Finance Sector Wage Growth and the Role of Human Capital

Abstract

We reveal the pervasiveness of the finance sector pay premium, across all OECD countries, as well as all sub-sectors and occupations within the UK financial sector. Moreover, the UK premium has continued to rise despite the financial crisis. We show that earnings increase faster with value added in certain sub-sectors of finance, compared to the general economy, providing evidence of profit-sharing in these sub-sectors. Other possible explanations, such as workers with higher qualifications or better cognitive skills, or technological change and differing job characteristics, can explain some of the finance sector pay premium, but are not sufficient on their own.