NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Economic Insecurity and the Globalization of Production

Kenneth Scheve, Matthew Slaughter

NBER Working Paper No. 9339
Issued in November 2002
NBER Program(s):   ITI

A common claim in debates about globalization is that economic integration increases worker insecurity. Although this idea is central to both political and academic debates about international economic integration, the theoretical basis of the claim is often not clear. There is also no empirical research that has directly tested the relationship. In this paper, we argue that economic insecurity among workers may be related to riskier employment and/or wage outcomes, and that foreign direct investment may be a key factor contributing to this increased risk by making labor demands more elastic. We present new empirical evidence, based on the analysis of panel data from Great Britain collected from 1991-1999, that FDI activity in the industries in which individuals work is positively correlated with individual perceptions of economic insecurity. This relationship holds in yearly cross-sections, in a panel accounting for individual-specific effects, and in a dynamic panel model also accounting for individual-specific effects.

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Document Object Identifier (DOI): 10.3386/w9339

Published: Scheve, Kenneth F. and Matthew Slaughter. “Economic Insecurity and the Globalization of Production." American Journal of Political Science 48, 4 (2004).

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