A Kaleckian approach to financialization and distribution: Austria and Finland in comparison

Dabrowski, Cara; Kuhls, Sonia Article A Kaleckian approach to financialization and distribution: Austria and Finland in comparison Wirtschaft und Gesellschaft (WuG) Provided in Cooperation with: Kammer für Arbeiter und Angestellte für Wien Suggested Citation: Dabrowski, Cara; Kuhls, Sonia (2025) : A Kaleckian approach to financialization and distribution: Austria and Finland in comparison, Wirtschaft und Gesellschaft (WuG), ISSN 0378-5130, Kammer für Arbeiter und Angestellte für Wien, Wien, Vol. 51, Iss. 1, pp. 79-112, https://doi.org/10.59288/wug511.273 This Version is available at: https://hdl.handle.net/10419/333142 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0 79 A Kaleckian approach to financialization and distribution: Austria and Finland in comparison Cara Dabrowski, Sonia Kuhls* ABSTRACT In this paper, we examine if and to what extent the Kaleckian theory of markup pricing can explain changes in functional income distribution in an environment of financialization. Following this approach, we expect financialization to influence the aggregate wage share through three channels: (1) sectoral recomposition, (2) financial overhead costs and rentiers’ profit claims, and (3) bargaining power of trade unions and workers. We empirically analyse the long-term trends for each of the channels before and after the Global Financial Crisis and the Great Recession for Austria and Finland. Overall, we find evidence for all three redistribution channels contributing to the changes in functional income distribution. However, the explanatory power of the individual channels differs strongly due to the heterogeneity of the countries. KEYWORDS Finance-dominated capitalism, financialization, distribution, financial and economic crisis, Kaleckian theory of distribution JEL CODES D31, D33, D43 DOI 10.59288/wug511.273 * Cara Dabrowski: Vienna Institute for International Economic Studies (wiiw). Kontakt: [email protected] Sonia Kuhls: Georg-August-Universität Göttingen. Kontakt: sonia.k[email protected] 80 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland 1. Introduction Ample empirical evidence captures a decline in wage shares across OECD countries since the 1980s, implying a more unequal functional income distribution in favour of profits (e.g. Stockhammer 2017; Hein et al. 2018; Kohler et al. 2019; Guschanksi/ Onaran 2024). To explain the increasingly unequal functional income distribution, defined as the shares of total income that accrue to different social classes such as workers, managers, rentiers, and capitalists, post-Keynesian and Marxist scholars alike point to neoliberal economic policies which have been implemented since the late 1970s. Financial liberalization and deregulation in particular gave rise to an era of finance-dominated capitalism (Lapavitsas 2009; Kohler et al. 2019; Akçay et al. 2022).1 Therefore, a growing body of heterodox scholarship interrogates the relationship between income distribution and financialization, which describes “the increasing role of financial motives, financial markets, financial actors and financial institutions in the operation of the domestic and international economies” (Epstein 2005, 3). A Kaleckian approach allows us to distinguish between three channels through which financialization impacts income shares (Hein 2015). First, the rising predominance of the financial sector compared to the non-financial sector and/or a decline in government involvement shift the sectoral composition of the economy, which decreases the economy-wide wage share. Second, enlarged management salaries and shareholder profit claims contribute to higher overhead costs and thus a lower wage share of direct labour. Third, labour market deregulation and a shift in corporate strategies towards shareholder value orientation and short-termism compromise the bargaining power of trade unions, limiting their leeway to bid up real wages. This approach has been utilized by multiple authors conducting comparative country studies as well as panel regression analyses (Hein/Detzer 2015; Dünhaupt 2017; Hein et al. 2017, 2018; Dünhaupt/Hein 2019; Barradas 2019). We build on these papers and seek to contribute to the scholarship on financialization and income inequality by examining countries that have not received in-depth coverage from these previous studies. Furthermore, we extend the analysis by placing greater emphasis on how the effects of financialization are mediated by the countries’ distinct welfare states. The relationship between the growing dominance of financial markets and functional income distribution is not uniform across all OECD countries, with notable differences for instance regarding how they responded to the Global Financial Crisis (GFC) of 2007–09 (Hein et al. 2017, 2018). These divergent patterns arise due to different 1 As such, neoliberalism and financialization are intertwined phenomena, with some even considering financialization a historically specific form of neoliberalism, termed financial neoliberalism (Palley 2013). We will adopt this broad understanding but intentionally avoid an in-depth theoretical discussion. Where necessary, we will clarify whether we are referring to neoliberalism in its general form as a political and economic philosophy or to its specific manifestation as finance-dominated capitalism. 81 Wirtschaft und Gesellschaft 51 (1): 79–112 domestic policy regimes that respond to and mediate the effects of financialization and globalization. We selected the two countries for our analysis in accordance with the welfare state regimes by Hay/Wincott (2012), who refine the traditional classification of Esping-Andersen (1990) and compare a Continental European/corporative welfare regime (Austria) with a Scandinavian one (Finland). The comparison between Austria and Finland promises to be particularly enlightening because, despite their different welfare models, both exhibited export-led mercantilist growth regimes before the GFC. Hein et al. (2021) argue that both types of countries countered globalization with the so-called compensation thesis, in which social expenditure was reduced to a lesser extent than in other regimes to compensate domestic losers of globalization. Interestingly, the countries shifted to different growth regimes after the GFC: Austria became weakly export-led while Finland became a domestic demand-led growth regime (Hein et al 2021). The comparative case study is guided by the overarching research question: How does the relationship between financialization and functional income distribution differ between Austria and Finland in the period 1995–2019? We draw on post-Keynesian theory to hypothesize that each of the three Kaleckian channels holds explanatory value for these countries’ financialization-distribution nexuses. Nevertheless, in line with previous empirical investigations, we expect the relative importance of these channels to differ between the countries, particularly before and after the GFC. Our study will investigate the research question using descriptive empirical methods and data from various sources, leaving causal inference to future research. The remainder of the paper is structured as follows. In section 2, we delineate Kaleckian markup pricing theory and derive three channels that relate financialization to functional income distribution. After discussing the empirical findings of previous studies as well as the institutional and political-economic context of Austria and Finland in section 3, section 4 presents our data and methodology and contrasts the development of the three Kaleckian channels for the two countries in a comparative case study. Section 5 comprises a discussion of these results in light of existing theoretical and empirical work and answers the research question. Finally, section 6 concludes the paper. 2. Theoretical concepts on financialization and income distribution Post-Keynesian scholars have established theoretical links between financialization and functional income distribution between workers and capitalists through Kaleckian markup pricing theory. According to this approach, which was first developed by Kalecki (1954, chapters 1 & 2, 1971, chapters 5 & 6), income shares are determined by 82 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland the active markup pricing of firms with a certain degree of price-setting power under conditions of oligopolistic or monopolistic competition.2 Specifically, the markup is applied to marginal costs, which are assumed to be constant until full-capacity output. In other words, firms mark up constant average variable costs, where unit variable costs are constituted by direct labour costs and material costs. The markup serves two purposes: first, to settle overhead costs, including salaries of overhead labour (e.g. management) and depreciation of fixed capital; and second, to cover firms’ gross profits, including interest and dividend payments as well as retained profits (Hein 2015, 920–921). According to Hein (2015, 922–923), functional income distribution is determined by this price-setting behaviour in the following way. The pricing equation of a vertically integrated domestic industrial or service sector j, which imports raw materials and semi-finished goods and employs capital and labour, can be formulated as: (1) where pj is the output price in sector j, mj denominates its markup, w the nominal wage rate, aj the labour-output ratio, pf denotes the unit price of imported raw materials or semi-finished products in foreign currency, e is the exchange rate, and µj the ratio between imports and output. With the relationship between unit material costs and unit labour costs, zj derived as (2) we can rewrite the pricing equation as: (3) Rearranging equation (3) results in the gross profit share hj of sector j in relation to its gross value added: (4) Finally, the economy-wide gross profit share h amounts to the weighted average of the sectoral profit shares: (5) 2 Prices are cost-determined only in the industrial and service sectors, where fluctuations in demand can be met by adjusting output and hence the rate of capital utilization. In the primary and agricultural sectors, which will be neglected in the following analysis, Kalecki (1954, 11) assumes demand-determination of prices because firms must react to demand fluctuations via price-setting behaviour. 𝑝𝑝!=(1 + 𝑚𝑚!)(𝑤𝑤𝑎𝑎!+ 𝑝𝑝!𝑒𝑒𝜇𝜇!),𝑚𝑚 > 0 𝑧𝑧!=𝑝𝑝"𝑒𝑒𝜇𝜇! 𝑤𝑤𝑎𝑎! , 𝑝𝑝!= 11 + 𝑚𝑚!23𝑤𝑤𝑎𝑎!11 + 𝑧𝑧!24 ℎ!=11 + 𝑧𝑧!2𝑚𝑚! 11 + 𝑧𝑧!2𝑚𝑚!+ 1 ℎ = (1 + 𝑧𝑧)𝑚𝑚 (1 + 𝑧𝑧)𝑚𝑚 + 1 (1 − ℎ)=1 (1 + 𝑧𝑧)𝑚𝑚 + 1 𝑝𝑝!=(1 + 𝑚𝑚!)(𝑤𝑤𝑎𝑎!+ 𝑝𝑝!𝑒𝑒𝜇𝜇!),𝑚𝑚 > 0 𝑧𝑧!=𝑝𝑝"𝑒𝑒𝜇𝜇! 𝑤𝑤𝑎𝑎! , 𝑝𝑝!= 11 + 𝑚𝑚!23𝑤𝑤𝑎𝑎!11 + 𝑧𝑧!24 ℎ!=11 + 𝑧𝑧!2𝑚𝑚! 11 + 𝑧𝑧!2𝑚𝑚!+ 1 ℎ = (1 + 𝑧𝑧)𝑚𝑚 (1 + 𝑧𝑧)𝑚𝑚 + 1 (1 − ℎ)=1 (1 + 𝑧𝑧)𝑚𝑚 + 1 𝑝𝑝!=(1 + 𝑚𝑚!)(𝑤𝑤𝑎𝑎!+ 𝑝𝑝!𝑒𝑒𝜇𝜇!),𝑚𝑚 > 0 𝑧𝑧!=𝑝𝑝"𝑒𝑒𝜇𝜇! 𝑤𝑤𝑎𝑎! , 𝑝𝑝!= 11 + 𝑚𝑚!23𝑤𝑤𝑎𝑎!11 + 𝑧𝑧!24 ℎ!=11 + 𝑧𝑧!2𝑚𝑚! 11 + 𝑧𝑧!2𝑚𝑚!+ 1 ℎ = (1 + 𝑧𝑧)𝑚𝑚 (1 + 𝑧𝑧)𝑚𝑚 + 1 (1 − ℎ)=1 (1 + 𝑧𝑧)𝑚𝑚 + 1 𝑝𝑝!=(1 + 𝑚𝑚!)(𝑤𝑤𝑎𝑎!+ 𝑝𝑝!𝑒𝑒𝜇𝜇!),𝑚𝑚 > 0 𝑧𝑧!=𝑝𝑝"𝑒𝑒𝜇𝜇! 𝑤𝑤𝑎𝑎! , 𝑝𝑝!= 11 + 𝑚𝑚!23𝑤𝑤𝑎𝑎!11 + 𝑧𝑧!24 ℎ!=11 + 𝑧𝑧!2𝑚𝑚! 11 + 𝑧𝑧!2𝑚𝑚!+ 1 ℎ = (1 + 𝑧𝑧)𝑚𝑚 (1 + 𝑧𝑧)𝑚𝑚 + 1 (1 − ℎ)=1 (1 + 𝑧𝑧)𝑚𝑚 + 1 𝑝𝑝!=(1 + 𝑚𝑚!)(𝑤𝑤𝑎𝑎!+ 𝑝𝑝!𝑒𝑒𝜇𝜇!),𝑚𝑚 > 0 𝑧𝑧!=𝑝𝑝"𝑒𝑒𝜇𝜇! 𝑤𝑤𝑎𝑎! , 𝑝𝑝!= 11 + 𝑚𝑚!23𝑤𝑤𝑎𝑎!11 + 𝑧𝑧!24 ℎ!=11 + 𝑧𝑧!2𝑚𝑚! 11 + 𝑧𝑧!2𝑚𝑚!+ 1 ℎ = (1 + 𝑧𝑧)𝑚𝑚 (1 + 𝑧𝑧)𝑚𝑚 + 1 (1 − ℎ)=1 (1 + 𝑧𝑧)𝑚𝑚 + 1 83 Wirtschaft und Gesellschaft 51 (1): 79–112 and the related wage share of direct labour (1 − h) can be derived as (6) Therefore, the distribution of income between profits and wages is determined by the markup, the ratio of unit material costs to unit labour costs, and the economy’s sectoral composition. Assuming constant technology, i.e. ᾱ and μ, an increasing gross profit share can hence be the result of five macroeconomic changes: a lower nominal wage rate; rising import prices of raw materials or intermediate products denominated in foreign currency; depreciation of the domestic currency; or a shift in sectoral composition towards high-profit-share sectors, resulting in a larger economy-wide profit share by altering the sectors’ respective weights. Finally, a redistribution towards profits can be caused by firms applying larger markups. Kalecki (1954, 17) identifies four factors that influence the “degree of monopoly” and hence the size of the markup. The first two – a positive association with the degree of concentration within the industry or sector and a negative one with the relative importance of price competition – can be condensed into the category “degree of price competition among firms in the goods market” Hein (2015, 923). Third, the markup is negatively related to the power of trade unions, and fourth, it is positively affected by the volume of overhead costs, which tend to squeeze gross profits and prompt firms to increase the markup to meet their gross profit target. The upper part of table 2.1 summarizes the five determinants of the profit share which are relevant in the context of financialization. Financialization is a multifaceted phenomenon that describes a radical shift towards a finance-dominated accumulation regime starting in the late 1970s (Stockhammer 2008). A vast body of research has identified an array of ensuing structural changes along various dimensions of social and economic life (for an overview, see Epstein 2015; Van Der Zwan 2014); those that are relevant for the price-setting behaviour of firms according to Kaleckian theory are summarized as stylized facts 1 to 7 in the first column of table 1. As mentioned in the introduction, finance-dominated capitalism is a product of neoliberal economic policies, two of whose most prominent dimensions are also explicitly included in the table as stylized facts 8 and 9. The potential effects of these nine characteristics of finance-dominated capitalism and neoliberalism on the gross profit share are indicated by plus and minus signs. As Hein (2015, 925) points out, two of the five channels establish ambiguous links between the stylized facts of financialization and the profit share. On the one hand, the degree of price competition in the goods market declines as a result of mergers and acquisitions leading to higher industrial concentration; on the other hand, it may increase due to the liberalization and globalization of international finance and trade. Similarly, the change in the prices of imported raw materials and intermediate products 𝑝𝑝!=(1 + 𝑚𝑚!)(𝑤𝑤𝑎𝑎!+ 𝑝𝑝!𝑒𝑒𝜇𝜇!),𝑚𝑚 > 0 𝑧𝑧!=𝑝𝑝"𝑒𝑒𝜇𝜇! 𝑤𝑤𝑎𝑎! , 𝑝𝑝!= 11 + 𝑚𝑚!23𝑤𝑤𝑎𝑎!11 + 𝑧𝑧!24 ℎ!=11 + 𝑧𝑧!2𝑚𝑚! 11 + 𝑧𝑧!2𝑚𝑚!+ 1 ℎ = (1 + 𝑧𝑧)𝑚𝑚 (1 + 𝑧𝑧)𝑚𝑚 + 1 (1 − ℎ)=1 (1 + 𝑧𝑧)𝑚𝑚 + 1 84 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland in relation to wage costs is undetermined: while prices of labour-intensive intermediate products tend to fall as firms relocate to low-wage regions, those of raw materials tend to rise because of increased global demand. Since the expected effects of these two channels are not clear a priori, we will focus on the remaining channels with an unambiguous relation to the profit share. Table 1: Financialization, neoliberalism, and the gross profit share in Kaleckian theory Stylized facts of financialization (1–7) and neoliberalism (8–9) Determinants of the gross profit share (including management salaries) Markup 1. Degree of price competition in the goods market 2. Bargaining power and activity of trade unions 3. Overhead costs and gross profit targets 4. Price of imported raw materials and semifinished products 5. Sectoral composition of the domestic economy 1. Increasing shareholder value orientation and short-termism of management + + 2. Rising dividend payments + 3. Increasing interest rates or interest payments + 4. Increasing top management salaries + 5. Increasing relevance of financial to non-financial sector (investment) + + 6. Mergers and acquisitions + 7. Liberalization and globalization of international finance and trade – + +/– +/– 8. Deregulation of the labour market + 9. Downsizing of government + + Notes: + positive effect on the gross profit share, – negative effect on the gross profit share Source: Hein (2015, 921) Kaleckian markup pricing theory hence allows us to identify three channels that capture potential medium to long-run effects of financialization on income redistribution towards capitalists. First, firms are able to enlarge their markups because the bargaining power and activity of trade unions have been adversely affected by four 85 Wirtschaft und Gesellschaft 51 (1): 79–112 developments: a corporate governance strategy of non-financial corporations (NFCs) centred on the maximization of shareholder value and a fixation on short-term profits (Lazonick/O’Sullivan 2002); the rising importance of financial vis-à-vis productive investment favouring the financial sector (Krippner 2005), where unionization is traditionally significantly lower; liberalization and globalization leading to intensified competition with low-wage regions and threats of outsourcing and relocation; and the dominant policy paradigm since the late 1970s – neoliberalism – deregulating labour markets and restricting government intervention, which significantly increased unemployment and eroded the bargaining power of trade unions (Stockhammer 2004, chapter 4; Whalen 2021). Second, overhead costs and gross profit targets have increased through financialization and therefore exerted a positive influence on markups and the gross profit share. Most importantly, the corporate management strategy to “downsize and distribute” (Lazonick/O’Sullivan 2002) to enhance short-term financial profits requires a larger share of firms’ revenues going towards dividend and interest payments (Dallery 2009). Moreover, scholars have observed a disproportionate rise in (top) management salaries accompanying financialization (Hein 2015), suggesting that firms will charge larger markups to cover these increased overhead costs. The third channel refers to changes in the sectoral composition of the economy reflected in an expanded share of the financial sector in total value added relative to the NFC sector as well as diminished government activity. These two effects impact an economy’s overall profit share positively if the sectoral profit share is assumed to be higher in the financial than in the NFC sector, given that it is by definition zero in the government sector (Dünhaupt 2012). 3. Literature review The post-Keynesian approach presented in the previous section allows us to distinguish between three transmission channels from financialization and neoliberalism towards functional income distribution. Yet, financialization is not a uniform phenomenon – rather, the distinct historical, institutional, and social characteristics of each country decisively shape its financialization trajectory (Becker et al. 2010) and potentially its relationship to income distribution. Therefore, it is of paramount importance to consider country-level specificities. To that end, this section provides the foundation for a comparative country study by, first, reviewing key findings from previous empirical research and, second, delineating the institutional characteristics and political-economic structures of Austria and Finland. 86 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland 3.1 Empirical literature on the postulated nexus Numerous empirical studies have recorded a general trend of functional income redistribution at the expense of labour and in favour of capital in most advanced capitalist countries since the 1980s, and hence concurrent with neoliberalism and finance-dominated capitalism (e.g. Stockhammer 2017; Hein et al. 2018; Kohler et al. 2019).3 In this section, we thus survey the empirical literature to determine the driving forces behind this trend. Taking the Kaleckian theory of pricing and functional income distribution as our vantage point, we first compile evidence for the three channels identified by Hein (2015) and then give an overview of the in-depth studies of countries that have employed this approach to date. Dünhaupt (2012) was the first to present evidence for the channel capturing changes in the sectoral composition of the domestic economy. Specifically, she demonstrated that an increasing share of financial corporations in value added raised the economy-wide gross profit share in the US (1970–2008). The decreased labour share of income in Germany (1980–2008), meanwhile, is largely due to the falling wage share in NFCs themselves, while a small shift towards the financial sector took place only in the 2000s. The relevance of this channel was further confirmed by numerous country-specific studies to which we will return later. Regarding the second channel, increasing overhead costs and gross profit targets have been researched in much more detail. The first wave of studies by Epstein/ Power (2003), Epstein/Jayadev (2005), Dumenil/Levy (2005), and Lin/Tomaskovic-Devey (2013) generally detect a negative relationship between rentiers’ financial earnings/firms’ financial payments and the wage share. Overall, “these results strongly suggest that neoliberalism and financialisation pay for those owning financial assets” (Epstein/Jayadev 2005, 67). However, Dünhaupt (2012) contends that these studies neglect the dividend payments of NFCs to private households. She therefore splits the profit share into retained earnings and net property income and finds that in Germany, the continuous increase in the rentiers’ share since the 1990s primarily results from an increasing share of dividend income. In the US, the rentiers’ income share increased in the 1980s – mainly due to net interest income – and remained constant thereafter, while the share of net dividend income became more pronounced. In an econometric study of Germany and the US (1960–2007), Hein/Schoder (2011) examine the role of interest payments specifically. They find a significant and strong effect of net interest payments of NFCs on the profit share, lending evidence to a markup that is elastic to interest payments which influences 3 Furthermore, authors have attested to rising personal income distribution inequality due to deepening financialisation in most OECD countries (Dünhaupt 2014; Huber et al. 2022). The data also reveal rising inequality regarding disposable income, i. e. market income net of taxes and social policies, in most of these countries – except for Belgium, France, Greece, Ireland, and Spain (Hein 2015). 93 Wirtschaft und Gesellschaft 51 (1): 79–112 pressure on workers’ income claims. For these indicators, we split the time frame into five-year periods and calculate respective averages. Since our research interest is related to mediumand long-term trends of income distribution, the descriptive comparative analysis abstracts from cyclical variations in the data. 4.2 Redistributive trends in 1995–2019 Before investigating the redistributive effects of the Kaleckian channels in the two country studies, we must inspect the redistributive trends before and after the GFC. According to the literature, the period from the late 1970s/early 1980s until the crisis was marked by a redistribution from labour to capital (Hein et al. 2018). This process is illustrated in figure 1, which displays the development of the adjusted wage share for both countries in 1960–2019. Figure 1: Adjusted wage share in Austria and Finland, 1980–2019 (% of GDP) Note: The adjusted wage share is defined as compensation per employee as a share of GDP at factor costs per person employed (Hein et al. 2018, 3) Source: European Commission (2023a), authors’ calculations Except for some cyclical fluctuations, both countries experienced a falling adjusted wage share in the given period. The decrease was especially pronounced between the early 1980s and the GFC. During the more limited period specified in the research question, 1995–2019, Austria’s adjusted wage share followed a U-shape: it declined steadily between 1995 and the GFC, but partially rebounded during the crisis. This 94 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland countercyclical pattern of the wage share is a well-documented phenomenon that arises because profits tend to decline more sharply than wages during economic downturns, given that the latter are relatively rigid due to contractual agreements and institutional factors (Hein 2014). After the crisis, the wage share remained roughly constant at 55%, such that we can cautiously speak of a partial reversal of the previous decline. A comparable downward trend from 1995 until the crisis can be observed for Finland. However, after a similar recovery during the GFC, which temporarily re-established its 1995 level, the Finnish adjusted wage share fell back to its pre-crisis level of roughly 53%. Therefore, with regard to the mediumto long-term trend, the Finnish wage share corresponds to the shape of a negative logarithmic function. In contrast to the situation in Austria, the crisis-induced gains could not be sustained. Figure 2: Top 1% of income share in Austria and Finland, 1980–2019 (share of pre-tax income) Note: Top income shares relate to the tax units Source: WID (2025), authors’ calculations As explained in section 2, post-Keynesian theory stipulates that overhead labour costs (i.e. management salaries) are covered by markups and should thus be considered part of the profit share. However, national accounts record management salaries as part of employee compensation, such that they are incorporated into the calculation of the wage share. As a result, researchers have pointed out that the share of direct labour – excluding top management salaries – has declined even more dramatically than can be observed through conventional measures such as the adjusted wage share (e.g. Hein/Detzer 2015). 95 Wirtschaft und Gesellschaft 51 (1): 79–112 To remedy this, figure 2 visualizes the income share of the top 1% of income earners, which proxies managerial salaries, in both economies. Except for a slight decline during the years of the GFC, top earners’ income share appears to be relatively stable in Austria; if anything, it has decreased over the observed period. In Finland, the share of top 1% of income earners increased sharply during its 1990s crisis, peaked in 2000 and subsequently started to decline. From then on, the share followed a U-shape that reached its trough at the end of the GFC. Looking at the specified time frame, the share has now approximately returned to its 1995 level. This development confirms that the adjusted wage share should be interpreted as an upper bound on the actual level of the wage share: corrected for these managerial salaries, the Finnish wage share would have decreased even further in the periods 1995–2000 and 2013– 2017. The share of direct labour in Austria, too, is lower than indicated by the adjusted wage share; but the latter’s development is not strongly influenced by changing management salaries. Overall, it is important to bear in mind that the data we use structurally overestimate the wage share. 4.3 Austria In the following, we discuss the influence of financialization operating through the three channels according to Kaleckian theory in Austria. We first consider the pre2008/09 dynamics and then address the developments after the crisis. Austria before the crisis As outlined above, Austria experienced a fall in the adjusted wage share before the GFC, indicating a more unequal functional income distribution. However, we do not find evidence that the sectoral composition changed in favour of the financial sector or at the detriment of the government sector, as both shares in value added remained roughly constant (figure 3). Instead, the share of the non-financial sector exhibits an increasing trend while the share of the household sector declined in the years before the crisis. Contrary to what is assumed in the literature, the financial sector’s profit share – proxied by its share of gross operating surplus in gross value added– was lower than that of the non-financial sector (figure 4). The non-financial sector’s profit share can be described as an inverted U-shape over the entire time period, with its peak at the start of the GFC. Therefore, NFCs’ profit share increased steadily in the years before the crisis while that of financial corporations did not follow a clear trend. Considering these developments together, ceteris paribus, the change in sector composition decreased the aggregated wage share and increased the aggregated profit share, if – following Hein et al. (2018) – we assume that the adjusted wage share was higher in the household sector than in the corporate sector. However, neither the financial nor the government sector was part of this redistribution. 96 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland With regard to the second channel, the financial overhead costs/rentiers’ profit claims channel, we consider two indicators. Starting with the income shares in net national income, we observe a slight decrease in the compensation of employees and an increase in both the net property income share and the share of retained earnings in the years before the crisis (figure 5). Thus, the decreasing wage share occurred partly in favour of rentiers’ profit claims. When decomposing the rentiers’ income share, it becomes clear that the increase was exclusively driven by the rise in dividend income: while the share of net interest and property income was roughly constant in the years before the crisis, the share of dividends increased steeply during the early 2000s (figure 6). This indicates a rise in the power of finance and shareholders in Austria during this period, providing evidence for the second channel. We find some evidence for the third channel, the depression of trade unions’ and workers’ bargaining power (table 2). On the one hand, the unemployment rate in Austria was quite low in the years before the crisis while the bargaining coverage rate was very high throughout the whole period. On the other hand, union density decreased in the pre-crisis period while the household debt to GDP ratio increased by almost ten percentage points. Furthermore, trade openness increased sharply. Table 2: Selected indicators for bargaining power, Austria, 1995–2019 1995–99 2000–04 2005–09 2010–14 2015–19 Unemployment rate (%) 4.6 4.5 5.4 5.4 5.7 Union density rate (%) 39.3 35.7 30.9 28.1 26.7 Bargaining coverage rate (%) 98.0 98.0 98.0 98.0 98.0 Household debt (% of GDP) 42.9 46.1 52.3 52.4 50.3 Trade openness (% of GDP) 73.7 87.4 96.4 103.4 104.8 Notes: Unemployment as a percentage of active population; bargaining (or union) coverage rate: proportion of employees who are covered by (collective) wage agreements (adjusted for sectors without bargaining rights); union density rate: proportion of employees who are members of a trade union among all employees; trade openness: imports and exports as a share of GDP Source: OECD (2023), OECD and AIAS (2021), and European Commission (2023b), authors’ calculations Austria in the course of and after the crisis In the course of the crisis, the Austrian adjusted wage share experienced an upward trend but remained roughly constant afterward. With regard to sectoral composition, the share of the government increased slightly in the course of the crisis but remained roughly constant afterwards. The share of NFCs decreased during the crisis but recovered quickly and the financial sector experienced a minimal decrease during the crisis but has remained rather constant ever since (figure 3). Additionally, the profit share in the financial sector remained below that of the non-financial sector (figure 4). However, while the profit share of the non-financial sector declined steadily from 2007 onwards, the financial sector’s profit share followed a U-shaped 97 Wirtschaft und Gesellschaft 51 (1): 79–112 Figure 3: Sectoral shares in nominal gross value added, Austria, 1995–2019 Source: OECD (2023), authors’ calculations Figure 4: Sector gross operating surplus as a share of sector gross value added, Austria, 1995–2019 Source: OECD (2023), authors’ calculations 98 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland Figure 5: Income shares in net national income, Austria, 1995–2019 Source: OECD (2023), authors’ calculations Figure 6: Components of rentiers’ income as a share in net national income, Austria, 1995–2019 Source: OECD (2023), authors’ calculations 99 Wirtschaft und Gesellschaft 51 (1): 79–112 pattern, beginning to rise after the recovery from the GFC. In the years immediately following the crisis, therefore, the gap between the two shares widened significantly, but it subsequently narrowed once more. As a result, this channel contributed to the slight increase in the wage share during the crisis but lost relevance thereafter. The pressure from the overhead costs channel seems to have decreased during the crisis, as compensation of employees rose while net property income decreased (figure 5). Moreover, dividend income and net interest income both decreased strongly during and after the crisis (figure 6). These dynamics may have contributed to the slight increase in the Austrian wage share. Workers’ bargaining power shows a declining tendency in the post-crisis period (table 2): unemployment, the bargaining coverage rate, and the household debt to GDP ratio remained largely constant while union density decreased slightly and trade openness increased further. 4.4 Finland As noted above, the Finnish economy experienced a fall in the adjusted wage share before the crisis. It then increased during the GFC but decreased from 2012 onwards. Finland before the crisis The distributional effects of the sectoral composition channel are reflected in figure 7 and figure 8. The non-financial corporate share in value added increased until the early 2000s and remained roughly constant until the GFC. In parallel, financial corporations’ share decreased slightly in the late 1990s and remained roughly constant until the crisis. The government sector behaved contrary to the non-financial corporate sector, as its share in gross value added decreased between 1995 and 2009. The household and non-profit sector remained largely constant throughout this period. Except for one significant decrease in the early 2000s, the profit share of the financial sector exceeded that of the non-financial sector in the pre-crisis period. Therefore, we find partial evidence for the sectoral composition channel starting in the mid-1990s: ceteris paribus, the sectoral recomposition led to a decrease in the wage share because the NFC sector increased at the expense of the government sector while the former’s profit share increased steadily. However, the depression of the wage share was not driven by the change in the relative size of the financial sector. Considering the financial overhead costs/rentiers’ profit claims channel for Finland, we find only a very slight increase in net property income as a share of national income until the early 2000s, remaining roughly constant thereafter (figure 9). The compensation of employees decreased in the early 1990s and did not recover until the crisis, while the opposite is the case with regard to retained earnings as a share 100 Dabrowski/Kuhls (2025): The financialization-distribution nexus in Austria and Finland of national income, which increased until the early 2000s. The decomposed shares of rentiers’ income are very volatile: the shares of dividends and property income experienced a positive trend overall, while that of net interest income declined before the crisis (figure 10). In conjunction, these findings indicate that the depression of the wage share was not strongly driven by increasing rentiers’ profit claims. Our findings regarding trade unions’ and workers’ bargaining power are ambiguous (table 3). The unemployment rate was relatively high during and after the Finnish financial crisis (1995–1999) but decreased in the subsequent periods. Simultaneously, the proportion of employees who were members of a trade union decreased in the given period while bargaining coverage increased. Both the household debt to GDP ratio and trade openness increased significantly in the periods before the crisis. Table 3: Selected indicators for bargaining power, Finland, 1995–2019 1995–99 2000–04 2005–09 2010–14 2015–2019 Unemployment rate (%) 13 9.3 7.6 8.3 8.3 Union density rate (%) 78.2 74.9 71.6 69.1 63.0 Bargaining coverage rate (%) 83.0 89.1 87.6 91.9 88.8 Household debt (% of GDP) 32.1 35.0 50.2 60.6 64.6 Trade openness (% of GDP) 66.2 70.7 79.5 76.9 75.0 Notes: Unemployment as a percentage of active population; bargaining (or union) coverage rate: proportion of employees who are covered by (collective) wage agreements (adjusted for sectors without bargaining rights); union density rate: proportion of employees who are members of a trade union among all employees; trade openness: imports and exports as a share of GDP Source: OECD (2023), OECD and AIAS (2021), and European Commission (2023b), authors’ calculations Finland in the course of and after the crisis While the sectoral shares of financial corporations and households remained rather constant during and after the crisis, the share of non-financial corporations decreased during the crisis and remained at a lower level afterwards (figure 7). The share of the government sector increased slightly but stayed roughly constant in the following years. Simultaneously, financial corporations’ profit share decreased sharply in the course of the crisis but started rising in 2013, resuming pre-crisis levels right before the Covid-19 pandemic (figure 8). Furthermore, for most years, the profit share in the financial sector was higher than in the non-financial sector. Hence, the increase in the government sector and the fall of the profit share in the financial sector have presumably increased the economy-wide wage share. We find no evidence for the financial overhead costs channel. While the compensation of employees increased during the crisis, mirrored by a decrease in retained earnings, the share of net property income remained roughly constant (figure 9). 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