Bank deregulation and relative wages in finance

Abstract

Rising wages in the finance industry have been a source of debate and are usually linked to financial deregulations. Exploiting the cross-state and over-time variation in the timing of US bank deregulations, this article investigates the causal impact of each type of deregulation on the relative wages in the finance industry. I document that relative wages in finance began to rise in the early 1980s in almost all states, including those that deregulated before 1970 and those that deregulated in the 1990s. Consistently, after controlling for aggregate macro shocks that affected all states, there is no evidence that relative finance wages increased more following any type of deregulation. If anything, I find a negative impact of bank branching deregulation on relative wages in finance. These results together with those found in the study by Philippon and Reshef (2012) call for a better understanding of the dynamics of wages in the finance industry.

Keywords:

• bank deregulation
• finance wage
• bank branching

JEL Classfication:

• G21
• J3
• K2

Notes

1. ¹The branching indicator is a continuous variable. It starts at 16.7% in 1960 and increases to 100% by 1999. From 1927 to 1960, they set the indicator at 16.7%. As the McFadden Act of 1927 prevented branching and before that it was less clear, they set the indicator to 0.3 in the years 1909–1926 (see Appendix in Philippon and Reshef (2012)).

Additional information

Notes on contributors

Hamid Boustanifar

Hamid Boustanifar is now at BI Norwegian Business School, Oslo, Norway.