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Journal of Economic Integration 2018 September;33(3) :433-465.
DOI: https://doi.org/10.11130/jei.2018.33.3.433
Globalization and Labor Force Participation
Stacie Beck and 
Soodong Park 
Department of Economics, University of Delaware, DE 19719, United States
Corresponding Author: Stacie Beck ,Tel: (302) 831-1915, Fax: (302)831-6968, Email: beck@udel.edu
Copyright ©2018 Journal of Economic Integration
ABSTRACT
This study finds evidence that globalization depresses labor force participation via social spending and tax policy. We estimate a panel Vector Auto Regression model on data over the period of 1980~2012 from the 26 OECD countries. Social spending has increased, consistent with the compensation hypothesis, while labor income taxes have risen relative to capital income taxes, consistent with tax competition hypothesis. As a result, one can see the reduction of labor force participation. Social safety nets and tax policies need to be streamlined upon globalization.

JEL Classification
H87: International Fiscal Issues; International Public Goods
F15: Economic Integration
F66: Labor
Keywords: Fiscal policy | Globalization | Labor force participation | Tax competition | Compensation hypothesis | Panel VAR
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