Working Paper: CEPR ID: DP7282
Authors: Thomas Philippon; Ariell Reshef
Abstract: We use detailed information about wages, education and occupations to shed light on the evolution of the U.S. financial sector over the past century. We uncover a set of new, interrelated stylized facts: financial jobs were relatively skill intensive, complex, and highly paid until the 1930s and after the 1980s, but not in the interim period. We investigate the determinants of this evolution and find that financial deregulation and corporate activities linked to IPOs and credit risk increase the demand for skills in financial jobs. Computers and information technology play a more limited role. Our analysis also shows that wages in finance were excessively high around 1930 and from the mid 1990s until 2006. For the recent period we estimate that rents accounted for 30% to 50% of the wage differential between the financial sector and the rest of the private sector.
Keywords: finance; human capital; regulation; wages
JEL Codes: G0; J0; N0; O0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Deregulation (L51) | Demand for skilled workers (J24) |
| Tighter regulations (G18) | Demand for skilled workers (J24) |
| Deregulation (L51) | Skill upgrading (J24) |
| Regulatory changes (G18) | Wage structures (J31) |
| Financial deregulation (G28) | Relative skill intensity and wages (J31) |
| Corporate activities linked to IPOs and credit risk (G24) | Relative skill intensity and wages (J31) |
| Economic rents (D33) | Wage differential between the financial sector and the rest of the economy (J31) |