Working Papers

The Financial Lives of Families. How Credit Regimes and Welfare States Shape Household Indebtedness

Debt has become an essential part of many families' daily lives. Yet we know little about the cross-national dimension of credit markets as a substitute for welfare states. I offer a new perspective on the ways in which financial markets shape political economies and reach into people's daily lives and thereby influence distributional struggles in labor markets and welfare states. I argue that growing indebtedness is the downstream consequence of changes in labor markets, life course trajectories, and welfare states that expose households to financial shortfalls. The interaction of welfare states and credit regimes constrains the ways in which households cope with financial shortfalls and produces and reproduces patterns of indebtedness that reflect how individuals address these shortfalls. I first show that when welfare states are weak and credit regimes permissive, households tap into credit markets as a private coping mechanism. In restrictive regimes, by contrast, households draw on savings and cut expenditures. I then turn to event studies and difference-in-differences designs based on full-population administrative data from Denmark and panel data in the U.S., to document how variation in welfare state coverage and credit access explains variation in debt burdens across income groups. The findings expand recent work in comparative political economy on credit markets as substitutes for welfare states, shedding light on the role of credit regimes and social policies as drivers behind indebtedness and its socio-economic and distributional consequences.

Do Credit Markets Substitute for Welfare States? Evidence from U.S. States

Household debt levels have risen considerably in many advanced economies, but we know little about the political causes driving it. In this study, I advance recent work that has identified a trade-off between credit markets and welfare states and empirically document that growing indebtedness is the result of declining social policy generosity. Drawing on micro-level panel data in the U.S. and leveraging a novel source of variation in unemployment insurance benefits across states and over time, I demonstrate in a generalized difference-in-differences design that households who become unemployed borrow more in states where unemployment benefits are less generous. A decline in unemployment benefits by 20 percent increases unsecured debt by about 11 percent, suggesting that credit has become a private alternative to social policies. I discuss the downstream socio-economic and political consequences of these findings and delineate avenues for future research on the links between financial markets and welfare states.

The Anxiety of Precarity: The United States in Comparative Perspective (with Kathleen Thelen)

This paper develops a new perspective on the dynamics of precarity and socio-economic risk across the most advanced industrial countries by introducing the concept of "risk amplification." A growing number of people are experiencing heightened risk relating to trends in labor markets, social policy regimes, and in some cases in personal finance. We situate developments in the United States in a broader comparative framework to identify the characteristics it shares with other rich democracies as well as the distinctive ways in which precarity manifests itself in the American context. We argue that the US stands out for the way it combines uncommonly high levels of individual-level exposure to risks of various sorts with low levels of collectively provided insurance to mitigate the impact of these risks. Moreover, we show that the institutions of the American political economy if anything operate to compound risk, actively promoting what we call risk amplification, as misfortune in one arena spreads to foment misfortune in others.

The Politics of Personal Responsibility, Credit, and the Welfare State: New Survey Evidence from the U.S. (with Tess Wise)

Personal responsibility is a prominent theme in the politics of the American welfare state as can be seen in the name of the 1996 welfare reform "Personal Responsibility and Work Opportunity Act." We collect new survey evidence on the relationship between personal responsibility, access to credit, and support for the welfare state in the United States. We find that a strong belief in personal responsibility predicts support for private over public spending in the areas of education, social security, and unemployment insurance. The marginal effect of a belief in personal responsibility on these social policy spending preferences is substantively large and remains statistically significant even after controlling for partisanship, education, income, and a host of other factors. We find that perceptions of access to credit moderate this relationship in the areas of education and unemployment insurance with the effect of personal responsibility on policy spending preferences being strongest when access to credit is perceived to be easy and significantly attenuated when access to credit is perceived to be difficult. This suggests that support for the welfare state in the United States is influenced by the interaction between beliefs about personal responsibility and access to credit.

Work in Progress

Household Balance Sheets and Social Policy Preferences: New Cross-National Survey Evidence (with Jacob Gerner Hariri, Amalie Sophie Jensen, and David Dreyer Lassen)

How Appealing are Credit-Funded Policies to Voters? (with Jonas Markgraf)

Wealth and Policy Preferences: A Cross-National Survey Project (with Jacob Gerner Hariri, Amalie Sophie Jensen, and David Dreyer Lassen)