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Skill Biased Financial Development: Education, Wages and Occupations in the U.S. Financial Sector

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  • 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.

Suggested Citation

  • Thomas Philippon & Ariell Reshef, 2007. "Skill Biased Financial Development: Education, Wages and Occupations in the U.S. Financial Sector," NBER Working Papers 13437, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13437
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    Cited by:

    1. Ariell Reshef, 2013. "Is Technological Change Biased Towards the Unskilled in Services? An Empirical Investigation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(2), pages 312-331, April.
    2. Biais, Bruno & Rochet, Jean-Charles & Woolley, Paul, 2010. "Innovations, Rents and Risk," TSE Working Papers 10-200, Toulouse School of Economics (TSE).
    3. Thomas Philippon & Ariell Reshef, 2009. "Wages and Human Capital in the U.S. Financial Industry: 1909-2006," NBER Working Papers 14644, National Bureau of Economic Research, Inc.
    4. Felton, Andrew & Reinhart, Carmen M. (ed.), 2009. "The First Global Financial Crisis of the 21st Century Part II: June–December, 2008," Vox eBooks, Centre for Economic Policy Research, number p199.
    5. Burak Dindaroglu, 2010. "Intra-Industry Knowledge Spillovers and Scientific Labor Mobility," Discussion Papers 10-01, University at Albany, SUNY, Department of Economics.
    6. Andrew W. Lo & Mark T. Mueller, 2010. "WARNING: Physics Envy May Be Hazardous To Your Wealth!," Papers 1003.2688, arXiv.org, revised Mar 2010.
    7. James Crotty, 2009. "The Bonus-Driven “Rainmaker” Financial Firm: How These Firms Enrich Top Employees, Destroy Shareholder Value and Create Systemic Financial Instability," UMASS Amherst Economics Working Papers 2009-13, University of Massachusetts Amherst, Department of Economics.
    8. Doris Ritzberger-Grünwald & Alfred Stiglbauer & Walter Waschiczek, 2016. "Banking employment in Austria," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 32, pages 80-100.
    9. Gomis, Roger. & Khatiwada, Sameer., 2016. "Debt and productivity evidence from firm-level data," ILO Working Papers 994909333402676, International Labour Organization.
    10. Salvatore Morelli, 2018. "Banking crises in the US: the response of top income shares in a historical perspective," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 16(2), pages 257-294, June.
    11. Studer, Sabrina & Falkinger, Josef & Zhao, Yingnan, 2015. "Explaining structural changes towards and within the financial sector," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113004, Verein für Socialpolitik / German Economic Association.
    12. Zagorchev, Andrey & Vasconcellos, Geraldo & Bae, Youngsoo, 2011. "Financial development, technology, growth and performance: Evidence from the accession to the EU," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 743-759.
    13. Thomas Philippon & Yuliy Sannikov, 2007. "Real Options in a Dynamic Agency Model, with Applications to Financial Development, IPOs, and Business Risk," NBER Working Papers 13584, National Bureau of Economic Research, Inc.
    14. Andrew W. Lo, 2009. "Regulatory reform in the wake of the financial crisis of 2007‐2008," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 1(1), pages 4-43, April.
    15. Biais, Bruno & Rochet, Jean-Charles & Woolley, Paul, 2009. "The Lifecycle of the Financial Sector and Other Speculative Industries," TSE Working Papers 09-031, Toulouse School of Economics (TSE).
    16. Anna Mishura & Svetlana Ageeva, 2016. "Regional distribution of bank institutions in Russia: Role of state and education," ERSA conference papers ersa16p167, European Regional Science Association.
    17. Biais, Bruno & Rochet, Jean-Charles & Woolley, Paul, 2010. "Innovations, Rents and Risk," TSE Working Papers 10-200, Toulouse School of Economics (TSE).
    18. Thomas Philippon, 2007. "Why Has the U.S. Financial Sector Grown so Much? The Role of Corporate Finance," NBER Working Papers 13405, National Bureau of Economic Research, Inc.
    19. Ravi Kashyap, 2016. "Financial Services, Economic Growth and Well-Being: A Four-Pronged Study," Papers 1603.00991, arXiv.org, revised May 2017.
    20. Thomas Philippon, 2007. "Financiers vs. Engineers: Should the Financial Sector be Taxed or Subsidized?," NBER Working Papers 13560, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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