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Innovating in Science and Engineering or "Cashing In" on Wall Street? Evidence on Elite STEM Talent

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  • Pian Shu

    (Harvard Business School, Technology and Operations Management Unit)

Abstract

Using data on MIT bachelor's graduates from 1994 to 2012, this paper empirically examines the extent to which the inflow of elite talent into the financial industry affects the supply of innovators in science and engineering (S&E). I first show that finance does not systematically attract those who are best prepared at college graduation to innovate in S&E sectors. Among graduates who majored in S&E, cumulative GPA strongly and positively predicts long-term patenting; this result is robust to controlling for choices of major and career. In contrast, GPA negatively predicts the probability of taking a first job in finance after college. There is suggestive evidence that S&E and finance value different sets of skills: innovating in S&E calls for in-depth knowledge and/or interest in a specific subject area, whereas finance tends to value a combination of general analytic skills and social skills over academic specialization. I then provide evidence that anticipated career incentives influence students' acquisition of S&E human capital during college. The 2008-09 financial crisis, which substantially reduced the availability of jobs in finance and led to a worsening labor market in general, prompted some students to major in S&E instead of management or economics and/or to improve their academic performance. This response to the shock is driven by students with below-average academic credentials who were freshmen at the peak of the crisis.

Suggested Citation

  • Pian Shu, 2015. "Innovating in Science and Engineering or "Cashing In" on Wall Street? Evidence on Elite STEM Talent," Harvard Business School Working Papers 16-067, Harvard Business School, revised Nov 2016.
  • Handle: RePEc:hbs:wpaper:16-067
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    Cited by:

    1. Eunhee Sohn, 2021. "How Local Industry R&D Shapes Academic Research: Evidence from the Agricultural Biotechnology Revolution," Organization Science, INFORMS, vol. 32(3), pages 675-707, May.
    2. Shimeng Liu & Weizeng Sun & John V. Winters, 2019. "Up In Stem, Down In Business: Changing College Major Decisions With The Great Recession," Contemporary Economic Policy, Western Economic Association International, vol. 37(3), pages 476-491, July.
    3. Marin, Giovanni & Vona, Francesco, 2023. "Finance and the reallocation of scientific, engineering and mathematical talent," Research Policy, Elsevier, vol. 52(5).
    4. Böhm, Michael Johannes & Metzger, Daniel & Strömberg, Per, 2022. "'Since You're So Rich, You Must Be Really Smart': Talent, Rent Sharing, and the Finance Wage Premium," IZA Discussion Papers 15337, Institute of Labor Economics (IZA).
    5. Wenting Ma, 2024. "Employer Dominance and Worker Earnings in Finance," Working Papers 24-41, Center for Economic Studies, U.S. Census Bureau.
    6. Michael Böhm & Daniel Metzger & Per Strömberg, 2022. "“Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium," ECONtribute Discussion Papers Series 147, University of Bonn and University of Cologne, Germany.
    7. Strömberg, Per & Metzger, Daniel & Böhm, Michael, 2018. "“Since you’re so rich, you must be really smart†: Talent and the Finance Wage Premium," CEPR Discussion Papers 12711, C.E.P.R. Discussion Papers.
    8. Aaron Chatterji, 2017. "Innovation and American K-12 Education," NBER Working Papers 23531, National Bureau of Economic Research, Inc.
    9. Delgado, Mercedes & Mills, Karen G., 2020. "The supply chain economy: A new industry categorization for understanding innovation in services," Research Policy, Elsevier, vol. 49(8).
    10. Ersoy, Fulya Y., 2020. "The effects of the great recession on college majors," Economics of Education Review, Elsevier, vol. 77(C).
    11. Aaron K. Chatterji, 2017. "Innovation and American K-12 Education," NBER Chapters, in: Innovation Policy and the Economy, Volume 18, pages 27-51, National Bureau of Economic Research, Inc.

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