Financial sector wages increased extraordinarily over the last decades. An explanation for this trend is that skill demand rose more in finance than other sectors. We use Swedish administrative data, which include cognitive and non-cognitive ability, as well as U.S. data, to examine talent allocation and relative wages in the financial sector. We find no evidence that talent in finance improved, neither on average nor at the top. A changing composition or return to talent cannot account for the surging wage premium. Our findings alleviate concerns about a brain drain, but indicate that finance workers capture rising rents over time.
Swedish House of Finance Working Paper
June 4, 2018