Financial sector blamed for rising inequality

Major shifts in economic structure in recent decades are to blame for rising income inequality and the declining share of national income going to wages, say two new studies. The growing importance of the financial services sector is a key factor.

The first study, from the TUC, finds the share of national income going to wages has fallen over the last thirty years from 59 to 53 per cent, whereas the proportion going to profits has increased from 25 to 29 per cent. The main reason has been the decline of industries that spend a high proportion of turnover on wages (such as manufacturing) and the expansion of new industries that have a far higher profit margin (such as financial services). In fact the whole of the rise in profits' share of national income since 1980 went to just to one industry – financial services. That trend is also closely linked with rising inequality in incomes.

The second study, reported in a journal article, highlights similar results in developed countries as a whole. It looks at the link between 'financialisation' (the growing importance of the financial sector) and income inequality in OECD countries over the period 1995–2007. It finds a 'strong correlation' between several of the financialisation indicators and growing income inequality. The correlation is particularly marked in countries with low levels of trade union membership.

Source: Howard Reed and Jacob Mohun Himmelweit, Where Have All the Wages Gone? Lost Pay and Profits outside Financial Services, Trades Union Congress | Basak Kus, 'Financialisation and income inequality in OECD nations: 1995–2007', Economic and Social Review, Volume 43 Number 4
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