Financialization and Income Inequality: How the Growth of Corporate Debt Undermined the Power of Organized Labor in the U.S.
Author: Yair Kaldor, ykaldor@gmail.com
Department: Sociology
University: University of Wisconsin-Madison, United States
Supervisor: Prof. Jane Collins
Year of completion: 2020
Language of dissertation: English
Keywords:
Financialization
, Income inequality
, class
, labor
Areas of Research:
Economy and Society
, Social Movements, Collective Action and Social Change
, labour market
Abstract
Financialization and rising income inequality are two of the most pronounced economic developments of recent decades. Since the financial crisis of 2008, scholars have provided increasing evidence of a strong statistical association between these trends. However, explanations of this link are still limited, and there is a need to go beyond statistical analysis to examine how financialization contributes to income inequality “on-the-ground”. The present research addresses this issue by identifying a specific channel through which financialization shapes the income distribution within non-financial corporations: the use of corporate debt as a “negotiation tool” in the context of collective bargaining.
The growth of corporate debt is considered a central indicator of financialization at the firm level. This trend is usually associated with the rise of the shareholder value approach to corporate governance and the conflict between managers and shareholders. In contrast, the present research argues that corporate debt played a more salient role in the struggle between workers and employers, and was increasingly deployed in collective bargaining processes to extract wage concessions and justify massive layoffs. It shows that the transformation of debt into a “negotiation tool” was the outcome of a broader shift in property relations that accompanies the rise of financial assets as a dominant form of capitalist property. While this development leaves the basic conflict between labor and capital very much intact, it opens up new strategies and courses of actions within this ongoing class struggle.
The core of the empirical research consists of a comparative investigation of three U.S. nonfinancial industries: auto, steel and airlines. Through a mixed-method approach that combines a quantitative analysis of financial data with qualitative research on news items, industry reports and other primary sources, I trace the transformation of debt into a “negotiation tool” to the shift in U.S. monetary policy in 1979 that pushed interest rates to unprecedented heights and the economic recessions of the early 1980s. I show that despite notable differences between them, in all three industries the use of debt as a “negotiation tool” started in financially distressed firms, but quickly spread to stable corporations that took advantage of the challenging economic situation. This strategic use of debt played an important part in the spread of “concession bargaining” and contributed to the decline of organized labor in the U.S.
