Financialization and Income Inequality in the New Economy

Abstract

An emergent literature in sociology reveals a positive association between financialization and income inequality. Recent evidence also shows that various indicators of the new economy expand inequality in advanced industrial societies. Interestingly, less attention is paid to how financial activities moderate the connection between measures of the new economy and income inequality. We attempt to contribute to this literature by examining whether the distributional effect of the transition to the new economy is enhanced by financialization. To achieve this objective, we compile a panel data set of 18 advanced industrial societies for the years 1988 to 2008. According to the analysis, financial activities are one of the more consistent positive predictors of inequality in this study's sample of rich countries. More importantly, the interactions of financialization with service employment, female labor participation, and knowledge employment, respectively, return significant positive associations with income inequality. These results indicate that finance's tendency to expand the income of elite earners exacerbates the distributional impact of the transition to the new economy.