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Journal Articles Socio-Economic Review Year : 2023

Ups and downs in finance, ups without downs in inequality

István Boza
Feng Hou
  • Function : Author
Silvia Maja Melzer
  • Function : Author
Matthew Soener
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  • PersonId : 1328161
Max Thaning

Abstract

The upswing in finance in recent decades has led to rising inequality, but do downswings in finance lead to a symmetric decline in inequality? We analyze the asymmetry of the effect of ups and downs in finance, and the effect of increased capital requirements and the bonus cap on national earnings inequality. We use administrative employer–employee-linked data from 1990 to 2019 for 12 countries and data from bank reports, from 2009 to 2017 in 13 European countries. We find a strong asymmetry in the effect of upswings and downswings in finance on earnings inequality, a weak, if any, mitigating effect of capital requirements on finance’s contribution to inequality, and a restructuring but no absolute effect of the bonus cap on financiers’ earnings. We suggest that while rising financiers’ wages increase inequality in upswings, they are resilient in downswings and thus downswings do not contribute to a symmetric decline in inequality.
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licence : CC BY NC ND - Attribution - NonCommercial - NoDerivatives

Dates and versions

hal-03857878 , version 1 (26-01-2023)

Licence

Attribution - NonCommercial - NoDerivatives

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Olivier Godechot, Nils Neumann, Paula Apascaritei, István Boza, Martin Hallsten, et al.. Ups and downs in finance, ups without downs in inequality. Socio-Economic Review, 2023, 21 (3), pp.1601-1627. ⟨10.1093/ser/mwac036⟩. ⟨hal-03857878⟩
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