The Finance Wage Premium and Entrepreneurship

54 Pages Posted: 13 Mar 2018 Last revised: 20 May 2022

See all articles by Nandini Gupta

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Isaac Hacamo

Indiana University - Kelley School of Business - Department of Finance

Date Written: May 19, 2022

Abstract

Does the finance wage premium cause a “brain drain” of engineers and scientists to finance, reducing innovative entrepreneurship? Or do engineer-financiers facilitate innovative entrepreneurship by others? Comparing engineers in the same school-engineering-major who graduate one year apart, we show that those exogenously exposed to higher relative finance wages at graduation are more likely to take finance jobs. Engineers who take finance jobs when finance wages are high are less likely to become entrepreneurs, but their classmates who do not go to finance are more likely to create successful firms. Consistent with a peer effects mechanism, we show that top engineers are more likely to become transformative entrepreneurs if more of their classmates are in private equity, venture capital, and investment banking jobs. Our results suggest that a finance wage-premium attracts talented engineers to finance, but not those with the most entrepreneurial skills.

Keywords: Finance wage premium; Talent allocation; Entrepreneurship; Innovation.

JEL Classification: G2, G20, J2, J3, J31, M52, N2

Suggested Citation

Gupta, Nandini and Hacamo, Isaac, The Finance Wage Premium and Entrepreneurship (May 19, 2022). Kelley School of Business Research Paper No. 18-18, Available at SSRN: https://ssrn.com/abstract=3136751 or http://dx.doi.org/10.2139/ssrn.3136751

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance ( email )

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Isaac Hacamo (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-7842 (Phone)

HOME PAGE: http://hacamo.weebly.com/

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