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Distributional Consequences of Capital Accumulation, Globalisation and Financialisation in the US

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  • Karanassou, Marika

    ()
    (Queen Mary, University of London)

  • Sala, Hector

    ()
    (Universitat Autònoma de Barcelona)

Abstract

In this paper we examine the dynamic contributions of capital accumulation, globalisation, and financialisation to the functional-personal income distribution nexus. We analyse the labour share under the prism of monopoly and frictional growth, and disclose the dramatic upward trend in inequality. On this basis, we estimate a two-equation model for the income distribution in the US over the 1960-2009 period. We show that the labour share is affected positively by capital intensity and negatively by trade, while the Gini statistic is fueled by the falling labour share and increasing financial payments. Using counterfactual simulations, a key finding is that the decrease in capital intensity in the eighties accounted for about 76% of the labour share fall, while its increase in the 2000s prevented inequality from worsening three times more than it actually did. In turn, had financialisation not increased after 2005, inequality would have decreased to its level in the early noughties. In the Great Recession years of tense socioeconomic conditions, looking at income distribution through the lens of the wage-productivity gap could enlighten economic policy.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7244.

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Length: 30 pages
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:iza:izadps:dp7244

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Keywords: income distribution; labour share; wage gap; inequality; capital intensity; financialisation; trade;

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References

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  1. Richard Burkhauser & Shuaizhang Feng & Stephen Jenkins & Jeff Larrimore, 2009. "Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data," Working Papers 09-26, Center for Economic Studies, U.S. Census Bureau.
  2. Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 32(6), pages 863-886, November.
  3. Karanassou, Marika & Sala, Hector, 2010. "The US inflation-unemployment trade-off revisited: New evidence for policy-making," Journal of Policy Modeling, Elsevier, Elsevier, vol. 32(6), pages 758-777, November.
  4. Engelbert Stockhammer, 2000. "Financialization and the Slowdown of Accumulation," Working Papers, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness geewp14, Vienna University of Economics Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  5. Marika Karanassou & Hector Sala & Dennis J. Snower, 2008. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," Discussion Papers, School of Economics, The University of New South Wales 2008-08, School of Economics, The University of New South Wales.
  6. William Milberg & Deborah Winkler, 2010. "Financialisation and the dynamics of offshoring in the USA," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 34(2), pages 275-293, March.
  7. Olivier Blanchard, 2009. "The State of Macro," Annual Review of Economics, Annual Reviews, Annual Reviews, vol. 1(1), pages 209-228, 05.
  8. Samuel Bentolila & Gilles Saint Paul, 1999. "Explaining movements in the labor share," Economics Working Papers 374, Department of Economics and Business, Universitat Pompeu Fabra.
  9. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
  10. Anthony B. Atkinson & Thomas Piketty & Emmanuel Saez, 2009. "Top Incomes in the Long Run of History," NBER Working Papers 15408, National Bureau of Economic Research, Inc.
  11. Karanassou, Marika & Sala, Hector & Salvador, Pablo F., 2007. "Capital Accumulation and Unemployment: New Insights on the Nordic Experience," IZA Discussion Papers 3066, Institute for the Study of Labor (IZA).
  12. William Milberg & Deborah Winkler, 2010. "Economic insecurity in the new wave of globalization: offshoring and the labor share under varieties of capitalism," International Review of Applied Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 24(3), pages 285-308.
  13. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, Oxford University Press, vol. 14(4), pages 375-93, December.
  14. Marika Karanassou & Hector Sala, 2012. "Inequality and Employment Sensitivities to the Falling Labour Share," The Economic and Social Review, Economic and Social Studies, Economic and Social Studies, vol. 43(3), pages 343-376.
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Cited by:
  1. Dario JUDZIK & Hector SALA, 2013. "Productivity, deunionization and trade: Wage effects and labour share implications," International Labour Review, International Labour Organization, International Labour Organization, vol. 152(2), pages 205-236, 06.

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