Distributional Consequences of Technology, Trade Globalisation and Financialisation in the US

  • Marika Karanassou Institute of Labor Economics (IZA), Bonn
  • Héctor Sala Universitat Autònoma de Barcelona and Institute of Labor Economics (IZA), Bonn


In this paper, we examine the dynamic contributions of technology, trade globalisation, and financialisation to the functional-personal income distribution nexus. We estimate a two-equation model for the income distribution in the US over the 1968-2014 period. We show that the labour share is affected negatively by personal inequality and trade, and it is also determined by tax and technology related variables. In turn, income inequality is fuelled by the falling labour share and increasing financial assets and financial payments. Our empirical model accounts for 67 per cent of the fall in the labour share and 85 per cent of the rise in income inequality. Using counterfactual simulations, we show that the net distributional impact of technology and trade globalisation is scarce; in contrast, our indicators of the financialisation process are prominent drivers of the falling labour share and rising personal inequality. In the post-Great Recession years of tense socio-economic conditions, we claim that the scope of financial institutions and corporate strategies needs to be revised.