The Financial Premium in the U.S. Labor Market: A Distributional Analysis

• In Event: 047 - Section on Inequality, Poverty and Mobility Paper Session. Inequality, Poverty, and Mobility

Abstract

This article revisits the evolution of the financial premium between 1970 and 2011 using a distributional approach. I show that above-market compensation was present in the finance sector in the 1970s, but was concentrated mostly at the bottom of the earnings distribution. The financial premium observed since the 1980s, however, is largely driven by excessive compensation at the top, a development that increasingly contributes to the national concentration of earnings. Furthermore, the analysis indicates that the financial premium for top earners remained robust in the 2000s, when deregulation slowed down, and in the aftermath of the recent financial meltdown. These findings are inconsistent with the account that the earnings differential is driven by unobserved skill difference.

Author

• Ken-Hou Lin, University of Texas-Austin