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

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  • Karsten Kohler
  • Alexander Guschanski
  • Engelbert Stockhammer

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: (i) enhanced exit options of firms; (ii) rising price mark-ups due to financial overhead costs for businesses; (iii) increased competition on capital markets and (iv) 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 advanced countries over the 1992–2014 period. We find strong evidence for negative effects of financial liberalisation and financial payments of non-financial corporations on the wage share, which are in the same order of magnitude as the effects of globalisation.

Suggested Citation

  • Karsten Kohler & Alexander Guschanski & Engelbert Stockhammer, 2019. "The impact of financialisation on the wage share: a theoretical clarification and empirical test," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 43(4), pages 937-974.
    • Handle: RePEc:oup:cambje:v:43:y:2019:i:4:p:937-974.
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    File URL: http://hdl.handle.net/10.1093/cje/bez021
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    More about this item

    Keywords

    Financialisation; Income distribution; Political economy; Corporate governance;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance

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