Petra Dünhaupt

Financialisation, corporate governance and income distribution in the U.S. and Germany: Introducing an adjusted wage share indicator

21 pp. · 3.52 EUR
( December 28, 2011 )

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From the introduction:

Petra Dünhaupt analyses the link between 'Finance' and income distribution. She focuses on the case of the U.S., which over recent decades has witnessed major changes in corporate governance partly due to an overall increase in financialisation. The most pronounced development, in Dünhaupt?s view, is the escalation of management salaries caused by the rise of stock options. On theoretical grounds, this trend was fostered by advances in the economic discipline of agency theory. In practice, changes in tax laws contributed to promoting the change. Empirical evidence shows that income concentration has increased at the top. Dünhaupt?s analysis contributes to the ongoing debate about income shares by introducing a new adjusted wage share. Arguing that top incomes are closer to profits than to wages, top incomes are removed from the wage share. The presented evidence shows that the wage share and the adjusted wage share start to diverge by the end of the 1980s, exactly at the time when the compensation practices of corporations changed considerably. Dünhaupt also considers the case of Germany. Although shareholder value orientation has increased in Germany as well, business owners are still at the top of the income hierarchy. Therefore, the adjustment of the German wage income share for top management salaries shows only minor discrepancies, which, however, are in the same direction as in the US.