Determinants of labour’s income share in the era of financialisation

Abstract

Numerous studies have analysed the decline in the labour share of income, but only few have linked it to the increase in financialisation. The process of financialisation can roughly be described as an increasing importance of the financial sector that had an impact on the distribution between wages and profits, on the one hand, and retained earnings and financial income in the form of dividends and interests, on the other hand. This article seeks to explore the relationship between financialisation and labour’s share of income using a time-series cross-sectional dataset of 13 countries over the time period from 1986 until 2007. The results suggest that there is indeed a relationship between increasing dividend and interest payments of non-financial corporations and the decline of the share of wages in national income. Other factors that can account for the decline relate to globalisation and a decrease in the bargaining power of labour.