Finance, Monetary Policy and the Institutional Foundations of the Phillips Curve

Finance, Discipline and the Labour Share in the Long‐Run: France (1911–2010) and Sweden (1891–2000)

“…Other measures, such as the FDI, capital account openness or the export-import price ratio, might capture better this channel, but data availability is limited for both countries. 4 As argued earlier, the impact of mortgage indebtedness on functional income distribution is to some extent ambiguous (Argitis and Dafermos 2013;Froud et al 2002;Langley 2007). A negative effect would indicate that workers' rising financial vulnerability leads to loss of bargaining power, thus, to declining wage shares (∂ (W S)/∂MDEBT < 0).…”

“…Guschanski and Onaran (2018) show that household debt and globalization decrease the labour share, while welfare spending increases it, using sectoral-level data for eight advanced OECD countries . Argitis and Dafermos (2013) argue that this process is path dependent, as in economies with wide bargaining coverage workers feel safer, thus they can act more aggressively against employers and demand higher wages to improve their financial position. In economies with weaker labour market institutions, the disciplinary effect of household indebtedness is stronger.…”

“…Financial liberalization allows firms, on the one hand, to be able to obtain cheaper business credit to fund their real investments and, on the other hand, to expand their activity to financial investments. Hein (2007) and Argitis and Dafermos (2013) argue that increases in corporate indebtedness can make firms to pursue limiting wage share growth, even if that is not used for share buybacks but for real investment. Since the increase in business debt comes with an increase in financial overheads for non-financial firms, their managers are likely to attempt counterbalancing through an equal decrease in the share of wages.…”

“…A strand of the empirical finance literature has focused on whether it has contributed to worsening employment relations and the reduction in the labour shares, which is a stylized fact of the last four decades (IMF 2017;Karabarbounis and Neiman 2014). Köhler et al (2019) outline four channels through which the rise of finance since the early 1980s affected the bargaining power of labour and its income share: (a) rising household indebtedness (Argitis and Dafermos 2013;Froud et al 2002;Langley 2007;Wood 2017); (b) enhanced exit options for firms due to financial liberalization; (c) the rise of shareholder value orientation (Froud et al 2000;Lazonick and O'Sullivan 2000); and (d) increasing financial overhead costs (Argitis and Dafermos 2013;Hein 2007). Industrial relation scholars, such as Gospel and Pendleton (2003), Palpacuer et al (2011) and Appelbaum et al (2013)" Thompson (2003) have demonstrated that finance has transformed the objectives of corporate governance and induced the liberalization of employment relations.…”

“…My strategy is mainly exploratory and based on a macro‐level, case‐based comparative analysis. The objective is to explore: first, whether finance has been influencing the evolution of the labour share since the late nineteenth century; second, whether the effects of finance on the wage share are weaker in countries with state‐led housing finance systems (Johansson 1938; Wood 2017) and centralized bargaining coordination (Argitis and Dafermos 2013), like Sweden. A comparison of the effects of finance on inequality between two countries with substantially different housing finance systems and union structures can provide important insights on whether industrial organization and politics matter for the disciplinary impact of finance.…”