Finance Sector Wage Growth and the role of Human Capital
AbstractGiven the UK finance sector is one of the largest in the world, it provides the perfect setting for a study into the nature of the finance sector wage premium. We reveal the pervasiveness of this premium, across all sub-sectors of finance, and across all occupations within finance, and with the very highest rewards going to 40-49 year old men working in London. Moreover, the UK premium has continued to rise despite the recent financial crisis. Consequently, this study uses rich data from the UK to investigate potential explanations. We find that the financial sector is more skill intensive but also that financial sector workers have higher childhood test scores vis-à-vis non-finance workers. So we investigate to what extent these higher qualifications and higher cognitive skills can explain the financial pay differential. We then go on to consider whether the financial premium is a consequence of differences in job characteristics and thus whether technological change can explain the growth in the premium. While each of these factors has some role to play, we find that none can fully explain the wage premium found in the financial sector, which we find to be pervasive across 17 OECD countries, including the US. We therefore attribute to this to rent-sharing.
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Bibliographic InfoPaper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2014002.
Length: 39 pages
Date of creation: 2014
Date of revision:
wage inequality; financial services; cognitive skills; bonuses;
Find related papers by JEL classification:
- J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
- J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
- I24 - Health, Education, and Welfare - - Education - - - Education and Inequality
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-02-02 (All new papers)
- NEP-LAB-2014-02-02 (Labour Economics)
- NEP-LMA-2014-02-02 (Labor Markets - Supply, Demand, & Wages)
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