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Finance, Talent Allocation, and Growth

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  • Francesco D'Acunto
  • Laurent Frésard

Abstract

The growing finance wage premium is related to a modest net reallocation of skilled workers from non-finance sectors into finance in a broad sample of 24 countries over 35 years. The reallocation is higher when the finance wage premium grows faster than the contribution of the financial sector to the economy, which we proxy with the relative value added of finance. More innovative sectors and sectors exhibiting lower labor-transition costs face a higher reallocation of skilled workers. Yet, the growing finance wage premium is unrelated to sectoral or aggregate growth, to countries’ innovative capacity, to student enrollment in STEM degrees, and to the riskiness, efficiency, and competitiveness of banking sectors. Overall, the reallocation of skilled labor implied by a growing finance wage premium appears too modest to materially affect economic growth.

Suggested Citation

  • Francesco D'Acunto & Laurent Frésard, 2018. "Finance, Talent Allocation, and Growth," CESifo Working Paper Series 6883, CESifo.
  • Handle: RePEc:ces:ceswps:_6883
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    More about this item

    Keywords

    finance wage premium; skilled labor; misallocation; growth; innovation; banking sector.;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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