Financialisation and Income Distribution

Abstract

Germany has seen considerable re-distribution of income since the early 1980s, which accelerated in the early 2000s: a tendency of the labour income share to decline; rising inequality in the personal and household distribution of market and disposable income (although government redistribution has not been weakened), in particular at the expense of very low incomes; and a rise in top income shares, considering the top-10% income share. Examining the three main channels through which financialisation (and neo-liberalism) are supposed to have affected the wage or the labour income share and also inequality of household incomes, there is evidence for the existence of each of these channels in Germany since the mid 1990s, when several institutional changes provided the conditions for an increasing dominance of finance. First, the shift in the sectoral composition of the economy away from the public sector and towards the corporate sector, without favouring the financial corporate sector, however, contributed to the fall in the wage and the labour income share for the economy as a whole. Second, the increase in management salaries as a part of overhead costs together with rising profit claims of the rentiers, in particular rising dividend payments of the non-financial corporate sector, have in sum been associated with a falling wage and labour income share. Third, financialisation and neo-liberalism have weakened bargaining power of German trade unions through several channels.