Deborah Winkler

Economic insecurity in the new wave of globalization: offshoring and the labor share under varieties of capitalism

Countries subject to the same degree of exposure to globalization may experience very different levels of economic insecurity depending on social support or employment protections provided by the state or even due to insurance obtained by households. We identify five varieties of industrialized countries, characterized by national levels of ‘labor support’ and ‘strictness of employment protection,’ and analyze the importance of the role of the state in mediating the impact of globalization on economic security by estimating the relation between offshoring and the labor share of income across the OECD. We find that the effect of offshoring varies across countries depending on their regulatory structure and in particular on the degree of labor market support provided by governments. Regression analysis shows that for the countries providing ‘more support’, offshoring has a less unfavorable or more favorable effect on the labor share of national income.

The New Wave of Globalization

The international trade and investment environment has changed since the mid-1980s, reflecting political, economic, and technological shifts. These shifts have encouraged more international trade and foreign direct investment (FDI), altered the structure of trade, and changed the relation between trade and FDI, the effect of trade on income distribution, and the role of foreign demand in economic development. Trade has occurred increasingly through sophisticated global value chains (GVCs), as more and more companies in industrialized countries have looked offshore to perform both manufacturing and services, and to focus at home on core competencies related to marketing, finance, research and development (R&D), and design. These companies now rely more on imported inputs of goods and services, and increasingly on low-income countries. These changes in the globalization of production have come gradually over the past twenty-five years. Global networks of production have a cumulative and herd-like character: As firms have success in expanding their networks globally, they expand them even more. This is accelerated by the development of networking capacity globally. As one firm in an industry has success, others have tended to follow, with modular production facility in developing countries allowing contract supply simultaneously to many firms in an industry and even to firms in different industries.