IDEAS home Printed from https://ideas.repec.org/p/tor/tecipa/tecipa-738.html
   My bibliography  Save this paper

Technological Change and the Finance Wage Premium

Author

Listed:
  • Ata Can Bertay
  • Jose Gabo Carreno
  • Harry Huizinga
  • Burak Uras
  • Nathanael Vellekoop

Abstract

This paper utilizes a comprehensive worker-firm panel for the Netherlands to quantify the impact of ICT capital-skill complementarity on the finance wage premium after the Global Financial Crisis. We apply additive worker and firm fixed-effect models to account for unobserved worker- and firm-heterogeneity and show that firm fixed-effects correct for a downward bias in the estimated finance wage premium. Our results indicate a sizable finance wage premium for both fixed- and full-hourly wages. The complementarity between ICT capital spending and the share of high skill workers at the firm-level reduces the full-wage premium considerably and the fixed-wage premium almost entirely.

Suggested Citation

  • Ata Can Bertay & Jose Gabo Carreno & Harry Huizinga & Burak Uras & Nathanael Vellekoop, 2022. "Technological Change and the Finance Wage Premium," Working Papers tecipa-738, University of Toronto, Department of Economics.
    • Handle: RePEc:tor:tecipa:tecipa-738
    as

    Download full text from publisher

    File URL: https://www.economics.utoronto.ca/public/workingPapers/tecipa-738.pdf
    File Function: Main Text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    2. Joop Hartog & Wiemer Salverda, 2018. "The labor market in the Netherlands, 2001–2016," IZA World of Labor, Institute of Labor Economics (IZA), pages 418-418, January.
    3. David Card & Jörg Heining & Patrick Kline, 2013. "Workplace Heterogeneity and the Rise of West German Wage Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(3), pages 967-1015.
    4. Lawrence F. Katz & Kevin M. Murphy, 1992. "Changes in Relative Wages, 1963–1987: Supply and Demand Factors," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(1), pages 35-78.
    5. Efing, Matthias & Hau, Harald & Kampkötter, Patrick & Rochet, Jean-Charles, 2018. "Bank Bonus Pay as a Risk Sharing Contract," HEC Research Papers Series 1285, HEC Paris.
    6. Barney Hartman‐Glaser & Hanno Lustig & Mindy Z. Xiaolan, 2019. "Capital Share Dynamics When Firms Insure Workers," Journal of Finance, American Finance Association, vol. 74(4), pages 1707-1751, August.
    7. Stéphane Bonhomme & Kerstin Holzheu & Thibaut Lamadon & Elena Manresa & Magne Mogstad & Bradley Setzler, 2023. "How Much Should We Trust Estimates of Firm Effects and Worker Sorting?," Journal of Labor Economics, University of Chicago Press, vol. 41(2), pages 291-322.
    8. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters, in: Corporate Governance, National Bureau of Economic Research, Inc.
    9. Lachowska, Marta & Mas, Alexandre & Saggio, Raffaele & Woodbury, Stephen A., 2023. "Do firm effects drift? Evidence from Washington administrative data," Journal of Econometrics, Elsevier, vol. 233(2), pages 375-395.
    10. Allen, Steven G, 2001. "Technology and the Wage Structure," Journal of Labor Economics, University of Chicago Press, vol. 19(2), pages 440-483, April.
    11. David Card & Francesco Devicienti & Agata Maida, 2014. "Rent-sharing, Holdup, and Wages: Evidence from Matched Panel Data," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(1), pages 84-111.
    12. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    13. Thibaut Lamadon & Magne Mogstad & Bradley Setzler, 2022. "Imperfect Competition, Compensating Differentials, and Rent Sharing in the US Labor Market," American Economic Review, American Economic Association, vol. 112(1), pages 169-212, January.
    14. John Thanassoulis, 2012. "The Case for Intervening in Bankers’ Pay," Journal of Finance, American Finance Association, vol. 67(3), pages 849-895, June.
    15. John Duffy & Chris Papageorgiou & Fidel Perez-Sebastian, 2004. "Capital-Skill Complementarity? Evidence from a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 327-344, February.
    16. David H. Autor & Frank Levy & Richard J. Murnane, 2003. "The skill content of recent technological change: an empirical exploration," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
    17. Brian Bell & John Reenen, 2014. "Bankers and Their Bonuses," Economic Journal, Royal Economic Society, vol. 124(574), pages 1-21, February.
    18. John M. Abowd & Francis Kramarz & David N. Margolis, 1999. "High Wage Workers and High Wage Firms," Econometrica, Econometric Society, vol. 67(2), pages 251-334, March.
    19. Patrick Kline & Raffaele Saggio & Mikkel Sølvsten, 2020. "Leave‐Out Estimation of Variance Components," Econometrica, Econometric Society, vol. 88(5), pages 1859-1898, September.
    20. Ann P. Bartel & Nachum Sicherman, 1999. "Technological Change and Wages: An Interindustry Analysis," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 285-325, April.
    21. David Card & Ana Rute Cardoso & Patrick Kline, 2016. "Bargaining, Sorting, and the Gender Wage Gap: Quantifying the Impact of Firms on the Relative Pay of Women," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(2), pages 633-686.
    22. John Abowd & Francis Kramarz & Paul Lengermann & Kevin McKinney & Sébastien Roux, 2012. "Persistent inter‐industry wage differences: rent sharing and opportunity costs," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 1(1), pages 1-25, December.
    23. Joanne Lindley & Steven Mcintosh, 2017. "Finance Sector Wage Growth and the Role of Human Capital," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 79(4), pages 570-591, August.
    24. Cerasi, Vittoria & Deininger, Sebastian M. & Gambacorta, Leonardo & Oliviero, Tommaso, 2020. "How post-crisis regulation has affected bank CEO compensation," Journal of International Money and Finance, Elsevier, vol. 104(C).
    25. Erling Barth & Alex Bryson & James C. Davis & Richard Freeman, 2016. "It's Where You Work: Increases in the Dispersion of Earnings across Establishments and Individuals in the United States," Journal of Labor Economics, University of Chicago Press, vol. 34(S2), pages 67-97.
    26. Colonnello, Stefano & Koetter, Michael & Wagner, Konstantin, 2020. "Effectiveness and (in)efficiencies of compensation regulation: Evidence from the EU banker bonus cap," IWH Discussion Papers 7/2018, Halle Institute for Economic Research (IWH), revised 2020.
    27. Thomas Philippon, 2010. "Financiers versus Engineers: Should the Financial Sector Be Taxed or Subsidized?," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 158-182, July.
    28. Josh Bivens & Lawrence Mishel, 2013. "The Pay of Corporate Executives and Financial Professionals as Evidence of Rents in Top 1 Percent Incomes," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 57-78, Summer.
    29. Luigi Zingales, 2015. "Does Finance Benefit Society?," NBER Working Papers 20894, National Bureau of Economic Research, Inc.
    30. Acemoglu, Daron & Autor, David, 2011. "Skills, Tasks and Technologies: Implications for Employment and Earnings," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 12, pages 1043-1171, Elsevier.
    31. Lawrence F. Katz & Alan B. Krueger, 2016. "The Rise and Nature of Alternative Work Arrangements in the United States, 1995-2015," Working Papers 603, Princeton University, Department of Economics, Industrial Relations Section..
    32. Robin Greenwood & David Scharfstein, 2013. "The Growth of Finance," Journal of Economic Perspectives, American Economic Association, vol. 27(2), pages 3-28, Spring.
    33. Abowd, John M. & Kramarz, Francis, 1999. "Econometric analyses of linked employer-employee data," Labour Economics, Elsevier, vol. 6(1), pages 53-74, March.
    34. Erling Barth & James Davis & Richard B. Freeman, 2018. "Augmenting the Human Capital Earnings Equation with Measures of Where People Work," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 71-97.
    35. John M. Abowd & Robert H. Creecy & Francis Kramarz, 2002. "Computing Person and Firm Effects Using Linked Longitudinal Employer-Employee Data," Longitudinal Employer-Household Dynamics Technical Papers 2002-06, Center for Economic Studies, U.S. Census Bureau.
    36. Krueger, Alan B & Summers, Lawrence H, 1988. "Efficiency Wages and the Inter-industry Wage Structure," Econometrica, Econometric Society, vol. 56(2), pages 259-293, March.
    37. Eli Berman & John Bound & Zvi Griliches, 1994. "Changes in the Demand for Skilled Labor within U. S. Manufacturing: Evidence from the Annual Survey of Manufactures," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(2), pages 367-397.
    38. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    39. William T. Dickens & Lawrence F. Katz, 1987. "Inter-Industry Wage Differences and Theories of Wage Determination," NBER Working Papers 2271, National Bureau of Economic Research, Inc.
    40. Stéphane Bonhomme & Thibaut Lamadon & Elena Manresa, 2019. "A Distributional Framework for Matched Employer Employee Data," Econometrica, Econometric Society, vol. 87(3), pages 699-739, May.
    41. Claire Célérier & Boris Vallée, 2019. "Returns to Talent and the Finance Wage Premium," The Review of Financial Studies, Society for Financial Studies, vol. 32(10), pages 4005-4040.
    42. Patrick Bolton & Tano Santos & Jose A. Scheinkman, 2016. "Cream-Skimming in Financial Markets," Journal of Finance, American Finance Association, vol. 71(2), pages 709-736, April.
    43. Torres, Sónia & Portugal, Pedro & Addison, John T. & Guimarães, Paulo, 2018. "The sources of wage variation and the direction of assortative matching: Evidence from a three-way high-dimensional fixed effects regression model," Labour Economics, Elsevier, vol. 54(C), pages 47-60.
    44. Paul Oyer, 2008. "The Making of an Investment Banker: Stock Market Shocks, Career Choice, and Lifetime Income," Journal of Finance, American Finance Association, vol. 63(6), pages 2601-2628, December.
    45. M. J. Andrews & L. Gill & T. Schank & R. Upward, 2008. "High wage workers and low wage firms: negative assortative matching or limited mobility bias?," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 171(3), pages 673-697, June.
    46. Alan D. Morrison & William J. Wilhelm Jr, 2004. "Partnership Firms, Reputation, and Human Capital," American Economic Review, American Economic Association, vol. 94(5), pages 1682-1692, December.
    47. Abdur Chowdhury, 2003. "Information technology and productivity payoff in the banking industry: evidence from the emerging markets," Journal of International Development, John Wiley & Sons, Ltd., vol. 15(6), pages 693-708.
    48. Vincent Glode & Richard Lowery, 2016. "Compensating Financial Experts," Journal of Finance, American Finance Association, vol. 71(6), pages 2781-2808, December.
    49. David H. Autor & Lawrence F. Katz & Alan B. Krueger, 1998. "Computing Inequality: Have Computers Changed the Labor Market?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 113(4), pages 1169-1213.
    50. Raghuram G. Rajan, 2006. "Has Finance Made the World Riskier?," European Financial Management, European Financial Management Association, vol. 12(4), pages 499-533, September.
    51. Luigi Zingales, 2015. "Presidential Address: Does Finance Benefit Society?," Journal of Finance, American Finance Association, vol. 70(4), pages 1327-1363, August.
    52. Goux, Dominique & Maurin, Eric, 1999. "Persistence of Interindustry Wage Differentials: A Reexamination Using Matched Worker-Firm Panel Data," Journal of Labor Economics, University of Chicago Press, vol. 17(3), pages 492-533, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Taskin, Ahmet Ali & Yaman, Firat, 2023. "The effect of branching deregulation on finance wage premium," FAU Discussion Papers in Economics 08/2023, Friedrich-Alexander University Erlangen-Nuremberg, Institute for Economics.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Michael Böhm & Daniel Metzger & Per Strömberg, 2022. "“Since You’re So Rich, You Must Be Really Smart”: Talent, Rent Sharing, and the Finance Wage Premium," ECONtribute Discussion Papers Series 147, University of Bonn and University of Cologne, Germany.
    2. Arellano-Bover, Jaime & Saltiel, Fernando, 2021. "Differences in On-the-Job Learning across Firms," IZA Discussion Papers 14473, Institute of Labor Economics (IZA).
    3. Marin, Giovanni & Vona, Francesco, 2023. "Finance and the reallocation of scientific, engineering and mathematical talent," Research Policy, Elsevier, vol. 52(5).
    4. Engbom, Niklas & Moser, Christian & Sauermann, Jan, 2023. "Firm pay dynamics," Journal of Econometrics, Elsevier, vol. 233(2), pages 396-423.
    5. Benjamin Lochner & Bastian Schulz, 2024. "Firm Productivity, Wages, and Sorting," Journal of Labor Economics, University of Chicago Press, vol. 42(1), pages 85-119.
    6. Lachowska, Marta & Mas, Alexandre & Saggio, Raffaele & Woodbury, Stephen A., 2023. "Do firm effects drift? Evidence from Washington administrative data," Journal of Econometrics, Elsevier, vol. 233(2), pages 375-395.
    7. Hamid Boustanifar & Everett Grant & Ariell Reshef, 2018. "Wages and Human Capital in Finance: International Evidence, 1970–2011 [Financial reform: what shakes it? What shapes it?]," Review of Finance, European Finance Association, vol. 22(2), pages 699-745.
    8. David Card & Ana Rute Cardoso & Joerg Heining & Patrick Kline, 2018. "Firms and Labor Market Inequality: Evidence and Some Theory," Journal of Labor Economics, University of Chicago Press, vol. 36(S1), pages 13-70.
    9. Morchio, Iacopo & Moser, Christian, 2018. "The Gender Pay Gap: Micro Sources and Macro Consequences," MPRA Paper 99276, University Library of Munich, Germany, revised 24 Mar 2020.
    10. Stéphane Bonhomme & Kerstin Holzheu & Thibaut Lamadon & Elena Manresa & Magne Mogstad & Bradley Setzler, 2023. "How Much Should We Trust Estimates of Firm Effects and Worker Sorting?," Journal of Labor Economics, University of Chicago Press, vol. 41(2), pages 291-322.
    11. Jae Song & David J Price & Fatih Guvenen & Nicholas Bloom & Till von Wachter, 2019. "Firming Up Inequality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 134(1), pages 1-50.
    12. Cortes, Matias & Lerche, Adrian & Schönberg, Uta & Tschopp, Jeanne, 2023. "Technological Change, Firm Heterogeneity and Wage Inequality," IZA Discussion Papers 16070, Institute of Labor Economics (IZA).
    13. Jason Sockin, 2022. "Show Me the Amenity: Are Higher-Paying Firms Better All Around?," CESifo Working Paper Series 9842, CESifo.
    14. Paul Brandily & Camille Hémet & Clément Malgouyres, 2022. "Understanding the Reallocation of Displaced Workers to Firms," Working Papers halshs-03082302, HAL.
    15. Colja Schneck, 2021. "Trends in Wage Inequality in the Netherlands," De Economist, Springer, vol. 169(3), pages 253-289, August.
    16. Patrick Kline & Raffaele Saggio & Mikkel Sølvsten, 2020. "Leave‐Out Estimation of Variance Components," Econometrica, Econometric Society, vol. 88(5), pages 1859-1898, September.
    17. Böhm, Michael Johannes & Metzger, Daniel & Strömberg, Per, 2022. "'Since You're So Rich, You Must Be Really Smart': Talent, Rent Sharing, and the Finance Wage Premium," IZA Discussion Papers 15337, Institute of Labor Economics (IZA).
    18. Jose Garcia-Louzao & Alessandro Ruggieri, 2023. "Labor Market Competition and Inequality," Bank of Lithuania Working Paper Series 117, Bank of Lithuania.
    19. Barth, Erling & Davis, James C. & Freeman, Richard B. & McElheran, Kristina, 2023. "Twisting the demand curve: Digitalization and the older workforce," Journal of Econometrics, Elsevier, vol. 233(2), pages 443-467.
    20. Fanfani, Bernardo, 2022. "Tastes for discrimination in monopsonistic labour markets," Labour Economics, Elsevier, vol. 75(C).

    More about this item

    Keywords

    finance wage premium; worker-firm panels; skill-biased technological change;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tor:tecipa:tecipa-738. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: RePEc Maintainer (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.