Indebted societies : modern labor markets, social policy, and everyday borrowing

Abstract

Debt has become an essential part of families' daily lives in many countries. This dissertation examines under what circumstances credit markets replace the role of welfare states to address social risks and promote social mobility in advanced democracies. It sheds light on the socio-economic and political consequences of growing debt levels. I offer a theory that explains variation in household debt across and within countries by demonstrating that credit fills gaps between households' financial needs and demand for social services on the one hand and welfare states' supply of social services on the other-a gap I refer to as social policy shortfall. The transformation of stable Fordist economies into flexible knowledge economies led to increasingly fragmented employment patterns and life-course trajectories. Welfare states, however, have often not kept up with these disruptions and leave households with larger financial burdens. Households increasingly go into debt to address the financial consequences of social risk such as unemployment or sickness as well as to seize social opportunity by investing in childcare and family, education, and housing. Cross-nationally, two factors explain the variation in household debt: the size and type of social policy shortfall determine individuals' financial needs. But whether credit emerges as a private alternative to welfare states is contingent upon the structure of a country's credit regime, which shapes how easily individuals can borrow money. Drawing on full-population administrative records from Denmark and micro-level panel data from the U.S. and Germany, I show that the permissive credit regimes of the U.S. and Denmark grant households easy access to credit, but the distribution of debt across households differs because welfare states in both countries protect and support households differently. In Germany, the restrictive credit regime results in less borrowing even in light of social policy reforms. The findings have implications for how scholars and policymakers think about the role of financial markets and household debt in a world of changing labor markets and welfare states. It shows how credit markets and welfare states appear to fulfill similar functions but follow different underlying logics, each with its own socio-economic and distributional consequences that shape and amplify insecurity and inequality.