The Growth of Finance is Not Remarkable

Abstract

An important literature emphasizes that finance grew rapidly after WWII relative to the full economy and the services sector, but these are poor benchmarks because they mask a broad structural shift from low- to high-skill services. We show that i) finance is among the most skill-intensive service industries, ii) the evolution of the finance income share closely tracks other high-skill service industries, and iii) finance grew much slower than the rest of high-skill services in the post-WWII period. The rise of modern finance is not as remarkable as prior research suggests, providing context for debates about the size of finance.