Bank deregulation and relative wages in finance

Abstract

Rising wages in the finance industry has been a source of debate and are usually liked to financial deregulations. Exploiting the cross-state and over-time variation in the timing of US bank deregulations, this paper 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 Philippon and Reshef (2012) call for a better understanding of the dynamics of wages in the finance industry.

Finance and employment: Evidence from U.S. banking reforms

“…Researchers have examined the impact of bank deregulation on states' income growth (Jayaratne and Strahan (1996)), output volatility (Morgan, Rime, and Strahan (2004) ;Demyanyk, Ostergaard, and Srensen (2007)); Acharya, Imbs, and Sturgess (2011)), wages in the finance industry (Black and Strahan (2001);Boustanifar (2014)), income inequality (Beck, Levine, and Levkov (2010)), small firm finance (Rice and Strahan (2010)) and economic integration through trade (Michalski and Ors (2012)). However, this literature has not looked at how the reforms affected labor market outcomes in the real sectors of the economy.…”

Finance and Inequality: A Tale of Two Tails

“…Kroszner and Strahan (1999) study the political determinants of bank branching deregulation, whileKeller and Kelly (2015) focus more broadly on the political determinants of financial regulation.11Boustanifar, Grant, and Reshef (2017) provide similar evidence for other countries Boustanifar (2014),. in contrast, argues that wages in the finance industry did not rise in response to bank branching deregulation, but started rising across U.S. states in the 1980s, irrespective of the particular state's deregulation date.12Darcillon (2016) analyzes the relationship between financial regulation and inequality for a sample of 18 OECD countries Tanndal and Waldenström (2016).…”