In recent decades, the growth of finance and rising income inequality has become a pervasive feature of the political economies in affluent capitalist democracies. This study investigates the long-run effects of financialization on three measures of income inequality—market-generated income inequality, redistribution, and state-mediated income inequality—in 18 affluent capitalist democracies from 1981 to 2011. We focus on three aspects of financialization (finance, insurance, and real estate employment; credit expansion; and financial crises). We find support for our claims that all three measures of financialization increase market-generated and state-mediated income inequality. The results for redistribution are mixed: credit expansion decreases redistribution as expected, but financial crises increase redistribution—a finding that supports the welfare state stabilization hypothesis.
AldersonArthur. 1999. “Explaining Deindustrialization: Globalization, Failure, or Success?” American Sociological Review64:701–21.
2.
ArnumBradfordNaplesMichelle. 2013. “Financialization and Income Inequality in the United States, 1967–2010.” The American Journal of Economics and Sociology72:1158–82.
3.
AssaJacob. 2012. “Financialization and Its Consequences: The OECD Experience.” Finance Research1:35–39.
4.
BairdKatherine. 2014. “Who Did Safety Nets Catch During the Great Recession and How? A Comparison of Eleven OECD Countries.” LIS Working Paper Series No. 620, October. Retrieved July 24, 2016 (http://www.lisdatacenter.org/wps/liswps/620.pdf).
5.
Bank for International Settlements. 2001. Annual Report. Basle, Switzerland: Bank for International Settlements.
6.
BeckNathanielKatzJonathan N.1995. “What to Do (and Not to Do) with Time-series Cross-section Data.” American Political Science Review89:634–47.
7.
BeckThorstenDemirgüç-KuntAslıLevineRoss. 2009. “Financial Institutions and Markets across Countries and over Time: Data and Analysis.” Working Paper No. 4943. World Bank Policy Research. Washington, DC.
8.
BewleyRonald. 1979. “The Direct Estimation of the Equilibrium Response in a Linear Dynamic Model.” Economic Letters3:357–61.
9.
BradleyDavidHuberEvelyneMollerStephanieNielsenFrancoisStephensJohn. 2003. “Distribution and Redistribution in Postindustrial Democracies.” World Politics55:193–228.
10.
BradyDavid. 2003. “The Politics of Poverty: Left Political Institutions, the Welfare State, and Poverty.” Social Forces82:557–88.
11.
BurtlessGaryGordonTracy. 2011. “The Federal Stimulus Programs and Their Effects.” Pp. 249–93 in The Great Recession, edited by GruskyDavid B.WesternBruceWimerChristopher. New York: Russell Sage.
12.
Canavire-BacarrezaGustavoRiojaFelix. 2008. “Financial Development and the Distribution of Income in Latin America and the Caribbean.” Bienestar y Política Social5:1–18.
13.
CecchettiStephen G.EnisseKharroubi. 2012. “Reassessing the Impact of Finance on Growth.” BIS Working Papers No 381. Bank for International Settlements, Basel, Switzerland.
14.
CusackThomas R.2004. Data on Public Employment and Wages for 21 OECD Countries. Berlin, Germany: Science Center Berlin.
15.
DavisLeila Emami.2014. “The Financialization of the Nonfinancial Corporation in the Post-1970 U.S. Economy.” PhD dissertation, Economics, University of Massachusetts, Amherst, MA.
16.
De BoefSuzannaKeeleLuke. 2008. “Taking Time Seriously.” American Journal of Political Science52:184–200.
DollsMathiasFuestClemensPeichlAndreas. 2012. “Automatic Stabilizers and Economic Crisis: U.S. vs. Europe.” Journal of Public Economics96:279–94.
19.
DünhauptPetra. 2012. “Financialization and the Rentier Income Share—Evidence from the USA and Germany.” International Review of Applied Economics26:465–87.
20.
DünhauptPetra. 2016. “Determinants of Labour’s Income Share in the Era of Financialisation.” Cambridge Journal of Economics41:283–306.
21.
EpsteinGerald. 2005. Financialization and the World Economy. Northampton, MA: Edward Elgar.
22.
EvansLawrence. 2003. Why the Bubble Burst: U.S. Stock Market Performance since 1982. Northampton, MA: Edward Elgar.
23.
FlahertyEoin.2015. “Top Incomes under Finance-driven Capitalism, 1990–2010: Power Resources and Regulatory Orders.” Socio-Economic Review13:417–47.
24.
GodechotOlivier. 2012. “Is Finance Responsible for the Rise in Wage Inequality in France?”Socio-Economic Review10:447–70.
25.
GodechotOlivier. 2016. “Financialization Is Marketization! A Study of the Respective Impacts of Various Dimensions of Financialization on the Increase in Global Inequality.” Sociological Science3:495–519.
26.
GuttmanRobert. 2008. “A Primer on Finance-led Capitalism and Its Crisis.” Revue de la Regulation. Retrieved May 15, 2016 (http://regulation.revues.org/5843).
27.
HalabyCharles N.2004. “Panel Models in Sociological Research: Theory into Practice.” Annual Review of Sociology30:507–44.
28.
HarveyDavid. 2005. A Brief History of Neoliberalism. Oxford, England: Oxford University Press.
29.
HarveyDavid. 2010. The Enigma of Capital and the Crises of Capitalism. New York: Oxford University Press.
30.
HeathcoteJonathanPerriFabrizioViolanteGiovanni L.2010. “Unequal We Stand: An Empirical Analysis of Economic Inequality in the United States, 1967–2006.” Review of Economic Dynamics13:15–51.
31.
HerndonThomasAshMichaelPollinRobert. 2013. “Does Public Debt Consistently Stifle Economic Growth? A Critique of Reinhart and Rogoff.” Cambridge Journal of Economics38:1–23.
32.
HuberEvelynRaginCharlesStephensJohn D.1997. Comparative Welfare States Data Set. Durham, NC: Duke University Press.
33.
IversenTorbenSoskiceDavid. 2009. “Distribution and Redistribution: The Shadow of the Nineteenth Century.” World Politics61:438–86.
34.
KotzDavid. 2010. “Financialization and Neoliberalism.” Pp. 1–18 in Relations of Global Power: Neoliberal Order and Disorder, edited by TeepleGrayStephenMcBride. Toronto, ON: University of Toronto Press.
35.
KrippnerGreta. 2011. Capitalizing on Crisis: The Political Origins of the Rise of Finance. Cambridge, MA: Harvard University Press.
36.
KristalTali. 2010. “Good Times, Bad Times: Postwar Labor’s Share of National Income in Capitalist Democracies.” American Sociological Review75:729–63.
37.
KusBasak. 2012. “Financialisation and Income Inequality in OECD Nations: 1995–2007.” Economic and Social Review43:477–99.
38.
LapavitsasCostas. 2013. Profiting without Producing: How Finance Exploits Us All. London, England: Verso Books.
39.
LinKen-Hou. 2015. “The Financial Premium in the US Labor Market: A Distributional Analysis.” Social Forces94:1–30.
40.
LinKen-Hou. 2016. “The Rise of Finance and Firm Employment Dynamics.” Organization Science27:972–88.
41.
LinKen-HouDonaldTomaskovic-Devey. 2013. “Financialization and U.S. Income Inequality, 1970–2008.” American Journal of Sociology118:1284–1329.
42.
MarxKarl. [1894] 1909. Capital: A Critique of Political Economy, Vol. III. The Process of Capitalist Production as a Whole. Chicago, IL: Charles H. Kerr.
43.
MinskyHyman. 1982. Can “It” Happen Again? Essays on Instability and Finance. Armonk, NY: M.E. Sharpe.
44.
MollerStephanieAldersonArthurNielsenFrancois. 2009. “Changing Patterns of Income Inequality in U.S. Counties, 1970–2000.” American Journal of Sociology114:1037–1101.
45.
PikettyThomasSaezEmmanuel. 2015. “Top Incomes and the Great Recession: Recent Evolutions and Policy Implications.” IMF Economic Review61:456–478.
46.
PrasadMonica. 2005. The Politics of Free Markets: The Rise of Neoliberal Economic Policies in Britain, France, Germany, and the United States. Chicago, IL: University of Chicago Press.
47.
ReinhartCarmen. 2010. “This Time Is Different Chartbook: Country Histories of Debt, Default, and Financial Crises.” Working Paper No. 15815, National Bureau of Economic Research, Cambridge, MA. Retrieved July 30, 2016 (http://www.nber.org/papers/w15815).
48.
ReinhartCarmenRogoffKenneth. 2009. This Time Is Different: Eight Centuries of Financial Folly. Princeton, NJ: Princeton University Press.
49.
ReinhartCarmenRogoffKenneth. 2011. “From Financial Crash to Debt Crisis.” American Economic Review101:1676–1706.
Tomaskovic-DeveyDonaldLinKen-Hou. 2011. “Income Dynamics, Economic Rents, and the Financialization of the U.S. Economy.” American Sociological Review76:538–59.
VachonToddWallaceMichaelHydeAllen. 2016. “Union Decline in a Neoliberal Age: Globalization, Financialization, Regionalization, and Union Density in Eighteen Affluent Democracies.” Socius2:1–22.
54.
VisserJelle. 2013. ICTWSS: Database on Institutional Characteristics of Trade Unions, Wage Setting, State Intervention and Social Pacts in 34 Countries between 1960 and 2012. Amsterdam, The Netherlands: Amsterdam Institute for Advanced Labour Studies.
55.
VolschoThomas W.KellyNathan J.2012. “The Rise of the Super-rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949 to 2008.” American Sociological Review77:679–99.
56.
WrightErik OlinJoelRogers. 2015. American Society: How It Really Works. New York: W.W. Norton.
57.
ZalewskiDavidWhalenCharles. 2010. “Financialization and Income Inequality: A Post Keynesian Institutionalist Analysis.” Journal of Economic Issues44:757–77.
