Financialization caused most of the decline in labor’s income share since 1970

Evidence

We first examine the impact of financialization on labor’s share of income, which is presented in the first row of figure 4. It shows that the counterfactual trend closely follows the observed trend before 1980 and starts to diverge in the early 1980s. The gap quickly widens in the next two decades to a 3 percentage-point difference in 2000. Then the gap first declines to about 2 percentage points in the mid-2000s but rapidly returns to about a 2.5 percentage-point difference. If we contrast the observed labor’s share of income with the counterfactual, the difference indicates that financialization accounts for about 73% of the decline in labor’s share between 1970 and 1997 and 58% of the total decline between 1970 and 2008. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 158

Categorization

• XREF: The 73%/58% attribution to financialization of labor-share decline connects to the reader’s financialization-inequality literature (Tomaskovic-Devey and Lin) and counterfactual decomposition methods. — connects to: Financialization independently explains over half of labor’s falling income share since 1970. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 5; Deunionization still leaves much wage inequality unexplained, pointing to financialization — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 34; Labor’s share of income declined in the nonfinancial economy from 1970 to 2008 — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 74 (+6 more)
• SEED: Could be the anchor figure for an essay on how much of rising inequality is actually attributable to financialization rather than trade or technology.

Related

• Financialization caused roughly three-quarters of the labor share decline by 1997. (similarity 0.96)
• Financialization independently explains over half of labor’s falling income share since 1970. (similarity 0.95)
• Financialization drives earnings inequality nearly as much as declining unionization (similarity 0.88)
• Labor’s share of income declined in the nonfinancial economy from 1970 to 2008 (similarity 0.88)
• Deunionization still leaves much wage inequality unexplained, pointing to financialization (similarity 0.88)
• Counterfactual independence assumptions likely understate financialization’s true inequality impact (similarity 0.87)
• Financialization channels income toward the wealthy and depresses productive investment and wages. (similarity 0.87)
• Inequality dimensions reflect one institutional shift toward financialization (similarity 0.86)
• US profit and labor shares moved in exact symmetric opposition over forty years (similarity 0.86)
• Financialization raises earnings inequality across most US industries (similarity 0.86)
• Prior research linked financialization to inequality mostly indirectly, not causally. (similarity 0.85)
• Financialization trajectories diverged across industries after 1997 (similarity 0.84)
• Most earnings inequality growth occurred within industries, not between them. (similarity 0.83)
• The US economy became increasingly financialized in the post-1970s period. (similarity 0.83)
• Declining industries show rising earnings inequality (similarity 0.83)

Broader Connections

• Financialization caused roughly three-quarters of the labor share decline by 1997. #corroborates (0.90) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 158
• Financial income reallocates resources away from workers and strengthens owner bargaining power #expands (0.85)
• Labor’s share of income declined in the nonfinancial economy from 1970 to 2008 #qualifies (0.80) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 74
• Financialization channels income toward the wealthy and depresses productive investment and wages. #expands (0.80) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 24
• The US economy became increasingly financialized in the post-1970s period. #expands (0.75) — Greta R. Krippner, The Financialization of the American…, 5
• Financialization accelerated through 1970s-80s deregulation and state support #expands (0.75) — Andrew deWaard, Derivative Media, 488