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

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.