DP14767 Careers in Finance

Author(s): Andrew Ellul, Marco Pagano, Annalisa Scognamiglio
Publication Date: May 2020
Keyword(s): asset managers, careers, Hedge Funds, market discipline, scarring effects
JEL(s): G20, G23, J24, J62, J63
Programme Areas: Labour Economics, Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14767

Employees in finance are known to earn higher wages and returns to talent than non-finance workers since the 1990s, suggesting that finance may have attracted talent at the expense of other industries. However, the allocation of talent is likely to respond to differences in career paths across industries, not in wages at a given date. We analyze the careers of 9,964 individuals from 1980 to 2017 based on their resumes, and find that they tend to remain in the same industry for most of their working lives, consistently with them choosing occupations based on comparisons of entire career paths. Comparing various aspects of careers - levels, slopes, PDV and risk of pay profiles - we document that finance as a whole offers a career premium compared to manufacturing and high tech, through higher and steeper pay pro files. This however masks significant diversity within finance: while asset managers enjoy a large career premium and no commensurate career risks, the opposite applies to banking and insurance employees. Furthermore, relative to manufacturing, the asset management career premium has risen for cohorts entering soon before and during the financial crisis, even after controlling for career risk, while the high-tech career premium has become commensurately large for the latest cohorts.