Friday, March 04, 2011
[IWS] IILS: DID THE FINANCIAL SECTOR PROFIT AT THE EXPENSE OF THE REST OF THE ECONOMY? EVIDENCE FROM THE UNITED STATES
IWS Documented News Service
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Institute for Workplace Studies----------------- Professor Samuel B. Bacharach
School of Industrial & Labor Relations-------- Director, Institute for Workplace Studies
Cornell University
16 East 34th Street, 4th floor---------------------- Stuart Basefsky
New York, NY 10016 -------------------------------Director, IWS News Bureau
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International Institute for Labour Studies (IILS) at the ILO
DISCUSSION PAPER 206/2010
Did the financial sector profit at the expense of the rest of the economy?
Evidence from the United States
by Sameer Khatiwada
http://www.ilo.org/public/english/bureau/inst/download/dp206_2010.pdf
[full-text, 20 pages]
Preface
The crisis which originated in the US financial sector in 2007 and subsequently spread to
the real economy caused severe economic and social damage around the world.
Governments have responded by providing fiscal support to the economy, undertaking
exceptional monetary policy measures and introducing programmes targeted to
vulnerable groups. In addition, considerable efforts have been made to recapitalise banks.
Important as they are, these measures do not tackle the deeper influence of financial
markets and institutions in the operation of the real economy. The purpose of this paper is
to highlight the need for reforms in this neglected area.
The paper confirms the finding of the World of Work Report 2009 that the financial
sector has grown beyond reasonable boundaries and its practices have spread to the nonfinancial
economy. For example, in the last 20 years, financial sector’s share of total
corporate profits doubled, reaching as high as 44 per cent in 2002.
The study also demonstrates that in the United States, the growing influence of the
financial sector has led to a reduction in the share of business investment as a percent of
value added by as much as 2 percentage points in the last three decades.
More research is needed to shed further light on the causal linkages and to identify the
reforms that could help ensure that the financial sector encourages investment --thereby
growth and employment-- rather than hurting it. However, the finding of this paper is
suggestive and important for today’s debate on sustainable crisis responses.
Table of Contents
Preface....................................................................................................................................... 1
A. Introduction ..................................................................................................................... 1
B. Overview of past trends .................................................................................................. 2
C. Emprical framework, data, and results ........................................................................... 8
Conclusion ............................................................................................................................... 12
References ............................................................................................................................... 14
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Stuart Basefsky
Director, IWS News Bureau
Institute for Workplace Studies
Cornell/ILR School
16 E. 34th Street, 4th Floor
New York, NY 10016
Telephone: (607) 255-2703
Fax: (607) 255-9641
E-mail: smb6@cornell.edu
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