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Financialization and the rentier income share -- evidence from the USA and Germany

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  • Petra Duenhaupt

Abstract

During the past two decades, there has been a shift of significance from the real to the financial sector. In the course of (financial) globalization, measures of liberalization and deregulation have contributed to a strengthening of financial capital. The concept of shareholder value orientation has become more powerful, capital income has increased tremendously, while real wages have stagnated. Most industrial countries have experienced a decline in the share of labor income. Based on a review of empirics and literature, this paper seeks to determine who gained from the fall in the labor share of income in the USA and Germany, respectively. If financialization is indeed responsible for the decline, rentiers should be the beneficiaries. In order to identify the relevant effects, the profit share of the two countries under observation is split between the share of retained earnings and the share of net property income (= rentiers’ income) using a modification of the approach chosen by Epstein and Jayadev (2005). The evidence presented shows that the development of the rentier income share indeed corresponds quite well with the stages of development of financialization in the two different countries: in the US, where the important shift towards financialization occurred in the early 1980s, the rentiers’ share of income shows a corresponding leap upwards exactly at that time and remains on a higher level until the end of the observation period. In Germany, the process of financialization started much later -- in the beginning of the 1990s -- and followed a much more gradual transition, which is perfectly mirrored by the development of income shares: from the 1990s onwards, the rentiers’ income share gradually increased over time.

Suggested Citation

  • Petra Duenhaupt, 2012. "Financialization and the rentier income share -- evidence from the USA and Germany," International Review of Applied Economics, Taylor & Francis Journals, vol. 26(4), pages 465-487, June.
  • Handle: RePEc:taf:irapec:v:26:y:2012:i:4:p:465-487
    DOI: 10.1080/02692171.2011.595705
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    References listed on IDEAS

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    1. Bach, Stefan & Corneo, Giacomo & Steiner, Viktor, 2007. "From Bottom to Top: The Entire Distribution of Market Income in Germany, 1992-2001," CEPR Discussion Papers 6251, C.E.P.R. Discussion Papers.
    2. Eckhard Hein, 2009. "A (Post-) Keynesian perspective on "financialisation"," IMK Studies 01-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    3. James Crotty, 2002. "The Effects of Increased Product Market Competition and Changes in Financial Markets on the Performance of Nonfinancial Corporations in the Neoliberal Era," Working Papers wp44, Political Economy Research Institute, University of Massachusetts at Amherst.
    4. Florence Jaumotte & Irina Tytell, 2007. "How Has The Globalization of Labor Affected the Labor Income Share in Advanced Countries?," IMF Working Papers 07/298, International Monetary Fund.
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    Cited by:

    1. repec:beo:journl:v:62:y:2017:i:215:p:53-80 is not listed on IDEAS
    2. Eckhard Hein & Daniel Detzer, 2015. "Finance-Dominated Capitalism and Income Distribution: A Kaleckian Perspective on the Case of Germany," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(2), pages 171-191, July.
    3. Shimano, Norihito, 2017. "The effect of pro-shareholder income distribution on capital accumulation: evidence from Japanese non-financial firms," MPRA Paper 76830, University Library of Munich, Germany.
    4. Detzer, Daniel & Hein, Eckhard, 2014. "Financialisation and the financial and economic crises: The case of Germany," IPE Working Papers 44/2014, Berlin School of Economics and Law, Institute for International Political Economy (IPE).
    5. repec:ilo:ilowps:484122 is not listed on IDEAS
    6. D., Ivan, 2017. "Stability of the labour shares: evidence from OECD economies," MPRA Paper 79822, University Library of Munich, Germany.
    7. Bradford M. Van Arnum & Michele I. Naples, 2013. "Financialization and Income Inequality in the United States, 1967–2010," American Journal of Economics and Sociology, Wiley Blackwell, vol. 72(5), pages 1158-1182, November.
    8. Trofimov, Ivan D., 2017. "Capital productivity in industrialized economies: evidence from error-correction model and Lagrange Multiplier tests," MPRA Paper 81655, University Library of Munich, Germany.
    9. Gregory Jackson, 2016. "Toward a Conceptual Framework for Understanding Institutional Change in Japanese Capitalism: Structural Transformations and Organizational Diversity," Working Papers halshs-01643921, HAL.
    10. Achim Truger, 2013. "Steuerpolitik im Dienste der Umverteilung: eine makroökonomische Ergänzung," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 82(1), pages 43-59.

    More about this item

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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