Working Paper: NBER ID: w9339
Authors: Kenneth Scheve; Matthew J. Slaughter
Abstract: 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.
Keywords: economic insecurity; globalization; foreign direct investment; labor market
JEL Codes: F2; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Foreign Direct Investment (FDI) (F21) | Economic Insecurity (F52) |
| Foreign Direct Investment (FDI) (F21) | Labor Demand Elasticity (J23) |
| Labor Demand Elasticity (J23) | Volatility of Wages and Employment (J69) |
| Volatility of Wages and Employment (J69) | Economic Insecurity (F52) |
| Foreign Direct Investment (FDI) (F21) | Individual Perceptions of Economic Insecurity (F52) |
| Changes in Exposure to FDI (F23) | Changes in Perceived Insecurity (F52) |