Financialization independently explains over half of labor’s falling income share since 1970.

Evidence

Focusing on U.S. nonfinance industries, we examine the connection between financialization and rising income inequality. We argue that the increasing reliance on earnings realized through financial channels decoupled the generation of surplus from production, strengthening owners’ and elite workers’ negotiating power relative to other workers. The result was an incremental exclusion of the general workforce from revenue-generating and compensation-setting processes. Using timeseries cross-section data at the industry level, we find that increasing dependence on financial income, in the long run, is associated with reducing labor’s share of income, increasing top executives’ share of compensation, and increasing earnings dispersion among workers. Net of conventional explanations such as deunionization, globalization, technological change, and capital investment, the effects of financialization on all three dimensions of income inequality are substantial. Our counterfactual analysis suggests that financialization could account for more than half of the decline in labor’s share of income, 9.6% of the growth in officers’ share of compensation, and 10.2% of the growth in earnings dispersion between 1970 and 2008. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 5

Categorization

• SEED: The counterfactual numbers (over 50% of labor-share decline, ~10% of dispersion growth) are a sharp, citable statistic for an article on financialization as a causal driver of inequality.
• XREF: Plugs directly into the reader’s financialization-vs-inequality empirical agenda, complementing Krippner and Tomaskovic-Devey/Lin citations. — connects to: Financialization caused most of the decline in labor’s income share since 1970 — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 158; Financialization caused roughly three-quarters of the labor share decline by 1997. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 158; Financialization channels income toward the wealthy and depresses productive investment and wages. — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 24

Related

• Financialization caused most of the decline in labor’s income share since 1970 (similarity 0.95)
• Financialization caused roughly three-quarters of the labor share decline by 1997. (similarity 0.92)
• Financialization drives earnings inequality nearly as much as declining unionization (similarity 0.89)
• Inequality dimensions reflect one institutional shift toward financialization (similarity 0.88)
• Counterfactual independence assumptions likely understate financialization’s true inequality impact (similarity 0.88)
• Financialization channels income toward the wealthy and depresses productive investment and wages. (similarity 0.87)
• Labor’s share of income declined in the nonfinancial economy from 1970 to 2008 (similarity 0.87)
• Deunionization still leaves much wage inequality unexplained, pointing to financialization (similarity 0.86)
• Financialization raises earnings inequality across most US industries (similarity 0.86)
• Workforce demographics and market concentration shape income distribution independently (similarity 0.86)
• Most earnings inequality growth occurred within industries, not between them. (similarity 0.85)
• Prior research linked financialization to inequality mostly indirectly, not causally. (similarity 0.85)
• Declining industries show rising earnings inequality (similarity 0.85)
• Financialization trajectories diverged across industries after 1997 (similarity 0.84)
• Ken-Hou Lin & Donald Tomaskovic-Devey — Financialization and U.S. Income Inequality, 1970-2008 (similarity 0.84)

Broader Connections

• Financialization caused most of the decline in labor’s income share since 1970 #corroborates (0.95) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 158
• Financialization caused roughly three-quarters of the labor share decline by 1997. #corroborates (0.80) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 158
• Financialization channels income toward the wealthy and depresses productive investment and wages. #expands (0.72) — Ken-Hou Lin & Donald Tomaskovic-Devey, Financialization and U.S. Income…, 24