Finance, Talent Allocation, and Growth
61 Pages Posted: 29 Jan 2018 Last revised: 26 Sep 2018
Date Written: September 19, 2018
The growing finance wage premium relates to a modest net reallocation of skilled workers from non-finance sectors into finance in a sample of 13 sectors in 24 countries over 35 years. Reallocation is higher when the finance wage premium grows faster than the contribution of finance to the economy, whose variation we capture with the finance value added premium. Yet, the growing finance wage premium appears unrelated to sectoral or aggregate growth, innovation, student enrollment in STEM degrees, or the banks' riskiness. The reallocation of skilled labor the finance wage premium implies does not seem to materially affect economic growth.
Keywords: Finance Wage Premium, Skilled Labor, Misallocation, Growth, Innovation, STEM Education, Patents, Banking Sector, Value Added, Social Value of Finance
JEL Classification: D72, G20, J23, J31, N20
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