5 - Economic Insecurity in the New Wave of Globalization

Summary

The financial collapse of 2008, the catalyst for the worldwide economic downturn that ensued, has introduced a new element of economic insecurity – the collapse of home prices and retirement incomes – into industrialized countries. In the United States, over 8 million homes went into foreclosure, as families were unable to meet their mortgage debt obligations. Credit card debt defaults followed a similar, and historic, trajectory. But heightened economic insecurity in these countries – whether measured by greater volatility of household incomes, a slowdown in wage growth, rising income inequality, growing unemployment, a rise in the incidence of long-term unemployment or involuntary part-time employment, a decline in labor's share of national income – preceded the financial crash by years, if not decades. Arguably, the rise in inequality and the expansion of corporate profits foreshadowed the crisis itself, by encouraging excessive financial speculation among higher earners and unsustainable borrowing by those at the lower end of the income distribution.

A factor in both the pre-crisis and crisis periods has been economic openness, with goods and services trade, foreign direct investment (FDI) and financial flows rising to unprecedented levels in relation to economic activity. There is overwhelming evidence that offshoring has for decades had an adverse impact on low-skill workers in industrialized countries, both in terms of pay and employment, in both absolute and relative terms. Recent papers now find a negative impact of offshoring on high-skill workers as well. This has especially been associated with the expansion of services offshoring. As supply chains extend to high-tech goods and higher-skill services, there are massive possibilities for the expansion of offshoring in the future.