Finance Salaries, Returns-to-Talent and Inequality

Many people believe that the finance sector is contributing disproportionately to income inequality in our society. Do you agree?

I do. Ever since the 1980s, compensation in finance has been higher and more skewed than in other sectors. It has been shown that the ‘finance wage premium’ — the degree to which finance salaries exceed those in other industries — is, on average, 50 per cent. That is why the sector has been criticized as one of the sources of growing income inequality.

My colleagues and I felt that this public debate called for an improved understanding of the of bankers’ pay. Our intuition told us that one of the key drivers is . For our research, we defined talent as, ‘the aptitude to reach an objective in a competitive environment’. In this definition, talent encompasses not only cognitive skills, but also personality traits such as motivation, self-discipline, low cost