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Relative finance wages and inequality: A role for intangibles?

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  • Velic, Adnan

Abstract

We investigate the role of intangible capital in the growth of relative finance wages using (i) a production framework entailing multi-level nesting and (ii) reduced-form analysis. We find that the degree and effects of complementarity between skilled labor and intangible capital are much more pronounced in finance than in the rest of the market economy. The stronger positive effects of such complementarity on finance skill premia are reinforced by relatively stronger unskilled labor substitution possibilities and technical change in the sector. Despite accounting for under a tenth of overall economic activity, finance offsets up to almost a third of declines in skilled–unskilled wage disparities nationally. We thereby find that finance contributes inordinately to income inequality. Intensified intangible capital growth in the industry stands to exacerbate this trend. Finally, our study suggests that financial deregulation, globalization, banking competition, and domestic credit expansion positively affect relative finance wages. Stricter labor market protection meanwhile dampens the impact of banking competition.

Suggested Citation

  • Velic, Adnan, 2025. "Relative finance wages and inequality: A role for intangibles?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 103(C).
    • Handle: RePEc:eee:intfin:v:103:y:2025:i:c:s1042443125000824
    DOI: 10.1016/j.intfin.2025.102192
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    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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