Working Paper: NBER ID: w13437
Authors: Thomas Philippon; Ariell Reshef
Abstract: Over the past 60 years, the U.S. financial sector has grown from 2.3% to 7.7% of GDP. While the growth in the share of value added has been fairly linear, it hides a dramatic change in the composition of skills and occupations. In the early 1980s, the financial sector started paying higher wages and hiring more skilled individuals than the rest of economy. These trends reflect a shift away from low-skill jobs and towards market-oriented activities within the sector. Our evidence suggests that technological and financial innovations both played a role in this transformation. We also document an increase in relative wages, controlling for education, which partly reflects an increase in unemployment risk: Finance jobs used to be safer than other jobs in the private sector, but this is not longer the case.
Keywords: Financial Development; Education; Wages; Occupations; Skill Bias
JEL Codes: G2; J21; J24; J3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial innovations and technological advancements (O39) | Increase in skilled labor demand (J24) |
| Increase in unemployment risk in finance jobs (J65) | Wage increases in the financial sector (J31) |
| Skill composition of the financial sector (G29) | Wages in the financial sector (J31) |
| Technological innovations and changes in financial practices (O14) | Transformation of the financial sector's skill composition (O16) |
| Increase in skilled individuals hired in the financial sector (G29) | Shift from low-skill jobs to skill-intensive roles (J24) |