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Wages and Human Capital in the U.S. Finance Industry: 1909--2006

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  • Thomas Philippon
  • Ariell Reshef

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. Copyright 2012, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/qje/qjs030
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Bibliographic Info

Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 127 (2012)
Issue (Month): 4 ()
Pages: 1551-1609

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Handle: RePEc:oup:qjecon:v:127:y:2012:i:4:p:1551-1609

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Cited by:
  1. Guillaume Plantin & Igor Makarov, 2012. "Deliberate Limits to Arbitrage," 2012 Meeting Papers 831, Society for Economic Dynamics.
  2. Anton Korinek & Jonathan Kreamer, 2013. "The Redistributive Effects of Financial Deregulation," NBER Working Papers 19572, National Bureau of Economic Research, Inc.
  3. Christoph Schinke, 2014. "Government Ideology, Globalization, and Top Income Shares in OECD Countries," Ifo Working Paper Series Ifo Working Paper No. 181, Ifo Institute for Economic Research at the University of Munich.
  4. Brian Bell & John Van Reenen, 2013. "Bankers and their bonuses," CEP Occasional Papers 35, Centre for Economic Performance, LSE.
  5. Michiel Bijlsma & Andrei Dubovik, 2014. "Banks, Financial Markets and Growth in Developed Countries: a Survey of the empirical literature," CPB Discussion Paper 266, CPB Netherlands Bureau for Economic Policy Analysis.
  6. Keloharju, Matti & Knüpfer, Samuli, 2014. "Match Made at Birth? What Traits of a Million Swedes Tell Us about CEOs," Working Paper Series 1024, Research Institute of Industrial Economics.
  7. Semih Tumen, 2013. "The Impact of the 2008 Crisis on Top Labor Incomes in Turkey: A Nonparametric Analysis," Economics Bulletin, AccessEcon, vol. 33(2), pages 1269-1282.
  8. Eugene Kandel & Konstantin Kosenko & Randall Morck & Yishay Yafeh, 2013. "Business Groups in the United States: A Revised History of Corporate Ownership, Pyramids and Regulation, 1930-1950," NBER Working Papers 19691, National Bureau of Economic Research, Inc.
  9. Caprio, Gerard, 2013. "Financial regulation after the crisis: how did we get here, and how do we get out?," Proceedings, Federal Reserve Bank of San Francisco, issue Nov, pages 1-49.

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