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The Making of an Investment Banker: Macroeconomic Shocks, Career Choice, and Lifetime Income

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  • Paul Oyer

Abstract

New graduates of elite MBA programs flock to Wall Street during bull markets and start their careers elsewhere when the stock market is weak. Given the transferability of MBA skills, it seems likely that any effect of stock returns on MBA placement would be short-lived. In this paper, I use a survey of Stanford MBAs from the classes of 1960 through 1997 to analyze the relationship between the state of the stock market at graduation, initial job placement, and long-term labor market outcomes. Using stock market conditions at graduation as an instrument for first job, I show that there is a strong causal effect of initial placement in investment banking on the likelihood of working on Wall Street anywhere from three to twenty years later. I then measure the investment banking compensation premium relative to other jobs and estimate the additional income generated by an MBA cohort where a higher fraction starts in higher-paid jobs relative to a cohort that starts in lower-paid areas. The results lead to several conclusions. First, random factors play a large role in determining the industries and incomes of members of this high-skill group. Second, there is a deep pool of potential investment bankers in any given Stanford MBA class. During the time these people are in school, factors beyond their control sort them into or out of banking upon graduation. Finally, industry-specific or task-specific human capital appears to be important for young investment bankers.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12059.

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Date of creation: Feb 2006
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Publication status: published as Oyer, Paul. "The Making of an Investment Banker: Macroeconomic Shocks, Career Choice, and Lifetime Income." The Journal of Finance 63 (December 2008): 2601-2628.
Handle: RePEc:nbr:nberwo:12059

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Cited by:
  1. Jane Leber Herr & Catherine Wolfram, 2009. "Work Environment and “Opt-Out" Rates at Motherhood Across High-Education Career Paths," NBER Working Papers 14717, National Bureau of Economic Research, Inc.
  2. Kahn, Lisa B., 2010. "The long-term labor market consequences of graduating from college in a bad economy," Labour Economics, Elsevier, vol. 17(2), pages 303-316, April.
  3. James Crotty, 2009. "The Bonus-Driven “Rainmaker” Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability," UMASS Amherst Economics Working Papers 2009-13, University of Massachusetts Amherst, Department of Economics.
  4. Oyer, Paul, 2007. "Ability and Employer Learning: Evidence from the Economist Labor Market," Research Papers 1961, Stanford University, Graduate School of Business.
  5. Bandiera, Oriana & Larcinese, Valentino & Rasul, Imran, 2009. "Heterogeneous Class Size Effects: New Evidence from a Panel of University Students," IZA Discussion Papers 4496, Institute for the Study of Labor (IZA).
  6. Kuhnen, Camelia M., 2010. "Searching for Jobs: Evidence from MBA Graduates," MPRA Paper 21975, University Library of Munich, Germany.

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