Financialization channels income toward the wealthy and depresses productive investment and wages.

Evidence

While it is certain that financialization greatly benefits Wall Street, its implication on Main Street remains obscure. Stockhammer ð2004Þ argues that financialization reshapes managerial priorities from the growth of market share to short-term profits. At the national level, he shows that financial income is negatively associated with new investment in fixed capital. At the firm level, Orhangazi ð2008Þ reports that increasing financial income depresses production-related investment. Another set of literature considers broader economic impacts. Crotty ð2003Þ argues that because it crowds out investment in production, a probable result of financialization is slower growth of employment, real wages, and consumption. Similarly, Palley ð2008Þ suspects that financialization is responsible for the stagnation of wages and the growth of income inequality in the United States. Across developed countries, Zalewski and Whalen ð2010Þ find a weak but growing correlation ð0.184 in 1995 and 0.254 in 2004Þ between the International Monetary Fund financialization index and national income inequality. In the United States, Volscho and Kelly ð2012Þ show that securities and real estate bubbles are temporally associated with the concentration of income at the very top. At the household level, Nau ð2011Þ shows that financial income accounts for more than 50% of the overall income inequality among U.S. households in the 2000s. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 24

Categorization

• XREF: Connects to the reading purpose on financialization-inequality links; echoes the theory side that Piketty and other financialization scholarship address. — connects to: Financialization both derives profits from finance and drains capital from productive investment — Natascha van der Zwan, Making Sense of Financialization, 29; Financialization may be the root cause behind deunionization, globalization, up-skilling, and falling investment.; Financial income reallocates resources away from workers and strengthens owner bargaining power (+11 more)

Related

• Prior research linked financialization to inequality mostly indirectly, not causally. (similarity 0.94)
• Financialization independently explains over half of labor’s falling income share since 1970. (similarity 0.87)
• Financialization caused most of the decline in labor’s income share since 1970 (similarity 0.87)
• Financialization drives earnings inequality nearly as much as declining unionization (similarity 0.86)
• Inequality dimensions reflect one institutional shift toward financialization (similarity 0.86)
• Financialization theory links wage-compromise collapse and shareholder value to inequality (similarity 0.85)
• Financialization’s inequality effects accumulate gradually because income dynamics are highly persistent. (similarity 0.85)
• Financialization both derives profits from finance and drains capital from productive investment (similarity 0.84)
• Financialization raises earnings inequality across most US industries (similarity 0.84)
• Deunionization still leaves much wage inequality unexplained, pointing to financialization (similarity 0.84)
• Financial income reallocates resources away from workers and strengthens owner bargaining power (similarity 0.84)
• Counterfactual independence assumptions likely understate financialization’s true inequality impact (similarity 0.83)
• Financialization caused roughly three-quarters of the labor share decline by 1997. (similarity 0.83)
• Financialization shifts firm investment from core business toward finance, weakening workers’ claims on revenue. (similarity 0.83)
• Financialization does not measurably raise firm profits or financial-asset productivity. (similarity 0.83)

Broader Connections

• Financial income reallocates resources away from workers and strengthens owner bargaining power #corroborates (0.90)
• Financialization both derives profits from finance and drains capital from productive investment #corroborates (0.85) — Natascha van der Zwan, Making Sense of Financialization, 29
• Financialization shifts firm investment from core business toward finance, weakening workers’ claims on revenue. #expands (0.85) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 54
• Financialization may be the root cause behind deunionization, globalization, up-skilling, and falling investment. #expands (0.80)
• Financialization means accumulation through financial channels rather than production #expands (0.80) — Greta R. Krippner, The Financialization of the American…, 11
• Financialization theory links wage-compromise collapse and shareholder value to inequality #corroborates (0.80) — Natascha van der Zwan, Making Sense of Financialization, 109
• A rising rent share of income reduces investment and stunts growth #corroborates (0.80) — Yanis Varoufakis, Technofeudalism, 941
• Financialization is a pattern of accumulation dominated by financial channels over trade and production #expands (0.75) — Greta R. Krippner, The Financialization of the American…, 42