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The Impact of Financialization on Income Distribution in the USA and Germany: A Proposal for a New Adjusted Wage Share

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  • Petra Duenhaupt

    (Macroeconomic Policy Institute (IMK) at the Hans Boeckler Foundation)

Abstract

Over the recent decades, the USA has witnessed major changes in corporate governance partly due to an overall increase in financialization. The most pronounced development is the escalation of management salaries caused by the rise of stock options. On theoretical grounds, this trend was fostered by advances in the economic discipline of agency theory. In practice, changes in tax laws contributed to promoting the change. Empirical evidence shows that income concentration has increased at the top.This paper contributes to the ongoing debate about income shares by introducing a new adjusted wage share. Arguing that top incomes are closer to profits than to wages, top incomes are removed from the calculation of the indicator. The presented evidence shows that the wage share and the adjusted wage share start to diverge by the end of the 1980s, exactly at the time when the compensation practices of corporations changed considerably. Although shareholder value orientation has increased in Germany as well, business owners are still at the top of the income hierarchy. Therefore, the adjustment of the German wage income share for top management salaries shows only minor discrepancies, which, however, are in the same direction as in the US.

Suggested Citation

  • Petra Duenhaupt, 2011. "The Impact of Financialization on Income Distribution in the USA and Germany: A Proposal for a New Adjusted Wage Share," IMK Working Paper 7-2011, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    • Handle: RePEc:imk:wpaper:7-2011
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    Cited by:

    1. Obst, Thomas., 2014. "Long-term trends in income distribution a global perspective," ILO Working Papers 994869353402676, International Labour Organization.
    2. Eckhard Hein & Daniel Detzer, 2015. "Finance-Dominated Capitalism and Income Distribution: A Kaleckian Perspective on the Case of Germany," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(2), pages 171-191, July.
    3. Luca Giangregorio & Davide Villani, 2023. "Income inequality, top shares of income and social classes in the 21st century," Working Papers 646, ECINEQ, Society for the Study of Economic Inequality.
    4. Tristan Auvray & Cédric Durand & Joel Rabinovich & Cecilia Rikap, 2021. "Corporate financialization’s conservation and transformation: from Mark I to Mark II," Review of Evolutionary Political Economy, Springer, vol. 2(3), pages 431-457, December.
    5. repec:ilo:ilowps:485325 is not listed on IDEAS
    6. Tristan Auvray & Cédric Durand & Joel Rabinovich & Cecilia Rikap, 2020. "Financialization's conservation and transformation: from Mark I to Mark II," CEPN Working Papers hal-03079425, HAL.
    7. Kiguchi, Takehiro & Mountford, Andrew, 2013. "The macroeconomics of immigration," MPRA Paper 45517, University Library of Munich, Germany.
    8. Herr, Hansjörg. & Ruoff, Bea., 2014. "Wage dispersion : empirical developments, explanations, and reform options," ILO Working Papers 994853253402676, International Labour Organization.
    9. repec:ilo:ilowps:486935 is not listed on IDEAS
    10. Tristan Auvray & Cédric Durand & Joel Rabinovich & Cecilia Rikap, 2020. "Financialization's conservation and transformation: from Mark I to Mark II," Working Papers hal-03079425, HAL.
    11. Giampaolo Gabbi & Elisa Ticci & Pietro Vozzella, 2014. "Financialisation and Economic and Financial Crises: The Case of Italy," FESSUD studies fstudy23, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    12. Margarita Carvalho & João Cerejeira, 2019. "Financialization, Corporate Governance and Employee Pay: A Firm Level Analysis," NIPE Working Papers 08/2019, NIPE - Universidade do Minho.
    13. Herr, Hansjörg, 2018. "Karl Marx's thoughts on functional income distribution - a critical analysis," IPE Working Papers 101/2018, Berlin School of Economics and Law, Institute for International Political Economy (IPE).

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • H1 - Public Economics - - Structure and Scope of Government

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