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The impact of financialisation on the wage share: A theoretical clarification and empirical test

Karsten Kohler (), Alexander Guschanski () and Engelbert Stockhammer ()

No 23472, Greenwich Papers in Political Economy from University of Greenwich, Greenwich Political Economy Research Centre

Abstract: It is frequently asserted that financialisation has contributed to the decline in the wage share. This paper provides a theoretical clarification and a systematic empirical investigation. We identify four channels through which financialisation can affect the wage share: (1) enhanced exit options of firms; (2) rising price mark-ups due to financial overhead costs for businesses; (3) increased competition on capital markets; and (4) the role of household debt in increasing workers’ financial vulnerability and undermining their class consciousness. The paper compiles a comprehensive set of empirical measures of financialisation and uses it to test these hypotheses with a panel regression of 14 OECD countries over the 1992-2014 period. We find strong evidence for negative effects of financial liberalisation and financial payments of nonfinancial corporations on the wage share that are in the same order of magnitude as the effects of globalisation.

Keywords: financialization; income distribution; political economy; corporate governance (search for similar items in EconPapers)
JEL-codes: E25 F65 G34 G35 (search for similar items in EconPapers)
Date: 2019-07-25
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Published in Cambridge Journal of Economics 4.43(2019): pp. 937-974

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Related works:
Journal Article: The impact of financialisation on the wage share: a theoretical clarification and empirical test (2019) Downloads
Working Paper: The impact of financialisation on the wage share: a theoretical clarification and empirical test (2018) Downloads
Working Paper: The impact of financialisation on the wage share. A theoretical clarification and empirical test (2018) Downloads
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