The growth of finance is not remarkable- study

Apr. 28, 2023

Finance’s share of total compensation in the US economy is not as exceptional as previously thought; its growth and trajectory has been similar to other high-skill service industries, a study found.

The financial sector’s share of total compensation (sum of wages and salaries, bonuses, benefits, and other forms of remuneration received by workers) in the US economy is not as remarkable as previously thought, a paper by Gustav Martinsson, Stockholm University and Swedish House of Finance, James R. Brown, Iowa State University’s Ivy College of Business, and Bruce Petersen, Washington University in St. Louis shows, providing context for debates about the size and role of finance.

By benchmarking against other high-skill service industries, the paper demonstrates that while finance is among the most skill-intensive service industries, the evolution of the finance income share closely tracks other high-skill service industries such as legal services, educational services, and professional business services. It also shows that the financial sector grew much slower than the rest of high-skill services in the post-WWII period. The finance economy share even stops growing after the 2007-2008 financial crisis while the rest of high-skill services continue to grow through the end of the sample period.