Counterfactual independence assumptions likely understate financialization’s true inequality impact

Evidence

Finally, it should be noted that our counterfactual analysis assumes an independent relation among explanatory variables. We do not consider the potential effect of holding financialization at its 1970 level on the dynamics of other explanatory variables. As discussed in the conclusion, this assumption is contestable. Financialization is likely to be closely associated with other variables such as employment size or capital consumption. Thus, the counterfactual estimate might understate the impact of financialization. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 221

Categorization

• QUESTION: The acknowledged independence assumption invites a follow-up: does the literature correct for endogenous feedback between financialization and employment/capital variables in inequality accounting?
• XREF: Connects to the classic critique of counterfactual decomposition methods in inequality research (e.g., DiNardo-Fortin-Lemieux style approaches). — connects to: Financialization’s inequality effects accumulate gradually because income dynamics are highly persistent. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 122; Workforce demographics and market concentration shape income distribution independently — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 171; Measuring profits rather than employment reveals financialization as the dominant economic trend — Greta R. Krippner, The Financialization of the American…, 37
• corroborated: 2 independent passages support this claim — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 221

Related

• Financialization’s inequality effects accumulate gradually because income dynamics are highly persistent. (similarity 0.88)
• Financialization independently explains over half of labor’s falling income share since 1970. (similarity 0.88)
• Financialization caused most of the decline in labor’s income share since 1970 (similarity 0.87)
• Prior research linked financialization to inequality mostly indirectly, not causally. (similarity 0.85)
• Financialization caused roughly three-quarters of the labor share decline by 1997. (similarity 0.84)
• Financialization drives earnings inequality nearly as much as declining unionization (similarity 0.84)
• Financialization channels income toward the wealthy and depresses productive investment and wages. (similarity 0.83)
• Inequality dimensions reflect one institutional shift toward financialization (similarity 0.83)
• Scholars asserted financialization’s existence without providing direct evidence (similarity 0.83)
• Financialization does not measurably raise firm profits or financial-asset productivity. (similarity 0.82)
• Financialization raises earnings inequality across most US industries (similarity 0.82)
• Financialization must be measured by profit generation, not employment or output (similarity 0.81)
• Most earnings inequality growth occurred within industries, not between them. (similarity 0.80)
• The US economy became increasingly financialized in the post-1970s period. (similarity 0.80)
• Workforce demographics and market concentration shape income distribution independently (similarity 0.80)

Broader Connections

• Measuring profits rather than employment reveals financialization as the dominant economic trend #corroborates (0.72) — Greta R. Krippner, The Financialization of the American…, 37