PERG seminar 8/6: The global diffusion of inequality: US multinationals as exporters of the ‘winner-take-all-economy’

The global diffusion of inequality: US multinationals as exporters of the ‘winner-take-all-economy’

By Renira Angeles (CEU), Jonathan Hopkin (LSE) and Lukas Linsi (LSE)

ABSTRACT. The work of Thomas Piketty and his collaborators has drawn public attention on the stark increases in top incomes. A crucial aspect of the phenomenon, which Piketty et al. do not explain, however, are the significant cross-national differences in the remuneration of top executives. In this article, we propose a political economic theory of contingent policy diffusion, which can account for some of the cross-national patterns. We argue that the sharp rise in top incomes since the 1980s are primarily a product of the US political economy, which then, in a second stage, has been exported to other advanced economies through the expansion of US multinationals abroad, particularly so in the finance sector. The market entry of US multinationals introduced a new US-style culture of executive remuneration in other countries and, at the same time, increased salary competition in local labour markets, pushing domestic companies to pay higher salaries in order to retain their top staff. As we show, the size of this effect of US FDI, however, depends on the configuration of local political institutions. In particular, the presence of strong corporatist institutions have proven to be an effective barrier to the US-FDI-induced pressures to grant more generous compensation packages. The first part of the article elaborates this argument. The second part tests its plausibility by subjecting the predicted patterns of association to a number of statistical tests in a sample covering 17 OECD economies from 1975 to 2003.

Discussant: Gergő Medve-Bálint (MTA TK)

Wednesday, June 8th, at 3:30 p.m. in room FT 909