Financialisation, Wage Inequality and Market Concentration

In the last four decades, we have experienced secular stagnation, priva[1]tisations, cuts in public investments and employment, and a rise in financialisation, financial profits, market concentration, profit share in Gross Domestic Product (GDP), unemployment, and inequality at the global level. This neoliberal era is marked by the inflation in stock markets fuelled by excess inflows through private pension funds and health insurances, advertisements, brand value, innovation, college education, and white-collar jobs. These should all be associated.

In order to comprehend these profound changes in the global economy, an understanding of the endogeneity of money, which emphasises that finance is the core of capitalism, and an analysis which covers the inter[1]actions between financial markets, goods markets and labour markets are required.

As capitalism initially and historically is an economy of financial contracts, investment is indeed a financial decision made under the fundamental uncertainty of the future. The key variables for investment decisions are expected cash flows and the ability to fulfil debt commitments (Minsky, 1986, p. 132). As entrepreneurs’ main motivation for investing in capital assets is to accumulate profits in monetary terms, not as goods or machines, capitalism is a ‘monetary production system’ (Keynes, 1936), where the supply of money is not neutral to output level, rather endog[1]enous to production and investment (Rochon and Rossi, 2017). Since money is the most liquid asset, the ‘store of value’ function of money prevails in capitalism, contrary to a ‘barter economy’ where money is merely considered as a ‘medium of exchange’. The ex nihilo creation of money by banks and public spending initiates economic circulation.

Hence, a macroeconomic analysis has to take into consideration that financial markets surpass goods markets and labour markets: Nonfinan[1]cial factors can play a role in economic decisions when financial factors operate smoothly: ‘… in a world in which financing conditions do not intrude into investment decisions, the technical productivity of capital assets and their supply price would determine investment.’ (Minsky, 1986, p. 211).

Based on this post-Keynesian theoretical background (Lavoie, 2022), I put forward that financialisation has been mainly driven by the increase in market concentration, which has led to a rise in wage inequality between white-collar and blue-collar workers. The rise in wage inequality has brought about an increase in savings of white-collar workers to be chan[1]nelled to financial markets through private pension funds and a feedback to market concentration by way of validation of the high markup pricing of big firms through consumption preferences of white-collar workers.

All in all, the expected profits from financial assets have exceeded the profit expectations from real capital assets due to the suppressed demand. This resulted in financialisation of nonfinancial corporations (NFCs) as they started to prefer financial assets over nonfinancial assets in order to generate profits where ‘leakages’ caused by workers’ savings to be replenished through equity issuances (Toporowski, 2000; Graziani, 2003).

Because the US economy is the most notable exemplary case of financialization and market concentration, this study concentrates on it.

Financialisation, Wage Inequality and Market Concentration_ENG-FWIMCPDF-Datei (5,39 MB)