Economic Insecurity and the Globalization of Production

Abstract

A common claim in debates about globalization is that economic integrationincreases workerinsecurity. Although this idea is central to both political and academicdebates about internationaleconomic integration, the theoretical basis of the claim is oftennot clear. There is also no empiricalresearch that has directly tested the relationship. In this paper,we argue that economic insecurity amongworkers may be related to riskier employment and/or wage outcomes,and that foreign direct investmentmay be a key factor contributing to this increased risk by makinglabor demands more elastic. We presentnew empirical evidence, based on the analysis of panel data from GreatBritain collected from 1991-1999,that FDI activity in the industries in which individuals work is positivelycorrelated with individualperceptions of economic insecurity. This relationship holds in yearlycross-sections, in a panel accountingfor individual-specific effects, and in a dynamic panel model alsoaccounting for individual-specificeffects.