Why have compensation levels in Finance risen so much?

Jun. 14, 2016

On May 24, Professor Per Strömberg presented the paper ”Since you’re so rich, you must be really smart”: Talent and the Finance Wage Premium at an SNS / SIFR Finanspanel. Sean Cory from Oliver Wyman commented and Pehr Wissén moderated the discussion.

During the last couple of decades compensation in the Finance industry worldwide has risen much more than in other sectors. In Sweden, average wages in finance relative to the rest of the economy rose from 130 percent in 1991 to 165 percent in 2010 and the increase was even stronger at the top of the wage distribution. In the study Per Strömberg together with Daniel Metzger, Assistant Professor and Michael Böhm, Visiting Research Fellow investigates the reasons behind this development.

One explanation for the increase in relative pay in finance has been that demand for skilled workers has risen more than in other sectors. The authors found no evidence to support this. Instead, their findings alleviate concerns about a “brain drain” into finance at the expense of other sectors. When they analyzed the subgroups science, technology, engineering and mathematics, where the concern of a brain drain was particularly high, they found negligible changes in the fraction of workers from these areas going into finance.

The findings suggest that pay in finance is extremely high, increasing, and largely unexplained.

 

Picture: Allan Seppa, SNS