Can Human Capital Explain Income-based Disparities in Financial Services?

81 Pages Posted: 25 Jul 2022 Last revised: 5 Feb 2024

See all articles by Ruidi Huang

Ruidi Huang

Southern Methodist University (SMU) - Finance Department

James S. Linck

Southern Methodist University (SMU) - Finance Department

Erik J. Mayer

University of Wisconsin-Madison, Finance Department

Chris Parsons

University of Southern California - Marshall School of Business

Date Written: February 1, 2024

Abstract

Research shows that access to high-quality financial services varies with local income and wealth. We study how financial firms' internal allocation of human capital contributes to these disparities. Using a near-comprehensive panel of over 350,000 U.S. mortgage loan officers, we document large and persistent differences in productivity and performance. We find that firms' hiring and promotion practices allocate workers with less experience or poor track records to branches serving low-income customers. Further, the consequences of poor performance differ by location: low sales, bad loans, and misconduct are more tolerated in low-income branches, exacerbating income-based disparities in financial services.

Keywords: Financial Services, Labor Market, Human Capital, Loan Officer, Mortgage, Housing

JEL Classification: G21, G50, J24, J61, M50

Suggested Citation

Huang, Ruidi and Linck, James S. and Mayer, Erik J. and Parsons, Chris, Can Human Capital Explain Income-based Disparities in Financial Services? (February 1, 2024). SMU Cox School of Business Research Paper No. 22-16, Available at SSRN: https://ssrn.com/abstract=4164137 or http://dx.doi.org/10.2139/ssrn.4164137

Ruidi Huang

Southern Methodist University (SMU) - Finance Department ( email )

United States

James S. Linck

Southern Methodist University (SMU) - Finance Department ( email )

United States

Erik J. Mayer (Contact Author)

University of Wisconsin-Madison, Finance Department ( email )

975 University Avenue
Madison, WI 53706
United States

HOME PAGE: http://https://sites.google.com/site/erikjmayer/

Chris Parsons

University of Southern California - Marshall School of Business ( email )

701 Exposition Blvd
Los Angeles, CA California 90089
United States

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