Finance Wage Premium Has Little Impact on the Economy

The New York Stock Exchange trading floor (image: Scott Beale / Laughing Squid)
The New York Stock Exchange trading floor (image: Scott Beale / Laughing Squid)

Institutional Communication Service

22 March 2018

New research by Swiss Finance Institute Professor Laurent Frésard from the Università della Svizzera italiana and Professor Francesco D’Acunto from the University of Maryland reveals that growing finance wages result in a modest reallocation of skilled workers from non-finance sectors to finance. Such reallocations, however, have little impact on overall economic growth.

High salaries in the financial sector have regularly been blamed for attracting top talent to finance jobs and away from activities that are more beneficial for society. Professors Laurent Frésard and Francesco D’Acunto studied the impact of the finance wage premium on the reallocation of skilled workers. Data covering 24 countries in Asia, Europe, North America, and Oceania and 13 sectors for 35 years show that high and growing finance wages do indeed attract top talent into finance jobs at the expense of non-financial sectors. Sectors in which workers have skills that are easier to transfer to finance jobs are the most affected by reallocations whereas sectors that rely heavily on finance in order to grow are the least affected. However, their results also show that such a reallocation has little impact on the overall economy as it affects less than one percent of the overall skilled workforce.

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