The Rise of Finance and Firm Employment Dynamics, 1982-2005

Abstract

This article sheds light on the current employment stagnation in the United States by investigating the links between the rise of finance and firm employment dynamics during the 1982-2005 period. I argue that the rise of finance marginalized the role of labor in revenue generating and sharing processes, which led to employment stagnation among the largest non-financial firms in the United States. Evidence suggests that increasing investment in financial assets crowds out investment in the workforce. The growing dependence on debt reprioritizes the order of distribution, heightening the need for workforce reduction. The increasing rewards for shareholders replace the retain-and-reinvest cycle with a downsize-and-distribute spiral, in which labor expense becomes a primary target of cost-cutting strategies. Further analysis indicates that production and service workers are more vulnerable to shifts associated with the rise of finance than managers and professionals. Importantly, these processes have been unfolding increasingly to the detriment of employment.