Investment Crowding‐Out and Labor Market Effects of Financialization in the US

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. www.econstor.eu The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E SIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. This paper studies the impact of financialization on unemployment in the U.S. We estimate a dynamic multi-equation macro labor model including labor demand, labor supply, wagesetting and capital accumulation equations. Financialization appears as a key determinant of capital accumulation which, in turn, is the transmission channel towards its unemployment effects. We conduct a series of counterfactual simulations where we quantify the macroeconomic consequences of the recent swings experienced by the financialization process. We find that it has had relevant unemployment effects in all periods considered, even in those where financial payments were not the main driver of capital accumulation. We also identify a structural change in the financialization process in the early 1980s, and find that it has caused U.S. unemployment to systematically fluctuate around 2 percentage points above what it would otherwise have done. We call for a reappraisal of the way financial markets work, and stress the vital need of preventing financial devices that result in productive investment crowding-out.JEL Classification: D2, E22, E24, G2

Distribution‐Utilization Interactions: A Race‐to‐the‐Bottom Among Oecd Countries

“…Conversely, our results also imply that a long‐term expansionary monetary stance could partially neutralize the anti‐labor effect of globalization. Consistent with Gonzalez and Sala (), we find statistically significant effects associated with financialization, on distribution, but not on utilization. Finally, we note that the anti‐labor globalization hypothesis remains robust to the inclusion of these additional variables, indicated by the significant positive utilization effect .…”

“…Several studies cite differing labor market institutions and the degree of taxation as contributing to differing distributive outcomes (see European Commission, ; IMF, ; Stockhammer, ). Gonzalez and Sala () content that increases in financialization has had an anti‐labor effect by crowding out productive investment, and by facilitating the offshoring of jobs; also see Agnello et al . () and Criscuolo and Garicano ().…”

Financialization, Monetary Policy and Technological Innovation

“…In terms of mechanism, excessive financialization may lead to problems such as human resource mismatch and social credit misappropriation [9], which further affects enterprise innovation. This is also evidenced by the impact of financialization on unemployment [10].…”

‘Another Such Victory and We are Undone’: Addressing Fallacies of Reasoning in Contemporary Policy Making

“…Cynicism acknowledged, the Joker here is the extraordinary financialization of the global economy; the ‘smile’ is the cruel prank played on economies across the globe. Some claim that financialization of the world's economies has led to asset price bubbles, rising debt and crowding out of productive investment (González and Sala, ).…”