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Wages and Human Capital in Finance: International Evidence, 1970–2011

Author

Listed:
  • Ariell Reshef

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique)

  • Hamid Boustanifar

    (BI Norwegian Business School [Oslo])

  • Everett Grant

    (Federal Reserve Bank of Dallas)

Abstract

We study the allocation and compensation of human capital in the finance industry in a set of developed economies in 1970-2011. Finance relative wages generally increase---but not in all countries, and to varying degrees. Trading-related activities account for 50% of the increases, despite accounting for only 13% of finance employment, on average. Financial deregulation is the most important factor driving up wages in finance; it has a larger effect in environments where informational rents and socially inefficient risk taking are likely to be prevalent. Differential investment in information and communication technology does not have causal explanatory power. High finance wages attract skilled international immigration to finance, raising concerns for "brain drain."

Suggested Citation

  • Ariell Reshef & Hamid Boustanifar & Everett Grant, 2017. "Wages and Human Capital in Finance: International Evidence, 1970–2011," Post-Print hal-01472400, HAL.
  • Handle: RePEc:hal:journl:hal-01472400
    DOI: 10.1093/rof/rfx011
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    2. Arnold, Lutz G. & Zelzner, Sebastian, 2022. "Financial trading versus entrepreneurship: Competition for talent and negative feedback effects," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 186-199.
    3. Andrew Ellul & Marco Pagano & Annalisa Scognamiglio, 2020. "Careers in Finance," EIEF Working Papers Series 2007, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2021.
    4. Matthias Efing & Harald Hau & Patrick Kampkktter & Jean-Charles Rochet, 2018. "Bank Bonus Pay as a Risk Sharing Contract," Working Papers hal-01847442, HAL.
    5. Zhu, Xiaoyang & Asimakopoulos, Stylianos & Kim, Jaebeom, 2020. "Financial development and innovation-led growth: Is too much finance better?," Journal of International Money and Finance, Elsevier, vol. 100(C).
    6. Filippo Bontadini & Francesco Vona, 2023. "Anatomy of Green Specialisation: Evidence from EU Production Data, 1995–2015," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 85(3), pages 707-740, August.
    7. Giraud, Gaël & Grasselli, Matheus, 2021. "Household debt: The missing link between inequality and secular stagnation," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 901-927.
    8. Prachi Mishra & Ariell Reshef, 2019. "How Do Central Bank Governors Matter? Regulation and the Financial Sector," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 51(2-3), pages 369-402, March.
    9. Ugo Panizza, 2018. "Nonlinearities in the Relationship Between Finance and Growth," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(1), pages 44-53, March.
    10. Lutz G. Arnold & Sebastian Zelzner, 2020. "Welfare Effects of the Allocation of Talent to Financial Trading: What Does the Grossman-Stiglitz Model Say?," Working Papers 190, Bavarian Graduate Program in Economics (BGPE).
    11. Nolan, Brian & Richiardi, Matteo & Valenzuela, Luis, 2018. "The Drivers of Inequality in Rich Countries," INET Oxford Working Papers 2018-15, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.
    12. Alexander Ludwig & Alexander Monge-Naranjo & Ctirad Slavik & Faisal Sohail, 2019. "Financial Liberalization and Income Inequality: On the Heterogenous Effects of Different Reforms," 2019 Meeting Papers 895, Society for Economic Dynamics.
    13. Asano, Koji, 2021. "Managing Financial Expertise," MPRA Paper 107665, University Library of Munich, Germany.
    14. Jen-Wen Chang & Simpson Zhang, 2018. "Competitive Pay and Excessive Manager Risk-taking," Working Papers 18-02, Office of Financial Research, US Department of the Treasury.
    15. Arabela ICHIM & Mihaela NECULITA & Daniela Ancuta SARPE, 2018. "Drivers and consequences of income inequality," Risk in Contemporary Economy, "Dunarea de Jos" University of Galati, Faculty of Economics and Business Administration, pages 208-214.
    16. Francesco D'Acunto & Laurent Frésard, 2018. "Finance, Talent Allocation, and Growth," CESifo Working Paper Series 6883, CESifo.

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    More about this item

    Keywords

    Financial regulation; informational rents; allocation of talent; wage inequality.;
    All these keywords.

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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