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

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  • Kohler, Karsten
  • Guschanski, Alexander
  • Stockhammer, Engelbert

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.

Suggested Citation

  • Kohler, Karsten & Guschanski, Alexander & Stockhammer, Engelbert, 2019. "The impact of financialisation on the wage share: A theoretical clarification and empirical test," Greenwich Papers in Political Economy 23472, University of Greenwich, Greenwich Political Economy Research Centre.
    • Handle: RePEc:gpe:wpaper:23472
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    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
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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