Household wealth, financial market volatility and financialization: the effects of the 2008 financial crisis on wealth inequality in Canada and the United States

Abstract

This paper explores the relationship between financialization and wealth inequality with a comparative case study between Canada and the United States. Specifically, it investigates the role of financialization regarding the consequences of the 2008 financial crisis on wealth inequality. The results show that the lower- and middle-income households in the United States were hit the hardest by the crisis and have not yet fully recovered. This greatly contributed to the increase in wealth inequality in the United States. In contrast, the lower- and middle-income households in Canada did not experience financial losses during the same period. In fact, their wealth even grew at a higher rate than the top deciles. This paper argues that one of the main reasons to explain the different consequences of the 2008 financial crisis between the two countries is their level of financialization and general approach to financial regulation. A cohesive society requires some level of financial security in order to strive. Irresponsible financial innovation can threaten the financial stability of a nation. State financial regulation can reduce financial insecurity. Moreover, financial regulation can protect poorer households from ill-considered access to financial markets.