Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/252308 
Year of Publication: 
2022
Series/Report no.: 
ECONtribute Discussion Paper No. 147
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
Financial sector wages have increased extraordinarily over the last decades. We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labor supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about "brain drain" into finance but suggest that finance workers have captured rising rents over time.
Subjects: 
Industry Wage Premia
Talent Allocation
Rent Sharing
Earnings Inequality
Compensation in Financial Sector
JEL: 
J24
J31
G20
Document Type: 
Working Paper

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