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Financial sector pay and labour income inequality: Evidence from Europe

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  • Oliver Denk

    (OECD)

Abstract

Public questioning about the role of finance has been fuelled by the perception that financial sector pay is an important factor behind high economic inequalities. This paper is the first to provide a comprehensive look at the level of earnings in finance and the implications for labour income inequality for European countries. Financial sector workers are shown to make up 19% among the top 1% earners, although the overall employment share of finance is only 4%. Nonetheless, the relatively small size of the sector limits the contribution that financial sector pay has on income inequality to a small, but noticeable amount. Simulations indicate that most of this contribution is explained by financial institutions paying salaries and bonuses which are above what employees with similar profiles get in other sectors. Estimations that allow for heterogeneity across workers reveal that this wage premium is more than twice as high for financial sector workers at the top of the distribution than at the bottom. The labour market in finance displays other symptoms of imperfection, with, for example, male financial sector workers earning a large wage premium over female financial sector workers, again especially at the top. Rémunérations du secteur financier et inégalités des revenus du travail : Données d'observation en Europe Les interrogations dans l’opinion sur le rôle de la finance se sont nourries du sentiment que les rémunérations dans ce secteur sont un élément important des fortes inégalités économiques. Ce document est le premier à donner une vue d’ensemble du niveau des rémunérations dans la finance et de leurs implications pour les inégalités des revenus du travail dans les pays européens. Il s’avère que les travailleurs du secteur financier constituent 19 % des 1 % de salariés les mieux rémunérés, alors que la part de ce secteur dans l’emploi total n’est que de 4 %. Néanmoins, sa taille relativement modeste fait que son impact sur les inégalités de revenu est réduit, mais visible. Les simulations réalisées montrent que cet impact s’explique essentiellement par les rémunérations et les primes versées par les établissements financiers, supérieures à celles des salariés au profil comparable des autres secteurs. Des estimations qui tiennent compte de l’hétérogénéité entre les travailleurs montrent que cet avantage de salaire du secteur financier est, en haut de la distribution, deux fois plus élevé qu’en bas. Le marché du travail dans la finance révèle d’autres signes d’imperfection, notamment le fait que les travailleurs masculins y bénéficient d’un avantage de salaire conséquent par rapport à leurs homologues femmes, là encore tout particulièrement en haut de la distribution.

Suggested Citation

  • Oliver Denk, 2015. "Financial sector pay and labour income inequality: Evidence from Europe," OECD Economics Department Working Papers 1225, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1225-en
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    File URL: https://doi.org/10.1787/5js04v5wjw9p-en
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    Cited by:

    1. repec:eee:poleco:v:50:y:2017:i:c:p:171-195 is not listed on IDEAS
    2. Oliver Denk & Boris Cournède, 2015. "Finance and income inequality in OECD countries," OECD Economics Department Working Papers 1224, OECD Publishing.
    3. Michael Patrick Curran & Matthew J. Fagerstrom, 2019. "Monetary Growth and Financial Sector Wages," Villanova School of Business Department of Economics and Statistics Working Paper Series 41, Villanova School of Business Department of Economics and Statistics.
    4. repec:pal:compes:v:60:y:2018:i:1:d:10.1057_s41294-017-0046-0 is not listed on IDEAS
    5. Boris Cournède & Oliver Denk & Peter Hoeller, 2015. "Finance and Inclusive Growth," OECD Economic Policy Papers 14, OECD Publishing.
    6. de Haan, Jakob & Sturm, Jan-Egbert, 2017. "Finance and income inequality: A review and new evidence," European Journal of Political Economy, Elsevier, vol. 50(C), pages 171-195.
    7. Olivier Godechot, 2015. "Financialization Is Marketization! : A Study on the Respective Impact of Various Dimensions of Financialization on the Increase in Global Inequality," Sciences Po publications 15/3, Sciences Po.
    8. repec:oup:restud:v:85:y:2018:i:1:p:511-557. is not listed on IDEAS
    9. Renato Gomes & Jean-Marie Lozachmeur & Alessandro Pavan, 2018. "Differential Taxation and Occupational Choice," Review of Economic Studies, Oxford University Press, vol. 85(1), pages 511-557.
    10. repec:zbw:ifweej:201838 is not listed on IDEAS
    11. Sturm, Jan-Egbert & De Haan, Jakob, 2016. "Finance and income inequality revisited," Annual Conference 2016 (Augsburg): Demographic Change 145660, Verein für Socialpolitik / German Economic Association.
    12. Oliver Denk & Sebastian Schich & Boris Cournède, 2015. "Why implicit bank debt guarantees matter: Some empirical evidence," OECD Journal: Financial Market Trends, OECD Publishing, vol. 2014(2), pages 63-88.
    13. Casarico, A. & Lattanzio, S., 2019. "What Firms Do: Gender Inequality in Linked Employer-Employee Data," Cambridge Working Papers in Economics 1966, Faculty of Economics, University of Cambridge.
    14. Iwata, Kazumasa & Jean, Sébastien & Kastrop, Christian & Loewald, Chris & Véron, Nicolas, 2018. "T20 resilience and inclusive growth," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy (IfW), vol. 12, pages 1-10.
    15. Boustanifar, Hamid & Grant, Everett & Reshef, Ariell, 2016. "Wages and human capital in finance: international evidence, 1970-2005," Globalization Institute Working Papers 266, Federal Reserve Bank of Dallas.

    More about this item

    Keywords

    avantage salarial; coefficient de Gini; earnings; European Union; finance; finance; gender inequality; Gini coefficient; income inequality; Inégalités de genre; inégalités de revenu; surqualification; Union européenne; wage differential; Wage premium;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J16 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Gender; Non-labor Discrimination
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials

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