'Since You're so Rich, You Must Be Really Smart': Talent and the Finance Wage Premium

100 Pages Posted: 20 Feb 2018

See all articles by Michael J. Böhm

Michael J. Böhm

University of Bonn

Daniel Metzger

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM); European Corporate Governance Institute (ECGI); London School of Economics & Political Science (LSE) - Financial Markets Group

Per Strömberg

Swedish House of Finance; ECGI; CEPR

Date Written: February 2018

Abstract

Wages in the financial sector have experienced an extraordinary increase over the last few decades. A proposed explanation for this trend has been that the demand for skill has risen more in finance compared to other sectors. We use Swedish administrative data, which include detailed cognitive and non-cognitive test scores as well as educational performance, to examine the implications of this hypothesis for talent allocation and relative wages in the financial sector. We find no evidence that the selection of talent into finance has improved, neither on average nor at the top of the talent and wage distributions. A changing composition of talent or their returns cannot account for the surge in the finance wage premium. While these findings alleviate concerns about a "brain drain" into finance at the expense of other sectors, they also suggest that finance workers are capturing substantial rents that have increased over time.

Keywords: Sectoral Wage Premia; Talent Allocation; Earnings Inequality; Compensation in Financial Industry

JEL Classification: G20, J24, J31

Suggested Citation

Böhm, Michael J. and Metzger, Daniel and Stromberg, Per, 'Since You're so Rich, You Must Be Really Smart': Talent and the Finance Wage Premium (February 2018). CEPR Discussion Paper No. DP12711, Available at SSRN: https://ssrn.com/abstract=3126204

Michael J. Böhm (Contact Author)

University of Bonn ( email )

Adenauerallee 24-42
Institute for Applied Microeconomics
Bonn, NRW 53113
Germany
+49 228 73-9240 (Phone)

HOME PAGE: http://www.iame.uni-bonn.de/people/michael-boehm

Daniel Metzger

Erasmus University Rotterdam (EUR) - Rotterdam School of Management (RSM) ( email )

P.O. Box 1738
Room T08-21
3000 DR Rotterdam, 3000 DR
Netherlands

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

London School of Economics & Political Science (LSE) - Financial Markets Group ( email )

Houghton Street
London WC2A 2AE
United Kingdom

Per Stromberg

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://www.hhs.se/en/houseoffinance/about/people/people-container/per-stromberg/

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