Rise of the “Quants” in Financial Services: Regulation and Crowding Out of Routine Jobs

Abstract

We document three recent trends in employment in financial services: (a) the share of science, technology, engineering, and math (STEM) workers grew by 30 percent between 2011 and 2017; (b) while the earnings premium of working in finance has grown, the STEM premium in finance has declined since 2011; and (c) regulatory restrictions in financial services have grown faster than in other sectors. We investigate three economic mechanisms underlying these patterns: (a) capital-skill complementarity, (b) relabeling of non-STEM degree programs as STEM degree programs, and (c) regulation. We show that only the rise in regulation can explain our observations.

Keywords: fintech, financial services, STEM workers, regulation, STEM

JEL Classification: G21, G23, G38, J23, J31