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Since you’re so rich, you must be really smart”: Talent and the Finance Wage Premium

Author

Listed:
  • Böhm, Michael

    (University of Bonn)

  • Metzger, Daniel

    (Stockholm School of Economics)

  • Strömberg, Per

    (SIFR)

Abstract

Relative pay in the financial sector has experienced an extraordinary increase over the last few decades. A proposed explanation for this pattern has been that the demand for skilled workers in finance has risen more than in other sectors. We use Swedish administrative data, which include detailed cognitive and non-cognitive test scores as well as performance in high-school and university, to examine the implications of this hypothesis for talent allocation and relative wages in the financial sector. We find no evidence that the selection of talent into finance increased or improved, neither on average nor at the top of the talent distribution. A changing composition of talent or their returns cannot account for the surge in the finance wage premium. These findings alleviate concerns about a “brain drain” into finance at the expense of other sectors, but they also suggest that rents in finance are high, increasing, and largely unexplained.

Suggested Citation

  • Böhm, Michael & Metzger, Daniel & Strömberg, Per, 2015. "Since you’re so rich, you must be really smart”: Talent and the Finance Wage Premium," Working Paper Series 313, Sveriges Riksbank (Central Bank of Sweden).
    • Handle: RePEc:hhs:rbnkwp:0313
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    File URL: http://www.riksbank.se/Documents/Rapporter/Working_papers/2015/rap_wp313_151210.pdf
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    Cited by:

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    2. Caggese, Andrea & Cuñat, Vicente & Metzger, Daniel, 2019. "Firing the wrong workers: Financing constraints and labor misallocation," Journal of Financial Economics, Elsevier, vol. 133(3), pages 589-607.
    3. Hvide, Hans K. & Oyer, Paul, 2017. "Dinner Table Human Capital and Entrepreneurship," Research Papers repec:ecl:stabus:3658, Stanford University, Graduate School of Business.

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    More about this item

    Keywords

    Finance wage premium; talent allocation; wage inequality;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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