Financialization and top incomes in emerging economies: A comparative distributional analysis of the financial wage premium in the BRIC

Abstract

Prior studies on emerging economies contend that increasing returns to human capital has contributed to the growth of wage inequality over the last few decades. However, this explanation fails to account for an important dynamic of contemporary wage inequality: the growth of top labor incomes. Research on advanced economies show the emergence of a wage premium in the financial sector increased top labor incomes, but studies have yet to investigate whether a financial wage premium is contributing to the growth of top labor incomes in emerging economies. The present study addresses this theoretical and empirical gap by conceptualizing and measuring the financial wage premium across the distributions of labor income in the most important subset of emerging economies: Brazil, Russia, India, and China (BRIC). Drawing on harmonized labor force data from the Luxembourg Income Study, we utilize unconditional quantile regression modeling and treatment effect estimation to examine the financial wage premium across the distributions of labor income in the BRIC before and after the Great Recession. Consistent with studies on advanced economies, we find a substantial wage premium among top earners in the financial sectors of the BRIC, which has grew in the post-recession period. However, we find significant variation in size and growth of the financial wage premium because of the variegated nature of financialization across the BRIC. We conclude by suggesting that subsequent studies should explore the heterogeneous effects of subordinate and state financialization on wage dynamics in emerging economies.