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

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  • Marika Karanassou

    ()
    (Queen Mary, University of London and IZA)

  • Hector Sala

    ()
    (Universitat Aut�noma de Barcelona and IZA)

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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Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 695.

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Date of creation: Jul 2012
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Handle: RePEc:qmw:qmwecw:wp695

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Keywords: Income distribution; Labour share; Wage gap; Inequality; Capital intensity; Financialisation; Trade;

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  1. 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.
  2. Bentolila, Samuel & Saint-Paul, Gilles, 1998. "Explaining Movements in the Labour Share," CEPR Discussion Papers 1958, C.E.P.R. Discussion Papers.
  3. Ozgür Orhangazi, 2008. "Financialisation and capital accumulation in the non-financial corporate sector:," Cambridge Journal of Economics, Oxford University Press, vol. 32(6), pages 863-886, November.
  4. Karanassou, Marika & Sala, Hector, 2011. "Inequality and Employment Sensitivities to the Falling Labour Share," IZA Discussion Papers 5796, Institute for the Study of Labor (IZA).
  5. Marika Karanassou & Hector Sala & Dennis Snower, 2008. "Phillips Curves and Unemployment Dynamics: A Critique and a Holistic Perspective," Kiel Working Papers 1441, Kiel Institute for the World Economy.
  6. Olivier Blanchard, 2009. "The State of Macro," Annual Review of Economics, Annual Reviews, vol. 1(1), pages 209-228, 05.
  7. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 719-741, September.
  8. Burkhauser, Richard V. & Feng, Shuaizhang & Jenkins, Stephen P. & Larrimore, Jeff, 2009. "Recent Trends in Top Income Shares in the USA: Reconciling Estimates from March CPS and IRS Tax Return Data," IZA Discussion Papers 4426, Institute for the Study of Labor (IZA).
  9. Bhaduri, Amit & Marglin, Stephen, 1990. "Unemployment and the Real Wage: The Economic Basis for Contesting Political Ideologies," Cambridge Journal of Economics, Oxford University Press, vol. 14(4), pages 375-93, December.
  10. 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).
  11. 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., vol. 16(3), pages 289-326.
  12. Karanassou, Marika & Sala, Hector, 2010. "The US inflation-unemployment trade-off revisited: New evidence for policy-making," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 758-777, November.
  13. 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, vol. 24(3), pages 285-308.
  14. William Milberg & Deborah Winkler, 2010. "Financialisation and the dynamics of offshoring in the USA," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 275-293, March.
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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, vol. 152(2), pages 205-236, 06.

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