Wages and Human Capital in the U.S. Finance Industry: 1909–2006
Thomas Philippon & Ariell Reshef
Quarterly Journal of Economics, forthcoming
Abstract: We study the allocation and compensation of human capital in the U.S. finance industry over the past century. Across time, space, and subsectors, we find that financial deregulation is associated with skill intensity, job complexity, and high wages for finance employees. All three measures are high before 1940 and after 1985, but not in the interim period. Workers in finance earn the same education-adjusted wages as other workers until 1990, but by 2006 the premium is 50% on average. Top executive compensation in finance follows the same pattern and timing, where the premium reaches 250%. Similar results hold for other top earners in finance. Changes in earnings risk can explain about one half of the increase in the average premium; changes in the size distribution of firms can explain about one fifth of the premium for executives.
Nod to Kevin Lewis
Thomas Philippon & Ariell Reshef
Quarterly Journal of Economics, forthcoming
Abstract: We study the allocation and compensation of human capital in the U.S. finance industry over the past century. Across time, space, and subsectors, we find that financial deregulation is associated with skill intensity, job complexity, and high wages for finance employees. All three measures are high before 1940 and after 1985, but not in the interim period. Workers in finance earn the same education-adjusted wages as other workers until 1990, but by 2006 the premium is 50% on average. Top executive compensation in finance follows the same pattern and timing, where the premium reaches 250%. Similar results hold for other top earners in finance. Changes in earnings risk can explain about one half of the increase in the average premium; changes in the size distribution of firms can explain about one fifth of the premium for executives.
Nod to Kevin Lewis
2 comments:
The field is extremely and heavily subsidized by the state, so this isn't terribly surprising.
This study tells us more about authors Thomas Philippon & Ariell Reshef than about the "proper" pay for these people. If there are subsidies or entry barriers, those are bad in themselves. After those are abolished, the Proper Pay is whatever happens.
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