The Embedded Economy and National Income Inequality: A Cross-National Analysis of Production Globalization and Labor Market Institutions

The precipitous growth of income inequality in developed and developing countries over the last thirty years has raised concerns amongst the general public, policy-makers, and academic communities about issues of economic equity in contemporary society. As a result, a voluminous literature on the causes and consequences of income inequality has emerged across the social sciences. Despite this proliferation of research, the literature is mired in an ongoing debate over the proximate and distal drivers of inequality. One of the most contentious topics in this debate is the role of globalization. According to the globalization thesis, international trade and investment increases income inequality are primarily responsible for the recent growth of income inequality. Critics of this perspective show the effect of globalization on income inequality is inconsistent across studies and argue the reform of national labor market institutions is the main process behind the recent growth of income inequality.;The purpose of the dissertation is to resolve this debate by exploring the institutional process underlying the relationship between the globalization of production and income inequality. The main argument of the dissertation is the globalization of production contributes higher levels of income inequality in developed and developing countries by inducing the liberal reform of collective labor institutions. This integrative perspective is empirically examined using a series of unbalanced panel datasets of developed and developing countries from 1980 to 2008 and generalized multilevel structural equation modeling to estimate the mediated effects of production globalization. The analysis shows international manufacturing trade between developed and developing countries exerts a direct and indirect effect on income inequality. Manufacturing exports to developed countries and inward foreign direct investment generates higher levels of income inequality in developing countries through reducing the collective labor practices. Manufacturing imports from developing countries produces higher levels of income inequality in developed countries through decreasing union density, decentralizing wage bargaining, and inducing the reform of employment protection legislation. Overall, the main findings of the dissertation shows the inconsistent and ambiguous effect of globalization on national income inequality is a product of overlooking the mediating role of collective labor institutions in this relationship.