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Financial crisis and global imbalances: its labour market origins and the aftermath

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  • Pasquale Tridico

Abstract

The objective of this paper is to articulate how the 2007--09 economic crisis is rooted in the uneven income distribution and inequality caused by the current finance-led model of growth. The process of financialisation that took place in the 1980s in the USA and then in the European Union was coupled with labour flexibility, wage moderation and soaring profits. The flexibility agenda of the labour market and the end of wage increases, along with the contraction of indirect wages (i.e. public social expenditure), diminished workers' purchasing power. This was partly compensated with increased borrowing opportunities and the boom of credit consumption, all of which helped workers to maintain unstable consumption capacity. However, in the long term, unstable consumption patterns derived from precarious job creation, job instability and poor wages have weakened aggregate demand. Hence, labour market issues such as flexibility, uneven income distribution, poor wages and the financial crisis are two sides of the same coin. Both have a direct impact on the economic crisis and the current global imbalances. Copyright The Author 2012. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

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Bibliographic Info

Article provided by Oxford University Press in its journal Cambridge Journal of Economics.

Volume (Year): 36 (2012)
Issue (Month): 1 ()
Pages: 17-42

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Handle: RePEc:oup:cambje:v:36:y:2012:i:1:p:17-42

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Cited by:
  1. Lissowska, Maria, 2014. "Welfare against growth gains in post-transition countries: What are the consequences for stability?," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 8(13), pages 1-37.
  2. Perugini, Cristiano & Hölscher, Jens & Collie, Simon, 2013. "Inequality, credit expansion and financial crises," MPRA Paper 51336, University Library of Munich, Germany.
  3. Pasquale Tridico, 2014. "Welfare models, inequality and economic performance during globalisation," Departmental Working Papers of Economics - University 'Roma Tre' 0191, Department of Economics - University Roma Tre.

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