chapter  34
12 Pages

Financialization and the Increase in Inequality1

WithOlivier Godechot

This chapter summarizes literature that has studied the link between finance and inequality. It provides substantial evidence that the growth of financial activity led to more inequality in market societies. The growth of finance and the growth of inequality are clearly correlated in developed countries. Growth in financial activity indicators is thus positively tied to growth in income inequality. Scholars diverge, however, on the causal mechanism through which financialization impacts inequality. Micro data on individual income and wages can help to make clearer the link between finance and inequality, simply by enabling to measure the contribution of financial workers to the growth of inequality. The investigation of the links between finance and national income inequality lead us therefore to isolate the surge in financial wages as one of the main driving mechanisms. The mechanisms that drive the positive impact of financial deregulation on inequality need to be understood.