.
• D. Globalization encourages developed countries to restrict immigration, reducing the labor supply and wages.

Answer: (C)

Verified step by step guidance

1. Understand the concept of globalization in microeconomics: it refers to the increased integration of economies through trade, investment, and labor movement across countries.
2. Recognize that wages in developed countries are influenced by supply and demand for labor, as well as the bargaining power of workers and firms.
3. Analyze how increased competition from low-wage countries affects the labor market in developed countries: firms can outsource production or import cheaper goods, reducing demand for higher-wage domestic labor.
4. Consider the impact on workers' bargaining power: with more competition from abroad, workers in developed countries have less leverage to negotiate higher wages, leading to potential wage reductions.
5. Evaluate the other options and see why they are less relevant: inflation affects real wages but is not directly caused by globalization; tariffs usually protect domestic labor demand; restricting immigration reduces labor supply, which tends to increase wages, not decrease them.