IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-03857878.html
   My bibliography  Save this paper

Ups and downs in finance, ups without downs in inequality

Author

Listed:
  • Olivier Godechot

    (MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - Max-Planck-Gesellschaft - Sciences Po - Sciences Po, OSC - Observatoire sociologique du changement (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Nils Neumann

    (MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - Max-Planck-Gesellschaft - Sciences Po - Sciences Po, OSC - Observatoire sociologique du changement (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Paula Apascaritei

    (IESE Business school - University of Navarra)

  • István Boza

    (Institute of Economics [Budapest] - Research Centre for Economic and Regional Studies - MTA - Hungarian Academy of Sciences)

  • Martin Hallsten

    (Stockholm University)

  • Lasse Henriksen

    (CBS - Copenhagen Business School [Copenhagen])

  • Are Hermansen

    (UiO - University of Oslo, Swedish Institute for Social Research - Stockholm University)

  • Feng Hou

    (Statistics Canada - Statistics Canada)

  • Jiwook Jung

    (UIUC - University of Illinois at Urbana-Champaign [Urbana] - University of Illinois System)

  • Naomi Kodama

    (Meiji Gakuin University)

  • Alena Křížková

    (Institute of sociology (Sociologický ústav) - CAS - Czech Academy of Sciences [Prague])

  • Zoltán Lippényi

    (University of Groningen [Groningen])

  • Elvira Marta

    (UPNA - Universidad Pública de Navarra [Espagne] = Public University of Navarra)

  • Silvia Maja Melzer
  • Eunmi Mun

    (UIUC - University of Illinois at Urbana-Champaign [Urbana] - University of Illinois System)

  • Halil Sabanci

    (IESE Business school - University of Navarra)

  • Matthew Soener

    (Sciences Po - Sciences Po)

  • Max Thaning

    (Stockholm University)

Abstract

The upswing in finance in recent decades has led to rising inequality, but do downswings in finance lead to a symmetric decline in inequality? We analyze the asymmetry of the effect of ups and downs in finance, and the effect of increased capital requirements and the bonus cap on national earnings inequality. We use administrative employer–employee-linked data from 1990 to 2019 for 12 countries and data from bank reports, from 2009 to 2017 in 13 European countries. We find a strong asymmetry in the effect of upswings and downswings in finance on earnings inequality, a weak, if any, mitigating effect of capital requirements on finance's contribution to inequality, and a restructuring but no absolute effect of the bonus cap on financiers' earnings. We suggest that while rising financiers' wages increase inequality in upswings, they are resilient in downswings and thus downswings do not contribute to a symmetric decline in inequality.

Suggested Citation

  • Olivier Godechot & Nils Neumann & Paula Apascaritei & István Boza & Martin Hallsten & Lasse Henriksen & Are Hermansen & Feng Hou & Jiwook Jung & Naomi Kodama & Alena Křížková & Zoltán Lippényi & Elvir, 2023. "Ups and downs in finance, ups without downs in inequality," Post-Print hal-03857878, HAL.
    • Handle: RePEc:hal:journl:hal-03857878
    DOI: 10.1093/ser/mwac036
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03857878
    as

    Download full text from publisher

    File URL: https://sciencespo.hal.science/hal-03857878/document
    Download Restriction: no
    File URL: https://libkey.io/10.1093/ser/mwac036?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    2. Xavier Gabaix & Augustin Landier, 2008. "Why has CEO Pay Increased So Much?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 49-100.
    3. Helleiner, Eric, 2014. "The Status Quo Crisis: Global Financial Governance After the 2008 Meltdown," OUP Catalogue, Oxford University Press, number 9780199973637, Decembrie.
    4. Viral V. Acharya, 2012. "The Dodd-Frank Act and Basel III : Intentions, Unintended Consequences, and Lessons for Emerging Markets," Finance Working Papers 23352, East Asian Bureau of Economic Research.
    5. Thibault Darcillon, 2016. "Do Interactions between Finance and Labour Market Institutions Affect the Income Distribution?," LABOUR, CEIS, vol. 30(3), pages 235-257, September.
    6. repec:hal:spmain:info:hdl:2441/5qjkarlp3e8a2a40vbqo698d3v is not listed on IDEAS
    7. Amable, Bruno, 2003. "The Diversity of Modern Capitalism," OUP Catalogue, Oxford University Press, number 9780199261147, Decembrie.
    8. Godechot, Olivier, 2015. "Financialization is marketization! A study on the respective impact of various dimensions of financialization on the increase in global inequality," MaxPo Discussion Paper Series 15/3, Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo).
    9. repec:spo:wpmain:info:hdl:2441/5qjkarlp3e8a2a40vbqo698d3v is not listed on IDEAS
    10. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-741, September.
    11. Olivier Godechot, 2017. "Wages, Bonuses and Appropriation of Profit in the Financial Industry. The Working Rich," SciencePo Working papers Main hal-01433807, HAL.
    12. Thibault Darcillon, 2015. "How does Finance Affect Labor Market Institutions? An Empirical Analysis in 16 OECD Countries," Post-Print hal-01248941, HAL.
    13. Thomas Philippon & Ariell Reshef, 2012. "Wages and Human Capital in the U.S. Finance Industry: 1909--2006," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 127(4), pages 1551-1609.
    14. Takeo Hoshi & Anil Kashyap, 2000. "The Japanese Banking Crisis: Where Did It Come From and How Will It End?," NBER Chapters, in: NBER Macroeconomics Annual 1999, Volume 14, pages 129-212, National Bureau of Economic Research, Inc.
    15. Thomas Piketty & Emmanuel Saez, 2003. "Income Inequality in the United States, 1913–1998," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(1), pages 1-41.
    16. Dünhaupt, Petra, 2014. "An empirical assessment of the contribution of financialization and corporate governance to the rise in income inequality," IPE Working Papers 41/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    17. Kevin J. Murphy, 2013. "Regulating Banking Bonuses in the European Union: a Case Study in Unintended Consequences," European Financial Management, European Financial Management Association, vol. 19(4), pages 631-657, September.
    18. Morris Goldstein, 2017. "Banking's Final Exam: Stress Testing and Bank-Capital Reform," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 7052, April.
    19. Basak Kus, 2012. "Financialisation and Income Inequality in OECD Nations:1995-2007," The Economic and Social Review, Economic and Social Studies, vol. 43(4), pages 477-495.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gil-Hernández, Carlos J. & Salas-Rojo, Pedro & Vidal, Guillem & Villani, Davide, 2025. "Wealth and income stratification by social class in five European countries," LSE Research Online Documents on Economics 127479, London School of Economics and Political Science, LSE Library.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Meital Graham Rozen, 2024. "Effectiveness of Executive Compensation Cap Law: Evidence from Israel," Bank of Israel Working Papers 2024.07, Bank of Israel.
    2. Olivier Godechot & Paula Apascaritei & István Boza & Martin Hallsten & Lasse Henriksen & Are Hermansen & Feng Hou & Jiwook Jung & Alena Křížková & Zoltán Lippényi & Elvira Marta & Silvia Maja Melzer &, 2021. "Size and evolution of the financial wage premium. Unpublished translation of “Ampleur et évolution dela prime salariale financière”, Regards croisés sur l'économie, 2020, 27(2): 97-109," SciencePo Working papers Main hal-03363171, HAL.
    3. Hope, David & Martelli, Angelo, 2019. "The transition to the knowledge economy, labor market institutions, and income inequality in advanced democracies," LSE Research Online Documents on Economics 100382, London School of Economics and Political Science, LSE Library.
    4. Luis Bauluz & Paweł Bukowski & Mark Fransham & Annie Lee & Margarita López Forero & Filip Novokmet & Sébastien Breau & Neil Lee & Clément Malgouyres & Moritz Schularick & Verdugo Gregory, 2023. "Spatial wage inequality in North America and Western Europe: changes between and within local labour markets 1975-2019," World Inequality Lab Working Papers halshs-04423262, HAL.
    5. Nicholas Bloom & Scott Ohlmacher & Cristina Tello-Trillo & Melanie Wallskog, 2021. "Pay, Productivity and Management," Working Papers 21-31, Center for Economic Studies, U.S. Census Bureau.
    6. Michael Böhm & Daniel Metzger & Per Strömberg, 2022. "“Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium," ECONtribute Discussion Papers Series 147, University of Bonn and University of Cologne, Germany.
    7. Godechot, Olivier & Apascaritei, Paula & Boza, István & Henriksen, Lasse Folke & Hermansen, Are Skeie & Hou, Feng & Kodama, Naomi & Křížková, Alena & Jung, Jiwook & Elvira, Marta M. & Melzer, Silvia M, 2020. "The great separation: Top earner segregation at work in high-income countries," MaxPo Discussion Paper Series 20/3, Max Planck Sciences Po Center on Coping with Instability in Market Societies (MaxPo).
    8. Böhm, Michael Johannes & Metzger, Daniel & Strömberg, Per, 2022. "'Since You're So Rich, You Must Be Really Smart': Talent, Rent Sharing, and the Finance Wage Premium," IZA Discussion Papers 15337, Institute of Labor Economics (IZA).
    9. Frydman, Carola & Papanikolaou, Dimitris, 2018. "In search of ideas: Technological innovation and executive pay inequality," Journal of Financial Economics, Elsevier, vol. 130(1), pages 1-24.
    10. Alexander Ludwig & Alexander Monge-Naranjo & Ctirad Slavik & Faisal Sohail, 2019. "Financial Liberalization and Income Inequality: On the Heterogenous Effects of Different Reforms," 2019 Meeting Papers 895, Society for Economic Dynamics.
    11. Berlingieri, Giuseppe & Blanchenay, Patrick & Criscuolo, Chiara, 2024. "The great divergence(s)," Research Policy, Elsevier, vol. 53(3).
    12. Thibault Darcillon, 2016. "What Determines Top Income Shares? The Role of the Interactions between Financial Integration and Tax Policy [Le rôle des interactions entre l'intégration financière et la politique fiscale dans la," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-01316927, HAL.
    13. Morten Olsen & Joshua Gottlieb & David Hemous & Jeffrey Clemens, 2017. "The Spill-over Effects of Top Income Inequality," 2017 Meeting Papers 332, Society for Economic Dynamics.
    14. Strömberg, Per & Metzger, Daniel & Böhm, Michael, 2018. "“Since you’re so rich, you must be really smart†: Talent and the Finance Wage Premium," CEPR Discussion Papers 12711, C.E.P.R. Discussion Papers.
    15. Shue, Kelly & Townsend, Richard R., 2017. "Growth through rigidity: An explanation for the rise in CEO pay," Journal of Financial Economics, Elsevier, vol. 123(1), pages 1-21.
    16. Kelly Shue & Richard Townsend, 2016. "Growth through Rigidity: An Explanation for the Rise in CEO Pay," NBER Working Papers 21975, National Bureau of Economic Research, Inc.
    17. Maida, Agata & Pezone, Vincenzo, 2024. "CEO Pay Disclosure and Within-Firm Wage Inequality," IZA Discussion Papers 17243, Institute of Labor Economics (IZA).
    18. Markus Ibert & Ron Kaniel & Stijn Van Nieuwerburgh & Roine Vestman, 2018. "Are Mutual Fund Managers Paid for Investment Skill?," The Review of Financial Studies, Society for Financial Studies, vol. 31(2), pages 715-772.
    19. Stefano Di Bucchianico, 2020. "A note on financialization from a Classical-Keynesian standpoint," Department of Economics University of Siena 824, Department of Economics, University of Siena.
    20. Yonatan Berman & Branko Milanovic, 2024. "Homoploutia: Top Labor and Capital Incomes in the United States, 1950–2020," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(3), pages 766-784, September.

    More about this item

    Keywords

    inequality; finance; financial crisis; regulation;
    All these keywords.

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-03857878. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.