SLAVES TO THE WAGE?: THE EFFECT OF RISING HOUSEHOLD INDEBTEDNESS ON LABOR PROTECTIONS
Hoefig, Tabea Susanne
The global economy has seen substantial changes since the era of market liberalization in the 1980’s that have formed the basis of the so-called Washington Consensus. An important result of more market-oriented policies has been the rapid rise in household indebtedness and of financialization of economies around the globe. Relying on a socialist rhetoric that is deeply rooted in classic Marxist theoretical considerations, where the asset holding bourgeoisie captures governments and exploits the working class, most commentators’ claims are falling short of explaining why an exploited working class would support such a political-economic system in the first place. In order to explain this paradoxical situation, I develop a theoretical framework building on recent findings within the literature on household financial decision making. I find that OECD countries with a higher level of household debt also show changes in household preferences as well as a change in aggregate labor market behavior. From a policy perspective, these findings indicate that changes in enhanced financial access (i.e. financialization) and subsequently rising household indebtedness may shift social dynamics such that they affect political institutions.
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