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Abstract

: Recent literature provides substantial evidence that the growth of financial activity has led to more inequality in market societies in recent decades. The most obvious channel is that financial market activity, fuelled by an ongoing process of financial deregulation, created a niche with very high wages. In those niches, financiers exercise a “hold up power” over their firm: they appropriate key assets (knowledge, teams and clients) and can move them or efficiently threaten to move them to a competitor offering higher wages. This bargaining power increases the finance wage premium gap and is sufficient to produce, on its own, a sharp increase in wage inequality. Other channels also indirectly affect inequality beyond the financial sector. The growing submission of non-financial firms to shareholder value imperatives increases within-firm inequality. Households investment in financial securities and moreover their growing indebtedness have contrasted effects. Inequality fuels in return, however in modest proportion, securitization and indebtedness.