The Politics of Stashing Wealth: The Decline of Labor Power and the Global Rise in Corporate Savings

This article investigates the political roots of the global rise in corporate savings. In recent years, firms throughout advanced economies have started to accumulate enormous savings. Instead of using their revenues to reinvest or raise wages, many companies now stash their profits within financial markets, contributing to sluggish growth, financial fragilities, and rising inequality. I argue that political institutions that determine the balance of power between firms and employees play an important role in shaping this trend. The stronger unions are, the more they pressure firms into using revenues for pay increases and investment. The more unions' influence erodes, the stronger the rise of savings. Using panel data from 25 Organization for Economic Cooperation and Development countries as well as a regression discontinuity design leveraging the German law on codetermination, I find robust and causal evidence supporting this claim. These results have implications for our broader understanding of how political institutions affect financial imbalances and economic inequality.