The Financial Wage Premium in Postindustrial Countries: A Comparative Distributional Analysis

A persistent finding in the emerging literature on financialization and income inequality is the growth and prominence of the financial industry exacerbates wage inequality by increasing the relative wages of the highest paid workers and managers in the financial sector. More recently, several studies have shown the impact of financialization on wage inequality varies according to institutional, political, and economic differences between these countries. This study extends on this new line of research by examining whether the structure of financial systems explains differences in the wage premium received by financial workers and managers in a representative sample of postindustrial countries. We argue wage differences across the earnings distribution is exacerbated in countries where financial activities are primarily coordinated through market mechanisms rather than through formal institutions. This study tests this theoretical argument by estimating the financial wage premium across the earnings distribution of 12 postindustrial countries using nationally-representative and harmonized data from the Luxembourg Income Study and re-centered influence function (RIF) regression. Estimates from RIF regression models of 19 wage percentiles show the size of the financial wage premium in the earnings distribution varies across countries, but is generally concentrated in the upper-end of the earnings distribution in most countries. More importantly, estimates show the financial wage premium in countries with market-centered financial systems is greater in the upper-end of the distribution compared to countries with bank-centered financial system where the financial wage premium gradually grows across the earnings distribution. The findings indicate cross-national differences in the financial wage premium is partially accounted for by the market coordination of financial systems and points towards how restructuring financial systems may alleviate growing wage inequality in postindustrial countries.