Unemployment as a Significant Problem in the Process of Finance-dominated Capitalism: Debate and AnalysisUmut Üzar
This study aims at revealing the relationship between unemployment and the phenomenon of financialization which has significantly increased its impact of the 1980s. Within this framework, firstly, the ways which financialization may affect unemployment was discussed and the potential relationship between these two variables was tried to be elicited. In this context, the empirical analysis was conducted by using annual data, obtained confidently, for 1980-2015 period of nine developed OECD countries. Within the scope of the empirical analysis, the homogeneity of slope coefficient of the variables was tested on the basis of delta test, and then cross-sectional dependency test was carried out. After the determination of the order of stationarity of the series by employing unit root-test, the long-term relationship and the causality between the variables was investigated by Westerlund co-integration and Dumitrescu and Hurlin causality analyses. According to the results obtained, there is a long-term co-integration and bi-directional causality between financialization and unemployment. Thus, size of financial activity effects unemployment and changes in unemployment also effects the dependency on financial channels.
Kapitalizmin Finansallaşma Sürecinde Önemli Bir Sorun Olarak İşsizlik: Tartışma ve AnalizUmut Üzar
Bu çalışmanın amacı, 1980’li yıllarla birlikte etkisini önemli ölçüde artıran finansallaşma olgusu ve işsizlik arasındaki ilişkinin belirlenmesidir. Bu çerçevede öncelikle finansallaşmanın hangi kanallar üzerinden işsizliği etkileyebileceği tartışmasına yer verilmiş ve iki değişken arasındaki potansiyel bağlantılar aydınlatılmaya çalışılmıştır. Bu bağlamda verisi elde edilen 9 gelişmiş OECD ülkesinin 1980-2015 dönemine ait yıllık verileri kullanılarak ampirik analiz gerçekleştirilmiştir. Ampirik analiz çerçevesinde öncelikle delta testi ile değişkenlerin eğim katsayısının homojenliği test edilmiş, sonrasında yatay kesit bağımlılık sınaması gerçekleştirilmiştir. Uygun birim kök testi ile serilerin durağanlık mertebesinin belirlenmesinin ardından Westerlund eşbütünleşme ve Dumitrescu ve Hurlin nedensellik analizleriyle değişkenler arasındaki uzun dönemli ilişki ve nedensellik araştırılmıştır. Elde edilen bulgulara göre, finansallaşma ve işsizlik oranı arasında uzun dönemli bir eşbütünleşme ilişkisi ve çift yönlü bir nedenselliğin olduğu tespit edilmiştir. Böylece finansal faaliyetlerin boyutu işsizliği, işsizlikteki değişimler de finansal kanallara olan bağımlılığı etkilemektedir.
The 1980s were the beginning of a radical restructuring process in the political economy of contemporary capitalism. The erosion of real capital accumulation in the 1970s and crisis conjuncture in which capitalism faces were tried to be overcome with a paradigm shift. Thus, neoliberal ideology and its polities have replaced the Keynesian paradigm. In this context, global economic architecture (system) has witnessed the processes of neoliberalism, globalization and finally financialization, after 1980. Even though the concept of financialization is dealt with in different approaches and the extent of its scope makes it difficult to make a clear definition, it is defined that financialization is a process whereby financial markets, financial institutions, financial motive, and financial elites gain major power over economic policy design and economic outcomes (Epstein, 2005; Krippner, 2005; Palley, 2007a; Orhangazi, 2008a).
Another development observed in the world economy in simultaneously with the financialization process has been the increase in the unemployment rate. Mainstream economists generally explain the causes of unemployment by labor market rigidities, education level, and work motivation (Snowdon ve Vane, 2005, s.404; Gonzalez ve Sala, 2014, s.596). On the other hand, how financialization affects unemployment is not much included in the mainstream analysis.
Discussions on the causes and consequences of financialization have increased rapidly in recent times. Looking at the relevant literature, financialization studies are generally focused on real capital accumulation and growth (Stockhammer, 2004; Orhangazi, 2008b; Demir, 2008), crises (Akyüz ve Boratav, 2003; Lee ve Cheng; 2011) and income distribution (Van Arnum ve Naples, 2013; Flaherty, 2015; Stockhammer, 2017; Dünhaupt, 2017). On the other side, there have been deficiencies in the literature about a systematic analysis of how financialization can influence the unemployment rate through which mechanisms. This study is built on the view that the damage caused by the financialization process on real economic activities affects the job creation and unemployment rate. Within this framework, four different channels have been defined in which financialization will affect the unemployment rate in this study. The four potential explanations of the relationship between financialization and the unemployment rate are as follows:
• Shareholder value orientation on non-financial corporates (NFC)
• Income inequality caused by financialization
• the replacement of full employment macroeconomic policy with low inflation targeting policy
• Financial crises and its impacts on the real economy
These developments may affect the unemployment rate by eroding real capital accumulation and production capacity in the economy.
The aim of the study is to analyze the relationship between financialization and unemployment rate in 9 OECD countries1 during 1980-2015 by means of panel cointegration and causality methods. The study is thought to contribute to the literature due to the lack of empirical analysis of the relationship between financialization and unemployment. In this study, the share of finance, insurance and real estate sectors (FIRE) in total value added is used as financialization variable. FIRE is a commonly used financialization variable because it is a comprehensive indicator (Van Arnum ve Naples, 2013; Flaherty, 2015; Darcillon, 2015). This data is gathered from EU-KLEMS. Unemployment rate (UNEMP) data is obtained from the World Bank World Development Indicators (WDI) database.
Firstly, homogeneity of the slope coefficient is carried out by way of delta test developed by Pesaran and Yamagata (2008). Thus, the slope coefficient is concluded to be homogeneous. Subsequently, the presence of cross-sectional dependence is revealed by Breusch and Pagan (1980) and Pesaran (2004) tests. Whether the series contains a unit root has been investigated via the second generation Pesaran (2007) CADF unit root test taking cross-sectional dependence into account. Both FIRE and the unemployment rate possess unit at levels but when the first-difference of the series is taken, both series become stationary. After finding that the series were stationary at first-difference, the long-term relationship between the variables is examined by Westerlund (2007) ECM test. According to Westerlund (2007) ECM, there is a long-term relationship between financialization and unemployment rate. In other words, the series are co-integrated. Finally, the causality relationship between the variables is examined by Dumitrescu and Hurlin (2012) panel causality test. It is found evidence of bidirectional causality between variables. In other words, financialization is the cause of unemployment and vice versa.
The results of the study show that financialization for the countries examined affects unemployment. In the financialization era, the decrease in real capital accumulation, shift of macroeconomic policies, the deterioration in income distribution and the financial crises may constitute the potential mechanisms of increasing the unemployment rate. Another important result of the study is the determination of causality from unemployment to financialization. The increasing unemployment rate creates people who are deprived of income. In the conjuncture where the unemployment rate rises, people have to use their savings or borrow from financial institutions to keep up their basic needs. Increasing borrowing through credit cards and consumer credits also may raise the share of the financial sector in value added.
These results may play an important role in policymaking. Firstly, the control and regulations on financial markets should be increased in these countries. This situation is very important in reducing the destructive effects of financialization. Secondly, The speculative activities of NFC’s have to be reduced. Increasing real economic activities will create new job opportunities and reduce the unemployment rate. Finally, full employment policies should be returned.