Economic Insecurity in the New Wave of Globalization: Offshoring and the Labor Share Under Varieties of Capitalism

Abstract

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.

Keywords: Outsourcing, Functional Income Distribution, Economic Security, Varieties of Capitalism

JEL Classification: D33, F16, E25