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

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modities and Investment industry. It is these individuals that Rauh and Kaplan (2007) show are increasingly in the top one-tenth of one percent of earners nationally. --Figure 7 about here-- Using similar data, Philippon and Reshef (2009) suggest that up-grades in the education level of employees and the skill mix of jobs may account for at least some of the rising incomes in this sector. This is an argument that the sector became more skilled, rather than there was an increase in income rents to the average employee in the sector. 18 Appendix B reports shifts in sector and industry employee education and occupational structure. The proportion college educated grew faster than in the rest of the economy in banking and securities, but not in real estate or insurance. Similarly, it is in the banking and security industries in which we see an upgrading of the occupational structure during this period. Figure 8 reports predicted sector specific annual income trends based on a regression model that adjusts for shifts in employee experience (age), education, sex, race and hours of work as well as in occupational structure over the time period. 19 The same basic pattern of rising average employment income is evident for each industry in Figure 8, although the peaks are not 18 Of course, in both relative power and exploitation approaches, skill or occupational power are bases for rent extraction within organizations. Many popular commentators have seen skilled workers flocking to this sector because of the high incomes, rather than the high income being produced by the skilled actors. Both Crotty (2009) and Roth (2004) suggest that the investment firms in particular select on the bases of social similarity with existing traders, rather than skill. 19 The basic regression model is estimated in OLS separately for each year and takes the follow- ing conventional form: Annual Earnings = b0 + b1 Education + b2Age + b3Sex + b4Race + b5Annual Hours of Work + b6-8 Occupation Groups + b9 Finance Industry + e. 30
as dramatic. In the Security industry rents rise to about 2.25 times the national average, rather than 3 in Figure 7. For the other three finance sector industries rents rise as well, to 1.17 for real estate and 1.35 for insurance and banking. Controlling for compositional shifts explains little of the rise in bank and insurance earnings and none of the rise in real estate. Although the security industry sees strong gains in proportion college educated and in the share of high-skilled occupa- tions our models do not isolate causal order. It is entirely possible, and we think likely, that both of these shifts were a response to increased industry income rent opportunities rather than the increased income being caused by shifts in the education level of employees or the occupational structure of the industry. --Figure 8 about here-- Phillipon and Reshef (2009) show that after 1980 the returns to college degrees grew faster in the finance sector than in the rest of the economy. They also suggest but do not demon- strate that occupational shifts may have produced an upgrading of the skill base of the finance sector labor forces. It was certainly the case that the rising wages in this sector attracted high performing students from elite colleges but it seems unlikely to us that productivity associated with individual talent, rather than the institutional changes we have outlined, produced the gigan- tic growth in profits and earnings in this sector. Oyer (2008) provides evidence consistent with this intuition, finding that investment bankers are largely “made” on Wall Street rather than bring some set of a priori superior skills to work. Similarly, Roth (2004) finds that the principle selec- tion mechanism for Wall Street firms is not productivity difference but social backgrounds. To further examine the income distribution within each industry, we extend our regression models to explore education, occupation, sex and race specific trends in economic rents for employees in the finance sector. What we find is that the substantial increase in income rents to 31
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 and 28: The other finance sector industries
Page 29: from the society overall. The emplo
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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