Income Dynamics, Economic Rents and the Financialization of the ...

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its per capita share. 14 The financialization of the economy reflected the rise of institutional inves- tors, rapid turnover in stock and commodity markets and a generally intensification of finance related activities. It is the commission based employees in this industry who reaped great earnings benefits from the increased volume and velocity of investment activity. Since we saw in Figure 5 that this same industry had weak profit gains, and those gains did not commence until after 1999 it leads to the conclusion that financialization at least before 1999, primarily benefited the employees, rather than owners, in the security industry. This result is in contrast with banking and insurance in which employees made only small gains in total compensation after 1980 and those gains tended to flatten after 2000 even as absolute profits accelerated. Real estate compensation on average is flat and near the national average across all years. 15 Taken together Figures 5 and 6 suggest that income rents associated with financialization were realized primarily by capital in the banking, insurance and real estate industries and by employees in the securities industry. Banking, in particular, seems to have profited most consistent- ly from the deregulation of financial markets and the resulting ability to collect economic rents 14 Analyzing first quarter wage date (in order to capture bonus payments) for the investment banking and securities industry, Sum et al (2008) report that in 2007 that workers employed in this industry earned $6,891 per week nationally, $16,918 per week if employed in Manhattan. The average worker nationwide earned $884. Between 2006 and 2007, just prior to the collapse of the financial system, first-quarter wages in the securities and commodities industry grew a remarkable 16.4% nationwide and 21.5% in Manhattan. 15 Of course, small gains at the industry level can mask large inequalities within industry. The separate identification of bank holding companies after 1999 clearly shows a much higher average income in these mixed banking-security-insurance hybrids than in conventional banking. 28
from the society overall. The employees of security and commodity firms, which were histori- cally organized as partnerships, were able to capture windfall compensation from the increasing flow of investment activity. To further explore the distribution of income within the finance sector we turn to data on individuals from the Current Population Survey. These data are self-reports and include top- codes for salaries, thus truncating the really high compensation reported by Rauh and Kaplan (2007) and widely in the press during and after the financial crisis. 16 Figure 7 reports the simple trends in annual earnings for employees of the various finance sector industries. 17 The basic trends we saw in Figure 6 are repeated and the basic ratios are about the same for Banks, Insur- ance and Real Estate. The clear exception is in Securities, Commodities and Investment, where salaries while still rising much faster than in the non-financial economy, climbing from 1.5 to 3 times the national average, rather than soaring from 1.5 to 4 (as in Figure 6 and including all compensation). Reflecting both sampling and earnings top-codes, the CPS estimates are least accurate for capturing the wage rents accrued by the very high earners in the Securities, Com- 16 In the financial sector there are many more incidents of top-coding: in Banking, there are on average twice as many top-coded observations as in non-finance industries, in Insurance there are on average 2.4 as many top-coded observations, whereas in Other Finance Industries there are on average 13 times as many top-coded observations (Phillippon and Rashef 2007). 17 Annual earnings reported here are adjusted into 2000 dollars by Consumer Price Index. Fol- lowing Philippon and Reshef (2009:37), we multiply top-coded incomes in all survey years until 1995 by a factor of 1.75 to adjust the underestimation of relative earnings in the financial sector. After 1995 the CPS use group means within top-code categories to impute a top-code value. 29
Page 1 and 2: Income Dynamics, Economic Rents and
Page 3 and 4: “I think everybody a few years ag
Page 5 and 6: economic sociology and political ec
Page 7 and 8: tion but since the two trends are l
Page 9 and 10: their profits as taxable income. Th
Page 11 and 12: While we have established that the
Page 13 and 14: ployees, a lower capital share of i
Page 15 and 16: income dynamics, which should follo
Page 17 and 18: serve Bank, led by Paul Voker, foug
Page 19 and 20: anks profitability, the second and
Page 21 and 22: Together these shifts in the instit
Page 23 and 24: nancial engagement of non-financial
Page 25 and 26: count suggests a certain happenstan
Page 27: The other finance sector industries
Page 31 and 32: as dramatic. In the Security indust
Page 33 and 34: egulatory relaxation and a general
Page 35 and 36: occurred if finance sector actors h
Page 37 and 38: of total national profits in the fi
Page 39 and 40: swaps. Clearly, the market and poli
Page 41 and 42: Our analysis points to the federal
Page 43 and 44: ents from other actors in the econo
Page 45 and 46: Krippner, Greta. 2005. “The Finan
Page 47 and 48: Stockhammer, Engelbert. 2004. “Fi
Page 49 and 50: %GDP 10 15 20 25 30 35 Figure 1. Fi
Page 51 and 52: Ratio 1.0 1.1 1.2 1.3 1.4 1.5 1.6 1
Page 53 and 54: %Profits 0 5 10 15 20 Figure 5. Fin
Page 55 and 56: Ratio 1.0 1.5 2.0 2.5 3.0 Figure 7.
Page 57 and 58: Table 1. Summary of Institutional A
Page 59 and 60: Appendix A. Industry classification
Page 61 and 62: Appendix B. Sector and industry shi

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