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Economic Insecurity and the Globalization of Production

Kenneth Scheve and Matthew J. Slaughter
American Journal of Political Science
Vol. 48, No. 4 (Oct., 2004), pp. 662-674
DOI: 10.2307/1519926
Stable URL: http://www.jstor.org/stable/1519926
Page Count: 13
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Economic Insecurity and the Globalization of Production
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Abstract

A central question in the international and comparative political economy literatures on globalization is whether economic integration increases worker insecurity in advanced economies. Previous research has focused on the role of international trade and has failed to produce convincing evidence that such a link exists. In this article, we argue that globalization increases worker insecurity, but that foreign direct investment (FDI) by multinational enterprises (MNEs) is the key aspect of integration generating risk. FDI by MNEs increases firms' elasticity of demand for labor. More-elastic labor demands, in turn, raise the volatility of wages and employment, all of which tends to make workers feel less secure. We present new empirical evidence, based on the analysis of panel data from Great Britain collected from 1991 to 1999, that FDI activity in the industries in which individuals work is positively correlated with individual perceptions of economic insecurity. This correlation holds in analyses accounting for individual-specific effects and a wide variety of control variables.

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