Hostname: page-component-68c7f8b79f-s5tvr Total loading time: 0 Render date: 2026-01-05T12:13:59.900Z Has data issue: false hasContentIssue false
  • English
  • Français

The compensation hypothesis goes east: FDI and welfare state demand in postcommunist countries

Published online by Cambridge University Press:  02 January 2026

Celeste Beesley
Celeste Beesley*
Affiliation:
Department of Political Science, Brigham Young University, USA
*
Address for correspondence: Celeste Beesley, Department of Political Science, Brigham Young University, 745 KMBL, Provo, UT 84602, USA. Email: celeste_beesley@byu.edu
Get access Rights & Permissions [Opens in a new window]

Abstract

While existing research provides evidence that globalisation sparks citizen demand for the welfare state in wealthy Western democracies, less is known about how globalisation affects public demand for welfare elsewhere. This study explores the link between globalisation and welfare preferences in postcommunist countries by examining workers at multinational corporations (MNCs). These workers have previously been found to have lower levels of job security, even in Western Europe. Additionally, in the postcommunist context, MNC employment also frequently offers better opportunities than other available jobs. This combination of risk and benefit creates higher demand for social insurance (such as unemployment insurance) because MNC workers have both higher job insecurity and higher costs of job loss (if the benefits of MNC employment make it difficult to find an equally good job). Original survey data from Ukraine shows that MNC workers experience greater insecurity and are paid more than other workers. They also express preferences for more expansive welfare programmes, prioritising those related to labour market insurance. This pattern of MNC workers’ experience and preferences is confirmed in cross‐national survey data from 30 peripheral economies, demonstrating that the compensation hypothesis has wider application than previously shown.

Keywords

compensation hypothesispostcommunist countriesforeign direct investment (FDI)

Information

Type
Original Articles
Information
European Journal of Political Research , Volume 59 , Issue 2 , May 2020 , pp. 354 - 375
Copyright
Copyright © 2019 European Consortium for Political Research

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Aitken, B., Harrison, A. & Lipsey, R.E. (1996). Wages and foreign ownership: A comparative study of Mexico, Venezuela and the United States. Journal of International Economics 40(3–4): 345–371.10.1016/0022-1996(95)01410-1CrossRefGoogle Scholar
Aitken, B.J. & Harrison, A.E. (1999). Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. American Economic Review 89(3): 605–618.10.1257/aer.89.3.605CrossRefGoogle Scholar
Aleksynska, M. & Schindler, M. (2011). Labour market regulations in low‐, middle‐ and high‐income countries: A new panel database. Working Paper. Washington, DC: International Monetary Fund.Google Scholar
Alquist, J.S., Clayton, A.B. & Levi, M. (2014). Provoking preferences: Unionization, trade policy and the ILWU puzzle. International Organization 68(1): 33–75.10.1017/S0020818313000374CrossRefGoogle Scholar
Banga, R. (2013). Measuring value in global value chains. Background Paper No. RVC‐8. Geneva: United Nations Conference on Trade and Development.Google Scholar
Bergin, P.R., Feenstra, R.C. & Hanson, H.G. (2009). Offshoring and volatility: Evidence from Mexico's maquiladora industry. American Economic Review 99(4): 1664–1671.10.1257/aer.99.4.1664CrossRefGoogle Scholar
Bornschier, S. & Kriesi, H. (2013). The populist right, the working class and the changing face of class politics. In Rydgren, J. (ed.), Class politics and the radical right. New York: Routledge.Google Scholar
Brady, D., Beckfield, J. & Seeleib‐Kaiser, M. (2005). Economic globalization and the welfare state in affluent democracies, 1975–2001. American Sociological Review 70(6): 921–948.10.1177/000312240507000603CrossRefGoogle Scholar
Brainard, L.S. & Riker, D.A. (1997a). Are US multinationals exporting US jobs? Working Paper 5958. Cambridge, MA: National Bureau for Economic Research.10.3386/w5958CrossRefGoogle Scholar
Brainard, L.S. & Riker, D.A. (1997b). US multinationals and competition from low wage countries. NBER Working Paper 5959. Cambridge, MA: National Bureau for Economic Research.Google Scholar
Brainerd, E. (1998). Winners and losers in Russia's economic transition. American Economic Review 88(5): 1094–1116.Google Scholar
Bratt, C., Abrams, D., Swift, H.J., Vauclair, C.‐M. & Marques, S. (2018). Perceived age discrimination across age in Europe: From an ageing society to a society for all ages. Developmental Psychology 54(1): 167–180.10.1037/dev0000398CrossRefGoogle ScholarPubMed
Burgoon, B. (2001). Globalization and welfare compensation: Disentangling the ties that bind. International Organization 55(3): 509–553.10.1162/00208180152507542CrossRefGoogle Scholar
Bynner, J. & Heinz, W. (1991). Matching sample and analysing their differences in a cross‐national study of labour market entry in England and West Germany. International Journal of Comparative Sociology 32(1–2): 137–153.10.1177/002071529103200107CrossRefGoogle Scholar
Csengodi, S., Jungnickel, R. & Urban, D.M. (2008). Foreign takeovers and wages in Hungary. Review of World Economics 144(1): 55–82.10.1007/s10290-008-0137-0CrossRefGoogle Scholar
Easterly, W., Islam, R. & Stiglitz, J.E. (2001). Shaken and stirred: Explaining growth volatility. In Pleskovic, B. & Stern, N. (eds), Annual World Bank Conference on Development Economics 2000. Washington, DC: World Bank.Google Scholar
Fabbri, F., Haskel, J.E. & Slaughter, M.J. (2003). Does nationality of ownership matter for labor demands? Journal of the European Economic Association 1(2–3): 698–707.10.1162/154247603322391323CrossRefGoogle Scholar
Feinberg, S.E. & Majumdar, S.K. (2001). Technology spillovers from foreign direct investment in the Indian pharmaceutical industry. Journal of International Business Studies 32(3): 421–437.10.1057/palgrave.jibs.8490975CrossRefGoogle Scholar
Garrett, G. (1998). Partisan politics in the global economy. Cambridge: Cambridge University Press.10.1017/CBO9780511625633CrossRefGoogle Scholar
Geishecker, I., Riedl, M. & Frijters, P. (2012). Offshoring and job loss fears: An econometric analysis of individual perceptions. Labour Economics 19(5): 738–747.10.1016/j.labeco.2012.05.018CrossRefGoogle Scholar
Gorg, H. & Strobl, E. (2003). Footloose multinationals? Manchester School 71(1): 1–19.10.1111/1467-9957.00331CrossRefGoogle Scholar
Gorg, H., Molana, H. & Montagna, C. (2009). Foreign direct investment, tax competition and social expenditure. International Review of Economics and Finance 18(1): 31–37.10.1016/j.iref.2008.02.009CrossRefGoogle Scholar
Ha, E., Lee, D.‐W. & Amri, P. (2014). Trade and welfare compensation: The missing links. International Interactions 40(5): 631–656.10.1080/03050629.2014.896799CrossRefGoogle Scholar
Hays, J.C., Ehrlich, S.D. & Peinhardt, C. (2005). Government spending and public support for trade in the OECD: An empirical test of the embedded liberalism thesis. International Organization 59(2): 473–494.10.1017/S0020818305050150CrossRefGoogle Scholar
Helpman, E., Itskhoki, O. & Redding, S. (2010). Inequality and unemployment in a global economy. Econometrica 78(4):1239–1283.Google Scholar
Hijzen, A. & Swaim, P. (2010). Offshoring, labour market institutions and the elasticity of labour demand. European Economic Review 54(8): 1016–1034.10.1016/j.euroecorev.2010.04.001CrossRefGoogle Scholar
Ho, D., Imai, K., King, G. & Stuart, E. (2007). Matching as nonparametric preprocessing for reducing model dependence in parametric causal inference. Political Analysis 15: 199–236.10.1093/pan/mpl013CrossRefGoogle Scholar
Iacus, S.M., King, G. & Porro, G. (2012). Causal inference without balance checking: Coarsened exact matching. Political Analysis 20(1): 1–24.10.1093/pan/mpr013CrossRefGoogle Scholar
Institute of Reforms (2001). Ratings of the social and economic development of counties and cities of oblast significance of Ukraine. Available online at: www.ir.org.uaGoogle Scholar
Jimenez‐Buedo, M. & Miller, L.M. (2010). Why a trade‐off? The relationship between the external and internal validity of experiments. Theoria 25(3): 301–321.10.1387/theoria.779CrossRefGoogle Scholar
Kaufman, R.R. & Segura‐Ubiergo, A. (2001). Globalization, domestic politics and social spending in Latin America: A time‐series cross‐section analysis, 1973–1997. World Politics 53(4): 553–587.10.1353/wp.2001.0016CrossRefGoogle Scholar
Khabeer, N. & Mahmud, S. (2004). Globalization, gender and poverty: Bangladeshi women workers in export and local markets. Journal of International Development 16: 93–109.10.1002/jid.1065CrossRefGoogle Scholar
Konings, J. (2001). The effects of foreign direct investment on domestic firms. Economics of Transition 9(3): 619–633.10.1111/1468-0351.00091CrossRefGoogle Scholar
Kupets, O., Vakhitov, V. & Babenko, S. (2012). Ukraine case study: Jobs and demographic change. Washington, DC: World Bank.Google Scholar
Levasseur, S. (2010). International outsourcing over the business cycle: Some intuition for Germany, the Czech Republic and Slovakia. Eastern Journal of European Studies 1: 165–185.Google Scholar
Lipsey, R.E. & Sjoholm, F. (2006). Foreign firms and Indonesian manufacturing wages: An analysis with panel data. Economic Development and Cultural Change 55(1): 201–221.Google Scholar
Marx, P. (2016). The insider‐outsider divide and economic voting: Testing a new theory with German electoral data. Socio‐Economic Review 14(1): 97–118.10.1093/ser/mwu022CrossRefGoogle Scholar
Melitz, M.J. (2003). The impact of trade on intra‐industry reallocations and aggregate industry productivity. Econometrica 71(6): 1695–1725.10.1111/1468-0262.00467CrossRefGoogle Scholar
Merikull, J. & Room, T. (2014). Are foreign‐owned firms different? Comparison of employment volatility and elasticity of labour demand. Working Paper 1704. Frankfurt: European Central Bank.Google Scholar
O'Rourke, K.H. & Sinnott, R. (2001). The determinants of individual trade policy preferences: International survey evidence. Brookings Trade Forum 2001: 157–206.10.1353/btf.2001.0011CrossRefGoogle Scholar
Pinto, P.M. & Zhu, B. (2016). Fortune or evil? The effect of inward foreign direct investment on corruption. International Studies Quarterly 60(4): 693–705.10.1093/isq/sqw025CrossRefGoogle Scholar
Rehm, P., Hacker, J.S. & Schlesinger, M. (2012). Insecure alliances: Risk, inequality and support for the welfare state. American Political Science Review 106(2): 386–406.10.1017/S0003055412000147CrossRefGoogle Scholar
Rodrik, D. (1997). Trade, social insurance and the limits to globalization. Working Paper 5905. Cambridge, MA: National Bureau for Economic Research.10.3386/w5905CrossRefGoogle Scholar
Roe, B.E. & Just, D.R. (2009). Internal and external validity in economics research: Trade‐offs between experiments, field experiments, natural experiments and field data. American Journal of Agricultural Economics 91(5): 1266–1271.10.1111/j.1467-8276.2009.01295.xCrossRefGoogle Scholar
Rudra, N. (2002). Globalization and the decline of the welfare state in less‐developed countries. International Organization 56(2): 411–445.10.1162/002081802320005522CrossRefGoogle Scholar
Rudra, N. & Haggard, S. (2005). Globalization, democracy and effective welfare spending in the developing world. Comparative Political Studies 38(9): 1015–1049.10.1177/0010414005279258CrossRefGoogle Scholar
Scheve, K. & Slaughter, M.J. (2004). Economic insecurity and the globalization of production. American Journal of Political Science 48(4): 662–674.10.1111/j.0092-5853.2004.00094.xCrossRefGoogle Scholar
Tandrayan‐Ragoobur, V. (2011). Exporting and wage premium in foreign firms in Africa: Differential effects across export destinations. Unpublished manuscript, University of Mauritius.Google Scholar
Van Oorschot, W.V. & Chung, H. (2015). Feelings of dual‐insecurity among European workers: A multi‐level analysis. European Journal of Industrial Relations 21(1): 23–37.10.1177/0959680114523199CrossRefGoogle Scholar
Villarreal, A. & Sakamoto, A. (2011). Bringing the firms into globalization research: The effects of foreign investment and exports on wages in Mexican manufacturing firms. Social Science Research 40(3): 885–901.10.1016/j.ssresearch.2010.12.011CrossRefGoogle ScholarPubMed
Walter, S. (2010). Globalization and the welfare state: Testing the microfoundations of the compensation hypothesis. International Studies Quarterly 54(2): 403–426.10.1111/j.1468-2478.2010.00593.xCrossRefGoogle Scholar
Wibbels, E. (2006). Dependency revisited: International markets, business cycles and social spending in the developing world. International Organization 60(2): 433–468.10.1017/S0020818306060139CrossRefGoogle Scholar