ABSTRACT
This chapter identifies empirically the determinants of the increase in income inequality that rich countries have experienced over the last two to three decades. Over the last two decades at least, income inequality within rich countries, or better to say, among Organisation for Economic Co-operation and Development (OECD) countries has increased. Since the late 1970s, political changes created the basis for a new paradigm of political economy, first in the US and in the UK and later in most advanced and emerging economies. In the age of financial capitalism, labour-capital relations are changing, and in most cases labour represents the weaker part. Globalisation and financialisation took place almost simultaneously in advanced economies. Financialisation and labour flexibility are two institutional forms of the neoliberal paradigm, which were functional to the increase of inequality. The political and economic roots of the financialisation process, which brought about a new financial-led growth regime, were established first in the US.
