This study shows that, contrary to popular belief, CEO and sports or entertainment superstars are not primarily responsible for increasing inequalities. It is the evolution of the remuneration of finance executives which has in fact contributed the most to this phenomenon.
The rise in inequality in the United States is now almost common knowledge. This phenomenon is no longer limited to this single country, but is much more general and international. The work of Camille Landais shows that in France, inequalities have also started to increase again, at a sustained pace, but only since the end of the 1990s. The analytical description and interpretation of this evolution are only just beginning. One factor, widely commented on, is the considerable increase in remuneration of CEO over the last thirty years. Another factor is rising compensation in the entertainment industry for superstars in sports and the arts. However, it is not certain that it is these visible elites who contribute the most to the rise in inequalities. More recently, partly due to the financial crisis and outrage over bonuses, the importance of salaries in finance has been explored. Bell and Van Reenen estimate that 70% of the recent increase in the top percentile’s share of the UK wage bill has been captured by employees in the financial industry.
The aim of this contribution is to study the transformation of inequalities in France. For this we rely on data DADS (1976-2007), French social security salary data for the private sector. These data allow us to ask questions about the evolution of wage inequalities in France. First, how reliable is the rise in inequality discovered by Landais based on self-reported tax sources? ? If this trend is robust, then which groups contributed the most to it ? THE CEOmanagers, experts, entertainment superstars ? Has Parisian finance, less opulent than that of London or Wall Street, nevertheless contributed to this rise in inequalities? ?
THE DADS : a valuable database for studying salaries in France
THE DADSAnnual Social Data Declarations, are a set of statistical data from an administrative source. In order to collect social security contributions – payroll taxes that are more or less proportional to an employee’s salary – the French government collects all individual salaries in the private sector.
Based on these administrative sources, two main datasets are available. The first is the Panel DADS (1976-2007), which contains the 24e of private sector employees from 1976 to 2001 and the 12e of this same population after 2001. The second set consists of exhaustive files of all jobs in the private sector from 1994 to 2007.
First of all, in the panel (1976-2007) and for the exhaustive files for the period 2002-2007, we use the annual sum of gross wages received by individuals who receive more than half of a minimum wage. As it is not possible to identify an employee from one position to another in the exhaustive files for the period 1994-2001, we use the annual gross salaries of non-ancillary full-time positions when these are higher. at half a minimum wage.
The evolution of wages in France
In order to analyze the evolution of inequalities, we calculate the fractiles at the top of the wage distribution. Graph 1 shows the evolution of salaries for the different fractiles. We see an overall increase in wages, but at different rates for each fractile. F0-90 grows quite slowly. Overall, F90-95, F95-99 and F99-99.9 appear to be increasing steadily and at the same rate. F99.9-99.99 and F99.99-100 are growing faster, especially in the last ten years. In 2007, the top ten thousand, i.e. the best paid 0.01% in the private sector (1692 people), received a minimum of €867,000, and on average €1,682,000 per year, while the lowest paid 90% received between €7,600 and €46,700 in gross annual salary and earned on average €22,400.
The consequences of this trend are as follows. The share of the majority (F0-90) in the payroll is generally decreasing, losing 2 points in 30 years. The share of “ middle classes » defined by the fractiles between P90 and P99.9 remains generally stable or increases at a slow rate. However, when we move to the next millimeter, we can see a sharp increase in their share from 1996, from 1.2% of payroll to 2.0% in 2007. Half of this increase is 0.8 points returned to the top 0.01% and the other half feeds into F99.9-99.99.
The role of finance
A sectoral approach allows us to describe more precisely the type of employees who have contributed the most to the increase in inequalities. Certain sectors such as industry, commerce and restaurants, transport and communication are today much less represented at the top of the salary hierarchy than they were 30 years ago. For example, 38% of the top millime worked in manufacturing in 1976, while only 14% did so in 2007. On the other hand, business services, finance and to a lesser extent, entertainment and other services increased among the highest paid employees. In 1976, 10% of the top thousand worked in business services and 6% in finance. In 2007, they were 26% and 24% respectively. Furthermore, the increase and decrease of different sectors within the wage elite must be related to their evolution within the private sector as a whole. Thus, business services are a sector in which the workforce has increased very rapidly over the last quarter of a century, while the number of finance employees has remained a fairly stable proportion of the private sector (around 3% of employees private sector). At the beginning of the 1980s, finance employees were twice as likely to be in the top 100% as they were below this threshold. This ratio increased slightly in the 1980s and very sharply in the 1990s. In 2001, it peaked at 10, due to the considerable premiums granted after the excellent year 2000 on the markets.
Therefore, we can try to quantify the contribution of this sector to the increase in inequality between 1996 and 2007. Here we follow Bell and Van Reenen. We calculate the contribution of finance, business services, entertainment and other sectors to the 0.85 point increase in the top mill’s share of payroll. We see that finance contributed 48% of this increase, while business services and other sectors each contributed almost 23%, and finally entertainment 8% (graph 3).
When we restrict ourselves to the top ten thousand, we see that finance is responsible for 57% of the increase. At the end of the period, finance constituted 37% of its workforce. Financiers are 19.4 times more represented at this level than in the lower brackets. The over-representation of this sector in this fractile is much higher than that achieved by business services (2.3) or entertainment (6.7).
Finally, graph 4, which compares the evolution of salaries for some elite salary professions, allows us to summarize some of our main findings. In the graph, we analyze the evolution of salaries of the top 100 finance executives, the top 100 non-finance (and non-entertainment) executives, the top 100 business leaders, the top 25 athletes, and the top 20 employees in the cinema, television and video sector (most of whom are actors). Between 1996 and 2007, salaries increased by 1.5 in the latter group, by 3.3 in sport and for CEO3.6 for non-finance executives, and 8.7 for the top 100 finance executives.
Therefore, the most examined high-paying professions, such as CEO and entertainment superstars, are not the main responsible for the increase in inequalities compared to finance executives, particularly among them, within trading rooms, team leaders and room managers .
France has experienced a sharp increase in inequality over the past 12 years. Half of the increase in the share of the top millime is due to an increase in the salaries of finance executives. On the other hand, the CEO and entertainment superstars do not appear to play a major role in increasing inequality.
Policy implications of this study
Better knowledge of high salaries is important in order to measure the share of rents and talent in the dynamics of inequality. It also has obvious political implications, especially since the taxation of financial employees and the taxation of high incomes has received a contradictory response in the public debate. In France, over the last decade, as in many developed countries, the tax rate for the highest incomes has been reduced, due to considerations of the positive effects of these elites on overall activity. At the same time, the CEO throughout the decade, financial employees after 2007, and athletes, after the defeat in the 2010 World Cup, were widely criticized. Both the meritocratic nature of their salary and the usefulness of their economic role have been the subject of debate. It should be noted that these categories are not marginal among the highest salaries in France. In the 0.01% of highest salaries for 2007, we find nearly 40% of finance employees, 20% of business leaders and 10% of athletes. Taxing this salary fractile more heavily would be another way (perhaps easier to achieve than a sectoral tax) of redistributing these salaries, which more and more citizens consider as rents.