This chapter explores the dynamics of precarity and socioeconomic risk across the most advanced industrial countries.  We situate the United States in a comparative framework to identify the characteristics it shares with other rich democracies as well as the distinctive dynamics of precarity in the American context.  The United States stands out for the way it combines uncommonly high levels of individual-level exposure to various risks 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 operate to compound risk, actively promoting what we call risk contagion, as misfortune in one arena spreads to foment misfortune in others.

This chapter introduces a new theoretical framework that helps explain how access to credit and indebtedness shape social policy preferences. Credit markets privatize both risks and opportunities. They enable individuals to self-insure against social risks and to opt out of publicly provided social services, reaping the benefits of private, credit-funded alternatives in human capital (e.g., education) and financial assets (e.g., housing) with the expectation of economic gains and upward mobility. But indebtedness can also increase economic risks by making borrowers vulnerable to income volatility and income losses that threaten debt repayments. Using original survey data, this chapter documents considerable divergence of social policy preferences across countries (depending on the structure of the welfare state and credit regime), across households (depending on whether they borrow for consumption or investment), and across the political ideology spectrum (depending on people’s relative belief in personal responsibility and market efficacy).

This chapter focuses on borrowing to address social risks that arise from disrupted employment patterns such as unemployment, sickness, or fluctuating work hours. Within permissive credit regimes, households that are least protected by the welfare state borrow the most. In Denmark, upper-middle- and high-income groups who experience more substantive income losses during unemployment borrow more than low-income groups that are well protected by the welfare state. The limited American welfare state, by contrast, greatly affects low- and middle-income households, which increasingly tap into credit markets to bridge income losses due to fluctuating work hours, temporary employment, and job losses. In Germany, the unemployed rarely borrow money to address financial shortfalls because Germany’s restrictive credit regime makes it very difficult for them to access loans. This chapter demonstrates that political choices affect the relationship between social policies and household debt. Variation in the generosity of unemployment benefits across US states and over time reveals that individuals who become unemployed borrow more in US states where benefits are less generous. The German Hartz labor market reforms show that the significant cuts in social benefits for the long-term unemployed did not increase debt levels for affected households because access to credit remained restrictive.

This chapter concludes the book by reflecting on its broader implications. It delineates the politics behind credit regimes and reflects on the underlying political coalitions and dynamics behind credit markets’ complementary and substitutive relationships with welfare states. It then discusses how credit markets amplify old and create new forms of social exclusion and inequality through discrimination, credit scoring, or differential credit access. As credit markets have grown more influential and increasingly determine life chances, equal and fair access to credit is now a prerequisite for full participation and inclusion in labor markets, housing markets, as well as educational opportunities and wealth-building trajectories. The chapter ends by discussing potential ways in which credit markets and welfare states can work together, not against each other, to ensure a fairer and more equal distribution of social risks and opportunities.

This chapter focuses on credit as a bounded social investment in light of financial shortfalls that arise during the life course. The Danish welfare state provides strong financial support, particularly for low-income households, through comprehensive family and educational policies such as childcare services and other in-kind benefits that limit families’ financial exposures and lower households’ opportunity costs for taking time off work, sending children to childcare, and pursuing education and training programs. Middle- and high-income households are the ones that draw on credit to smooth income losses when a spouse temporarily leaves work, for example to care for children or to get training. This "investment borrowing" is more prevalent than "consumption borrowing" to cope with labor market-related risks. By contrast, many more American households, including low- and middle-income ones, borrow money to cope with the financial consequence that arise throughout the life course, including income losses due to parental leave or expenses for childcare, education, and training–which would be covered or subsidized by most European welfare states. As life course trajectories have become more fluid and flexible and the traditional single-breadwinner model has declined, Germany’s restrictive credit regime continues to make it hard for households to borrow money.

This chapter lays out the social policy theory of everyday borrowing. It discusses the extent to which welfare states protect against social risks and provide social investments. In many countries such services have become insufficient in light of fragmented employment patterns and life course trajectories, resulting in increased demand for private coping mechanisms to address financial gaps due to volatile incomes, earnings losses, and rising expenditures. It introduces the concept of credit regimes, arguing that the institutional structures and regulatory and policy environments shape credit regimes’ permissiveness and households’ access to credit. The chapter explains how the constellation of welfare state and credit regime structures shapes the role of credit as a coping mechanism. When credit regimes are permissive, households borrow to address social risks and use credit as social investments. Credit either substitutes for or complements welfare states depending on which groups social policies protect and support. By contrast, when credit regimes are restrictive, households draw on savings, utilize family support, or cut expenditures because the borrowing option is precluded. The reliance on credit markets instead of social policies reflects a much more fundamental transformation of social rights, social responsibilities, and the allocation of resources and risks.

This chapter documents how structural changes in labor markets, life course trajectories, and welfare states have increased income volatility and financial shortfalls over time and across countries. It begins by offering a new measure of financial shortfalls, comparing households’ annual gross and net income volatility based on panel data from Denmark, the United States, and Germany, revealing considerable variation in income volatility across and within countries. It shows that the Danish welfare state absorbs much larger amounts of gross income volatility that the flexible labor market produces compared with the United States. In Germany, the welfare state also addresses a sizable share of gross income volatility. But unlike in Denmark, gross income volatility has declined slightly since the mid-2000s, while net income volatility increased during the Hartz reform period of the early 2000s. This chapter further shows that in Denmark and the United States income volatility due to life course events such as taking time off work to raise families or to get training and education is much more prevalent than income volatility due to unemployment or sickness. In Germany, by contrast, employment disruptions still drive more income volatility than life course choices.

This chapter introduces a novel measure of credit regime permissiveness for seventeen OECD countries spanning the period from 2000 to 2017. It estimates country-specific credit regime permissiveness scores based on six empirical indicators that capture the breadth and scope of financial markets, the allocation of credit between households and businesses, and supporting regulatory and fiscal policy choices using principal component analysis. The Anglo-Saxon economies, the Netherlands, as well as Denmark and Sweden have the most permissive credit regimes, providing households with easy access to credit. By contrast, Southern Europe, Germany, and Austria have the most restrictive credit regimes, making it more difficult for people to take out loans. Credit regimes determine how easily households can borrow money and help shape the distribution of debt across and within countries. The chapter discusses in detail the institutional and policy features of the Danish, American, and German credit regimes. It concludes by documenting considerable variation in households’ coping mechanisms and their likelihood to go into debt to address unexpected income losses. More generally, households only borrow money to compensate for weak unemployment insurance generosity when credit regimes are permissive.

This introductory chapter identifies key puzzles and questions, lays out the book’s main argument, and highlights the book’s contributions and implications. The book develops a new comparative framework that integrates credit regimes and social policies in the study of comparative political economy. It contributes to a range of literatures in political science and sociology, including the literatures on states and markets by moving beyond the focus on a purely substitutive link between welfare states and financial markets; it expands work in international political economy on capital flows and policy scope by introducing the notion of credit regimes; and it sheds new light on research on income and wealth inequality by documenting credit markets’ regressive allocation and distribution of resources and responsibilities and new forms of inequality and discrimination. The chapter then lays out the book’s main empirical strategies and data sources. The book’s key approach is to studying individuals within particular institutional constraints in different countries cope with social risks and seize social opportunities. It does so by drawing on a new measure of credit regime permissiveness, longitudinal micro-level panel data from Denmark, the United States, and Germany, and an original cross-national survey.