Financialization at work: Shareholder primacy and stagnant wages in the United States

Abstract

Financialization has been ‘at work’ in the United States for nearly half of a century, as corporate executives have increasingly prioritized shareholder payments over other productive uses of corporate resources. Over the same period, employee bargaining power has fallen and wages for non-executive workers have stagnated across sectors. This article examines the effects of shareholder primacy on labour compensation in the United States in the neoliberal era at the aggregate, sectoral and firm level. Specifically, the article analyses changes in the relationships between rising profits, shareholder payments, and wages over the past four decades, finding evidence that shareholders’ gains come at the expense of employees in publicly traded corporations. The growing power of shareholders has been neglected compared to traditional arguments for wage stagnation, including globalization, de-unionization, rising market power and changes in industry composition. To disincentivize corporate behavior that prioritizes shareholders, a policy agenda is proposed that ends the practice of stock buybacks and institutes a stakeholder approach to corporate governance.