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Ups and downs in finance, ups without downs in inequality

Author

Listed:
  • Olivier Godechot

    (MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - Max-Planck-Gesellschaft - Sciences Po - Sciences Po, OSC - Observatoire sociologique du changement (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Nils Neumann

    (MaxPo - Max Planck Sciences Po Center on Coping with Instability in Market Societies - Max Planck Institute for the Study of Societies - Max-Planck-Gesellschaft - Sciences Po - Sciences Po, OSC - Observatoire sociologique du changement (Sciences Po, CNRS) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique)

  • Paula Apascaritei

    (IESE Business school - University of Navarra)

  • István Boza

    (Institute of Economics [Budapest] - Research Centre for Economic and Regional Studies - MTA - Hungarian Academy of Sciences)

  • Martin Hallsten

    (Stockholm University)

  • Lasse Henriksen

    (CBS - Copenhagen Business School [Copenhagen])

  • Are Hermansen

    (UiO - University of Oslo, Swedish Institute for Social Research - Stockholm University)

  • Feng Hou

    (Statistics Canada - Statistics Canada)

  • Jiwook Jung

    (UIUC - University of Illinois at Urbana-Champaign [Urbana] - University of Illinois System)

  • Naomi Kodama

    (Meiji Gakuin University)

  • Alena Křížková

    (Institute of sociology (Sociologický ústav) - CAS - Czech Academy of Sciences [Prague])

  • Zoltán Lippényi

    (University of Groningen [Groningen])

  • Elvira Marta

    (UPNA - Universidad Pública de Navarra [Espagne] = Public University of Navarra)

  • Silvia Maja Melzer
  • Eunmi Mun

    (UIUC - University of Illinois at Urbana-Champaign [Urbana] - University of Illinois System)

  • Halil Sabanci

    (IESE Business school - University of Navarra)

  • Matthew Soener

    (Sciences Po - Sciences Po)

  • Max Thaning

    (Stockholm University)

Abstract

The upswing in finance in recent decades has led to rising inequality, but do downswings in finance lead to a symmetric decline in inequality? We analyze the asymmetry of the effect of ups and downs in finance, and the effect of increased capital requirements and the bonus cap on national earnings inequality. We use administrative employer–employee-linked data from 1990 to 2019 for 12 countries and data from bank reports, from 2009 to 2017 in 13 European countries. We find a strong asymmetry in the effect of upswings and downswings in finance on earnings inequality, a weak, if any, mitigating effect of capital requirements on finance's contribution to inequality, and a restructuring but no absolute effect of the bonus cap on financiers' earnings. We suggest that while rising financiers' wages increase inequality in upswings, they are resilient in downswings and thus downswings do not contribute to a symmetric decline in inequality.

Suggested Citation

  • Olivier Godechot & Nils Neumann & Paula Apascaritei & István Boza & Martin Hallsten & Lasse Henriksen & Are Hermansen & Feng Hou & Jiwook Jung & Naomi Kodama & Alena Křížková & Zoltán Lippényi & Elvir, 2023. "Ups and downs in finance, ups without downs in inequality," SciencePo Working papers Main hal-03857878, HAL.
    • Handle: RePEc:hal:spmain:hal-03857878
    DOI: 10.1093/ser/mwac036
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03857878
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    More about this item

    Keywords

    inequality; finance; financial crisis; regulation;
    All these keywords.

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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