External Labor Market Punishment in Finance
95 Pages Posted: 23 Mar 2023 Last revised: 27 Sep 2023
Date Written: March 17, 2023
Abstract
We document that finance employees involuntarily separated for misconduct earn 2.8% to 8.6% higher income than similar employees laid-off for no fault. Our results are most consistent with assortative matching in the finance labor market: firms more likely to engage in misconduct are also more likely to hire employees separated for misconduct and pay a wage premium for them. Finance is unique in that these patterns are reversed for all other sectors. One hypothesis explaining our findings is that most products and services in finance are based on future cash flows which makes it potentially easier to camouflage such behavior.
Keywords: Misconduct, punishment, finance sector, layoffs, earnings, employer-employee match
JEL Classification: G20, G29, J44, K42
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