Financialization, Non-Financial Corporations and Income Inequality

Using firm-level data for the period 2004 to 2013, this paper examines the connection between the financialization of French corporations and functional income distribution in the non-finance sector of the economy.

Financialization of French non-financial corporations has increased their dependence on earnings through financial channels, and diminished labor bargaining power in income distribution. We examine the effects of these financial revenues on wage share using a panel data model of 6,980 French non-financial firms.

We conclude that increased dependence on financial profits is likely to decrease wage share in non-financial corporations. Moreover, this variable is more influential in our model than other variables traditionally identified by the literature as determinants of functional income distribution, such as technological change, trade openness or labor market institutions.