Overpaid bankers and income distribution

From Thomas Philippon and Ariell Reshef, I thought this was an important paper:

We use detailed information about wages, education and occupations to
shed light on the evolution of the U.S. financial sector over the past
century. We uncover a set of new, interrelated stylized facts:
financial jobs were relatively skill intensive, complex, and highly
paid until the 1930s and after the 1980s, but not in the interim
period. We investigate the determinants of this evolution and find that
financial deregulation and corporate activities linked to IPOs and
credit risk increase the demand for skills in financial jobs. Computers
and information technology play a more limited role. Our analysis also
shows that wages in finance were excessively high around 1930 and from
the mid 1990s until 2006. For the recent period we estimate that rents
accounted for 30% to 50% of the wage differential between the financial
sector and the rest of the private sector.

Here is a summary article on the piece and one of the lessons is that the future of the income inequality debate lies at the micro-micro level.  The authors claim, by the way, that this 30 to 50 percent wage differential can be expected to disappear.  Right now that looks like a pretty safe bet.


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