Corporate Financialization and Worker Prosperity: A Broken Link

By Lenore Palladino |

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The ability of workers to bargain for a greater share of a firm’s corporate profits has eroded over decades, and one of the growing drivers of this reality is the financialization of the corporate sector. Corporate financialization can be summed up as two behaviors: firms (like Walmart or Pfizer) increasingly earning profits from financial activity instead of producing goods and increasingly shifting profits to shareholders rather than investing in workers and innovation. In other words, we are seeing non-financial corporate firms increasingly behave like financial actors. Such corporate behavior leads to the economic puzzle we see today: record high corporate profits and share prices, but low corporate investment in research and development and workers and stagnant wages.

In her paper, “Corporate Financialization and Worker Prosperity: A Broken Link,” Roosevelt Senior Economist and Policy Counsel Lenore Palladino explores how these financialized corporate behaviors are one of the primary drivers of economic inequality and the ways this impacts working families and broad-based economic growth. Making the case that corporations can be creators of economic prosperity with the right incentives, this report lays a foundation for policy interventions to combat corporate financialization.

It is essential to reverse the incentives that drive this corporate behavior—for workers, for firms, and for our economy. Therefore, along with policies that raise the minimum wage through legislation and improve the bargaining power of wages through unionization, it is critical to rewrite tax, corporate governance, and other policies that drive firms to financialize.

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Lenore Palladino is the Senior Economist and Policy Counsel at the Roosevelt Institute, where she brings expertise to Roosevelt’s work on inequality and finance. Palladino earned a PhD in economics from The New School University and a JD from Fordham Law School. Her research and writing focus on financial reform, financial taxation, labor rights, and fiscal crises. Her publications have appeared in The Nation, The New Republic, State Tax Notes, and other venues.