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Product Markets and Paychecks: Deregulation's Effect on the Compensation Structure in Banking

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Author Info
Abigail Wozniak () (University of Notre Dame and IZA Bonn)

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Abstract

This paper asks how deregulation intended to promote competition in the commercial banking industry affected the compensation structure for banking employees. Using establishment-based data from the Employment Cost Index Survey of the U.S. Bureau of Labor Statistics, I obtain measures of the level and distribution of wage and benefits compensation within industries. I then compare changes in compensation in the banking industry to changes in unaffected industries across states and over time to identify the effects of deregulation. Banking deregulation had no effect on compensation levels or inequality in the industry as a whole, but this masks conflicting changes within the compensation structure. Manager wages fell while non-manager wages held steady, leading to a large decline in between-occupation compensation inequality. In contrast, between-establishment inequality increased dramatically. Deregulation also led to increases in inequality among managers despite their falling wages and to significant shifts in the types of non-wage benefits banking employees received.

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Publisher Info
Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1957.

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Length: 52 pages
Date of creation: Jan 2006
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Handle: RePEc:iza:izadps:dp1957

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Related research
Keywords: total compensation; compensation inequality; product market competition; commercial banking;

Other versions of this item:

Find related papers by JEL classification:
J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Randall S. Kroszner & Philip E. Strahan, 1999. "What Drives Deregulation? Economics And Politics Of The Relaxation Of Bank Branching Restrictions," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1437-1467, November. [Downloadable!] (restricted)
  2. David Scharfstein, 1988. "Product-Market Competition and Managerial Slack," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 147-155, Spring. [Downloadable!] (restricted)
  3. Fortin, Nicole M & Lemieux, Thomas, 1997. "Institutional Changes and Rising Wage Inequality: Is There a Linkage?," Journal of Economic Perspectives, American Economic Association, vol. 11(2), pages 75-96, Spring. [Downloadable!] (restricted)
  4. Sandra E. Black & Philip E. Strahan, 2001. "The Division of Spoils: Rent-Sharing and Discrimination in a Regulated Industry," American Economic Review, American Economic Association, vol. 91(4), pages 814-831, September. [Downloadable!] (restricted)
  5. Kremer, M & Maskin, E, 1996. "Wage Inequality and Segregation by Skill," Working papers 96-23, Massachusetts Institute of Technology (MIT), Department of Economics.
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  6. Peoples, James, 1998. "Deregulation and the Labor Market," Journal of Economic Perspectives, American Economic Association, vol. 12(3), pages 111-30, Summer. [Downloadable!] (restricted)
  7. Oliver D. Hart, 1983. "The Market Mechanism as an Incentive Scheme," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 366-382, Autumn. [Downloadable!] (restricted)
  8. Groshen, Erica L, 1991. "Sources of Intra-industry Wage Dispersion: How Much Do Employers Matter?," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 869-84, August. [Downloadable!] (restricted)
  9. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August. [Downloadable!] (restricted)
  10. Michael Kremer & Eric Maskin, 1996. "Wage Inequality and Segregation," Harvard Institute of Economic Research Working Papers 1777, Harvard - Institute of Economic Research.
  11. Sandra E. Black & Elizabeth Brainerd, 2004. "Importing equality? The impact of globalization on gender discrimination," Industrial and Labor Relations Review, ILR Review, ILR School, Cornell University, vol. 57(4), pages 540-559, July. [Downloadable!] (restricted)
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  12. Brooks Pierce, 2001. "Compensation Inequality," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1493-1525, November. [Downloadable!] (restricted)
  13. Economides, N. & Hubbard, R.G. & Palia, D., 1995. "The Political Economy of Branching Restrictions and Deposit Insurance: A Model of Monopolistic Competition Among Small and Large Banks," Papers 95-14, Columbia - Graduate School of Business.
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  14. Charles Brown & James L. Medoff, 1989. "The Employer Size-Wage Effect," NBER Working Papers 2870, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  15. Hubbard, R. Glenn & Palia, Darius, 1995. "Executive pay and performance Evidence from the U.S. banking industry," Journal of Financial Economics, Elsevier, vol. 39(1), pages 105-130, September. [Downloadable!] (restricted)
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  16. Kane, Edward J, 1996. "De Jure Interstate Banking: Why Only Now?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(2), pages 141-61, May. [Downloadable!] (restricted)
  17. David Card, 1996. "Deregulation and Labor Earnings in the Airline Industry," NBER Working Papers 5687, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  18. Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
    Other versions:
  19. Sandra A. Cannon & Bruce C. Fallick & Michael Lettau & Raven Saks, 2000. "Has compensation become more flexible?," Finance and Economics Discussion Series 2000-27, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  20. Flannery, Mark J., 1984. "The social costs of unit banking restrictions," Journal of Monetary Economics, Elsevier, vol. 13(2), pages 237-249, March. [Downloadable!] (restricted)
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  21. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Jirjahn, Uwe & Kraft, Kornelius, 2008. "Teamwork and Intra-Firm Wage Dispersion among Blue-Collar Workers," IZA Discussion Papers 3291, Institute for the Study of Labor (IZA). [Downloadable!]
  2. Eva Jansson, 0. "Deregulation, property rights, and legal system," European Journal of Law and Economics, Springer, vol. 0, pages 1-25. [Downloadable!] (restricted)
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This page was last updated on 2009-12-14.

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