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
_______________________________
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
________________________________________________________________________

 

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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This information is provided to subscribers, friends, faculty, students and alumni of the School of Industrial & Labor Relations (ILR). It is a service of the Institute for Workplace Studies (IWS) in New York City. Stuart Basefsky is responsible for the selection of the contents which is intended to keep researchers, companies, workers, and governments aware of the latest information related to ILR disciplines as it becomes available for the purposes of research, understanding and debate. The content does not reflect the opinions or positions of Cornell University, the School of Industrial & Labor Relations, or that of Mr. Basefsky and should not be construed as such. The service is unique in that it provides the original source documentation, via links, behind the news and research of the day. Use of the information provided is unrestricted. However, it is requested that users acknowledge that the information was found via the IWS Documented News Service.

****************************************
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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