Corporate Financialization and Its Impact on American Workers

January 17, 2017

Why This Matters is a series from Roosevelt staff connecting our individual work—from papers to reports and everything in between—to our broader vision of creating a better, more equitable economic and political system. This series will give readers the top takeaways from our latest writing and thinking, with a focus on why they matter as we redefine the rules that guide our social and economic realities.


Corporate America enthusiastically responded to Trump’s $1.5 trillion tax plan with a steady stream of announcements ranging from one-time $1,000 bonuses for employees, to workforce and infrastructure investments, to wage increases. At first blush, it may seem like the administration’s massive corporate tax cut produced immediate, positive results for workers and our economy at large. But there’s more to this story. While the media and misguided politicians focus on hourly wage increases and one-time bonuses, less attention is being given to the layoffs and multi-billion dollar stock buyback announcements from some of the largest (and most profitable) publicly traded companies in the U.S. In short, there’s a deeper structural story of the relationship between record-high corporate profits and stagnant wages, revealing how corporate behavior will continue to drive economic inequality at the detriment of working families. In her latest paper, Corporate Financialization and Worker Prosperity: A Broken Link, Roosevelt Senior Economist and Policy Counsel Lenore Palladino explores how corporate behavior drives economic inequality and impacts workers and broad-based economic growth.

The causal links between corporate tax cuts and unproductive corporate behavior that we see today is rooted in what we call corporate financialization: a phenomenon in which firms (like Walmart or Pfizer) are increasingly earning profits from financial activity instead of producing goods and are shifting profits to shareholders rather than investing in workers and innovation. Corporate financialization also involves the increasing flow of profits to shareholders over investments in workers, research and development, innovation, and long-term corporate growth. This behavior is a key driver of economic inequality, and the corporate tax cuts within Trump’s tax law will exacerbate the financialization of the corporate sector.

None of this is inevitable or unfixable. Instead of cutting taxes for corporations—a policy which largely benefits wealthy shareholders—we need lawmakers to advance policies that discourage unproductive firm behavior that undermines broad-based and inclusive growth. Rather than celebrating consolation prizes for workers, policymakers should create solutions to incentivize corporate behavior that will have the twin impacts of strengthening labor market outcomes, particularly for low-wage workers and the most marginalized, and strengthening the long-term productivity of the firm to produce good, stable jobs. Policy remedies include directly limiting corporate buybacks and establishing worker representation on boards.

The private sector plays a key role in this reorientation. In what is perhaps the beginning of a turning tide, BlackRock Founder and CEO Larry Fink penned a letter to business leaders demanding they do more than turn a profit for shareholders. Corporations need to contribute to society, he says, and BlackRock intends to hold firms accountable to their social responsibility. Coming from a firm that manages trillions in corporate investments, this is important news and potentially a step in the right direction for corporate America. As Palladino argues, “America’s working families, and our future prosperity, depend on this reorientation” of corporate America.