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The objective of this paper is to articulate how the 2007-09 economic crisis is rooted in the uneven income distribution and inequality caused by the current finance-led model of growth. The process of financialisation that took place in the 1980s in the USA and then in the European Union was coupled with labour flexibility, wage moderation and soaring profits. The flexibility agenda of the labour market and the end of wage increases, along with the contraction of indirect wages (i.e. public social expenditure), diminished workers' purchasing power. This was partly compensated with increased borrowing opportunities and the boom of credit consumption, all of which helped workers to maintain unstable consumption capacity. However, in the long term, unstable consumption patterns derived from precarious job creation, job instability and poor wages have weakened aggregate demand. Hence, labour market issues such as flexibility, uneven income distribution, poor wages and the financial crisis are two sides of the same coin. Both have a direct impact on the economic crisis and the current global imbalances.

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Recently, several interesting attempts have been made at connecting comparative political economy (CPE) approaches, as the Varieties of Capitalism (VoC) theory, with post-Keynesian (PK) research on different demand-led growth regimes in modern capitalism, and for the period of finance-dominated capitalism since the early 1980s in particular. However, we find several problems in the way Kaleckian and PK approaches are interpreted and integrated in modern CPE approaches. Therefore, we first clarify several ambiguities and misunderstandings of PK demand-led growth regimes and their empirical indicators in the recent CPE literature, and, following the recent PK literature, we provide a theoretically consistent and empirically applicable classification of demand and growth regimes under the conditions of finance-dominate capitalism. Second, instead of using the traditional VoC dual classification, we link and confront the PK demand and growth regimes with the recent evolution of Esping-Andersen's (1990) taxonomy which considers five welfare models. Third, we examine the relationships between demand-led growth regimes and welfare models, both before and after the 2007-9 global crisis. For this purpose, we share the qualitative taxonomy suggested by Hay and Wincott (2012), and additionally we quantitatively assess the degree of welfare of each country and its evolution by means of a 'principal component analysis' (PCA), which allows us to synthesize four socioeconomic indicators in a multidimensional measure of welfare.

The purpose of this article is to explain the determinants behind the decline of labour share in the last three to four decades in OECD countries. In our view, this decline was determined by financialisation and was deepened by the structural changes that occurred almost simultaneously in those economies. Financialisation, or finance-dominated capitalism, from the 1980s onwards, was a key element in the strategic offensive of the advanced countries’ dominant classes to appropriate higher shares of national income and to restore their control over the political process, a control that had been threatened by a generalised advancement of the labour movement in the 1970s. The development of a finance-dominated capitalism was helped by the process of globalisation, which affected not only OECD countries but also many others. A new, though unstable, macroeconomic model emerged, which we will call financial capitalism. In financial capitalism, trade unions lost power vis-à-vis capital, labour flexibility increased enormously, and a structural change from manufacturing to services was accelerated in rich countries. This resulted in negative consequences for labour share and income inequality. After having provided a theoretical discussion of the determinants of the compression of the wage share, making reference to the relevant literature, we submit our hypotheses to empirical scrutiny, performing a panel data analysis on 28 OECD Countries. The results of the estimations provide support to the theoretical argument.