Financialization, earnings volatility, and firm turbulence in the risk society

Abstract

ABSTRACT This paper explores financialization through the lens of with profits accruing primarily through financial channels through risk commodification. While financialization ostensibly increases corporate profits, individual firms have been experiencing escalating volatility driven by heightened competition and technological disruptions. To the extent that firm instability is driven by something fundamental that cannot be reduced for shareholders through portfolio diversification, financialization simultaneously disperses risks to workers, fostering economic instability and exacerbating income inequality. The paper delineates a rise in earnings volatility among workers, attributing it to structural changes in labour markets marked by contingent work arrangements and diminished job security. This volatility reflects broader societal shifts towards a more precarious workforce, necessitating a re-evaluation of traditional measures of economic security. The confluence of these trends manifests in the intertwining of firm turbulence and wage volatility, particularly pronounced in the non-manufacturing sector. In parallel, financialization has also led to rising industrial concentration and market power in the U.S. economy that centralises profit. Superstar firms emerge as key actors, uniquely positioned to maximise their risk/return profile. By restricting profits to a small core of well-compensated workers, these firms are simultaneously offering higher wages while driving down the labour share, thus exacerbating income inequality.