View More View Less
  • 1 Dinâmia’CET-IUL, Lisboa, Portugal
  • 2 Instituto Universitário de Lisboa (ISCTE-IUL), Dinâmia’CET-IUL, Lisboa, Portugal
  • 3 Instituto Politécnico de Lisboa, Lisboa, Portugal
Restricted access

This paper provides an empirical analysis of the relationship between the labour income share and financialisation, as well as other related variables in Portugal from 1978 to 2012. We estimate an equation for the labour share that includes standard variables (technological progress, globalisation, education and business cycle) and variables to capture the effect of financialisation. We formulate the hypothesis that the financialisation process may lead to a rise in the inequality of functional income distribution through three channels: the change in the sectoral composition of the economy (due to both the increase in the weight of financial activity and the decrease in government activity), the diffusion of shareholder value governance practices and the weakening of trade unions. Our results show that the financialisation process has an indirect long-term effect on the labour share through its impact on government activity and trade union density. The paper also finds evidence supporting the traditional explanations for functional income distribution, namely globalisation, education and business cycle.

  • Aglietta, M. (2000): Shareholder Value and Corporate Governance: Some Tricky Questions. Economy and Society 29(1): 146159.

  • Alvarez, I. (2015): Financialization, non-Financial Corporations and Income Inequality: The Case of France. Socio-Economic Review 13(3): 449475.

    • Search Google Scholar
    • Export Citation
  • Barradas, R. (2015): Financialisation and Real Investment in the European Union Using a Countrylevel Analysis: Beneficial or Prejudicial Effects. Working Paper nº 2015/10, Dinâmia’CET-IUL: ISCTE-IUL.

    • Search Google Scholar
    • Export Citation
  • Barradas, R.Lagoa, S.Leão, E.Mamede, R. P. (2015): Financialisation in the European Periphery and the Sovereign Debt Crisis: The Portuguese Case. Working Paper nº 2015/12, Dinâmia’CET-IUL: ISCTE-IU.

    • Search Google Scholar
    • Export Citation
  • Bassanini, A.Duval, R. (2006): Employment Patterns in OECD Countries: Reassessing the Role of Policies and Institutions. OECD Economics Department Working Paper Nº 486, Paris.

    • Search Google Scholar
    • Export Citation
  • Becker, J.Jäger, J.Leubold, B.Weissenbacher, R. (2010): Peripheral Financialisation and Vulnerability to Crisis: A Regulationist Perspective. Competition and Change 14(3–4): 225247.

    • Search Google Scholar
    • Export Citation
  • Brooks, C. (2009): Introductory Econometrics for Finance. 2nd Edition. New York: Cambridge University Press.

  • Crotty, J. R. (1990): Owner-Manager Conflict and Financial Theory of Investment Stability: A Critical Assessment of Keynes, Tobin, and Minsky. Journal of Post Keynesian Economics 12(4): 519542.

    • Search Google Scholar
    • Export Citation
  • Crotty, J. R. (2005): The Neoliberal Paradox: The Impact of Destructive Product Market Competition and Impatient Finance on Nonfinancial Corporations in the Neoliberal Era. In: Epstein, G. A. (ed.): Financialisation and the World Economy. Cheltenham: Edward Elgar Publishing Limited.

    • Search Google Scholar
    • Export Citation
  • Czaplicki, M.Wieprzowski, P. (2013): The Impact of Financialisation on Income Inequality. Mimeo, Warsaw School of Economics.

  • Daudey, E.Garcia-Peñalosa, C. (2007): The Personal and the Factor Distributions of Income in a Cross-Section of Countries. The Journal of Development Studies 43(1): 812829.

    • Search Google Scholar
    • Export Citation
  • Denis, C.Morrow, K.Röger, W. (2002): Production Function Approach to Calculating Potential Growth and Output Gaps — Estimates for the EU Member States and the US, European Economy, Economic Papers, No 176, September 2002, European Commission, Brussels.

    • Search Google Scholar
    • Export Citation
  • D’Estaing, O. G. (2003): Is Profit Ethical? Society and Economy 25(2): 153158.

  • Dickey, D. A.Fuller, W. A. (1979): Distribution of the Estimators for Autoregressive Time Series with a Unit Root. Journal of the America Statistical Association 74(366): 427431.

    • Search Google Scholar
    • Export Citation
  • Diwan, I. (2000): Labor Shares and Globalisation. World Bank Working Paper Nº 11, Washington.

  • Dünhaupt, P. (2011): Financialisation and the Rentier Income Share – Evidence from the USA and Germany. International Review of Applied Economics 26(4): 465487.

    • Search Google Scholar
    • Export Citation
  • Dünhaupt, P. (2013a): The Effect of Financialisation on Labor’s Share of Income. Working Paper Nº 17/2013, Berlin: Institute for International Political Economy.

    • Search Google Scholar
    • Export Citation
  • Dünhaupt, P. (2013b): Determinants of Functional Income Distribution — Theory and Empirical Evidence. Working Paper Nº 18, Global Labour University.

    • Search Google Scholar
    • Export Citation
  • Epstein, G. A. (2005): Financialisation and the World Economy. Cheltenham: Edward Elgar Publishing Limited.

  • Estrada, A.Valdeolivas, E. (2012): The Fall of the Labour Income Share in Advanced Economies. Documentos Ocasionales Nº 1209, Banco de España.

    • Search Google Scholar
    • Export Citation
  • European Commission (2007): Employment in Europe 2007. Brussels: Directorate-General for Employment, Social Affairs and Equal Opportunities.

    • Search Google Scholar
    • Export Citation
  • Guerriero, M.Sen, K. (2012): What Determines the Share of Labour in National Income? A Cross-Country Analysis. Discussion Paper Nº 6643, Germany: The Institute for the Study of Labor.

    • Search Google Scholar
    • Export Citation
  • Hein, E. (2012): The Macroeconomics of Finance-Dominated Capitalism — and Its Crisis. Cheltenham: Edward Elgar Publishing Limited.

  • Hein, E.Vogel, L. (2008): Distribution and Growth Reconsidered – Empirical Results for Six OECD Countries. Cambridge Journal of Economics 32(1): 479511.

    • Search Google Scholar
    • Export Citation
  • IMF (2007): The Globalization of Labor. Chapter 5 of World Economic Outlook April, Washington.

  • International Labour Organization (2011): World of Work Report: Making Markets Work for Jobs Geneva: ILO.

  • Judzik, D.Sala, H. (2013): Productivity, Deunionization and Trade: Wage Effects and Labour Share Implications. International Labour Review 152(2): 205236.

    • Search Google Scholar
    • Export Citation
  • Kaldor, M. (1961): Capital Accumulation and Economic Growth. In Lutz, F. A. (ed.): The Theory of Capital. London: Macmillan.

  • Karanassou, M.Sala, H. (2013): Distributional Consequences of Capital Accumulation, Globalisation and Financialisation in the US. Discussion Paper Nº 7244, Institute for the Study of Labor.

    • Search Google Scholar
    • Export Citation
  • Keynes, J. M. (1939): Relative Movements in Real Wages and Output. Economic Journal 49(1): 917949.

  • Kiviet, J. F. (1986): On the Rigour of Some Misspecification Tests for Modelling Dynamic Relationships. Review of Economic Studies 53(1): 241261.

    • Search Google Scholar
    • Export Citation
  • Krippner, G. R. (2005): The Financialisation of the American Economy. Socio-Economic Review 3(2): 173208.

  • Kristal, T. (2010): Good Times, Bad Times. Postwar Labor’s Share of National Income in Capitalist Democracies. American Sociological Review 75(5): 729763.

    • Search Google Scholar
    • Export Citation
  • Kus, B. (2012): Financialisation and Income Inequality in OECD Nations: 1995-2007. The Economic and Social Review 43(4): 477495.

  • Lagoa, S.Leão, E.Mamede, R. P.Barradas, R. (2013): Report on the Financial System in Portugal. FESSUD Studies in Financial Systems nº 9, University of Leeds: FESSUD Project.

    • Search Google Scholar
    • Export Citation
  • Lagoa, S.Leão, E.Mamede, R. P.Barradas, R. (2014): Financialisation and the Financial and Economic Crises: The Case of Portugal. FESSUD Studies in Financial Systems nº 24, University of Leeds: FESSUD Project.

    • Search Google Scholar
    • Export Citation
  • Lazonick, W.O’Sullivan, M. (2000): Maximising Shareholder Value: A New Ideology for Corporate Governance. Economy and Society 29(1): 1335.

    • Search Google Scholar
    • Export Citation
  • Levine, R. (2005): Finance and Growth: Theory and Evidence. In: Aghion, P.Durlauf, S. N. (eds.): Handbook of Economic Growth. Amsterdam: Elsevier.

    • Search Google Scholar
    • Export Citation
  • Liew, V. K. (2004): Which Lag Length Selection Criteria Should We Employ? Economics Bulletin 3(33): 19.

  • Lin, K.Tomaskovic-Devey, D. (2013): Financialisation and US Income Inequality, 1970 – 2008. American Journal of Sociology 118(5): 12841329.

    • Search Google Scholar
    • Export Citation
  • Lütkepohl, H. (1991): Introduction to Multiple Time Series Analysis. New York: Springer-Verlag.

  • Milberg, W. (2008): Shifting Sources and Uses of Profits: Sustaining US Financialization with Global Value Chains. Economy and Society 37(3): 420451.

    • Search Google Scholar
    • Export Citation
  • Naastepaad, C. W. M.Storm, S. (2007): OECD Demand Regimes: 1960-2000. Journal of Post Keynesian Economics 29(1): 211246.

  • OECD (2006): Employment Outlook 2006. Paris.

  • Orhangazi, Ö. (2008): Financialization and the US Economy. Cheltenham: Edward Elgar Publishing Limited.

  • Peralta, I. A.Escalonilla, F. L. (2011): Financiarización, Acumulación de Capital y Crecimiento Salarial en la UE-15. Investigación Económica 70(276): 125162.

    • Search Google Scholar
    • Export Citation
  • Pesaran, M. H. (1997): The Role of Economic Theory in Modelling the Long Run. Economic Journal 107(1): 178191.

  • Pesaran, M. H.Pesaran, B. (2009): Time Series Econometrics Using Microfit 5.0. Oxford: Oxford University Press.

  • Pesaran, M. H.Shin, Y. (1999): An Autoregressive Distributed-Lag Modelling Approach to Cointegration Analysis. In Strøm, S. (ed.): Econometrics and Economic Theory in the Twentieth Century: The Ragnar Frisch Centennial Symposium. Cambridge: Cambridge University Press.

    • Search Google Scholar
    • Export Citation
  • Pesaran, M. H.Shin, Y.Smith, R. J. (2001): Bounds Testing Approaches to the Analysis of Level Relationships. Journal of Applied Econometrics 16(1): 289326.

    • Search Google Scholar
    • Export Citation
  • Phillips, P. C. B.Perron, P. (1998): Testing for a Unit Root in Time Series Regression. Biometrika 75(2): 335346.

  • Rodrigues, J.Santos, A. C.Teles, N. (2016): Semi-Peripheral Financialisation: The Case of Portugal. Review of International Political Economy 23(3): 480510.

    • Search Google Scholar
    • Export Citation
  • Solow, R. (1958): A Skeptical Note on the Constancy of Relative Shares. American Economic Review 48(4): 618631.

  • Stockhammer, E. (2004): The Rise of Unemployment in Europe: A Keynesian Approach. Cheltenham: Edward Elgar Publishing Limited.

  • Stockhammer, E. (2009): Determinants of Functional Income Distribution in OECD Countries. IMK Studies, Düsseldorf: Macroeconomic Policy Institute IMK at Hans Boeckler Foundation.

    • Search Google Scholar
    • Export Citation
  • Stockhammer, E. (2010): Financialization and the Global Economy. Working Paper nº 240, Washington: Political Economy Research Institute.

    • Search Google Scholar
    • Export Citation
  • Stockhammer, E. (2012): Financialisation, Income Distribution and the Crisis. Investigación Económica 71(279): 3970.

  • Stolper, W. F.Samuelson, P. A. (1941): Protection and Real Wages. The Review of Economic Studies 9(1): 5873.

  • Studenmund, A. H. (2005): Using Econometrics: A Practical Guide. 5th Edition, Boston: Addison Wesley Pearson.

  • Van der Zwan, N. (2014): Making Sense of Financialisation. Socio-Economic Review 12(1): 99129.

  • Willis, J. L.Wroblewski, J. (2007): What Happened to the Gains from Strong Productivity Growth? Economic Review, Federal Reserve Bank of Kansas City.

    • Search Google Scholar
    • Export Citation
  • Zamagni, S. (2003): A Socio-Economic Reading of Globalisation. Society and Economy 25(2): 181205.