The effects of the distribution of mortgage credit on the wage share: Varieties of residential capitalism compared

The financialisation of advanced economies has developed in part through the widespread engagement of workers with the financial sector, specifically through the increasing adoption of household debt. Taking on debt establishes “investor identities” for borrowers, which disciplines borrowers to demand employment and marginalises worker bargaining power. Although increased levels of household debt have been linked with a declining wage share of national income, there has been little examination of the effects of the specific channel of mortgage credit, the largest source of household debt, on the wage share. A series of regression models were implemented to test the relationship between the total mortgage stock and the wage share of GDP in four different countries, across three different Varieties of Residential Capitalism. While the panel data results demonstrate a negative relationship between mortgage credit and the wage share across the typologies, the relationship is concentrated in the liberal markets of the UK and the USA, and does not hold independently in Sweden and Denmark. There are four important differences that may explain the divergent results: (1) mortgages in liberal markets are provided at a higher cost than in non-liberal markets; (2) the use of mortgage bonds in non-liberal markets facilitates renegotiations in periods of borrower uncertainty; (3) the level of collective bargaining in Social Democratic states may strengthen worker wage negotiations; and (4) workers in liberal markets are reliant on mortgage finance to access the home as a financial asset in systems of asset-based welfare. The combination of which may explain how the increased disciplinary effects of mortgage finance have resulted in the reproduction of the conditions for capital accumulation in liberal capitalist states.