Wages and Human Capital in the U.S. Financial Industry: 1909-2006

Fascinating paper by Thomas Philippon (New York University) and Ariell Reshef
(University of Virginia) on wages, skills and technology in the U.S. financial sector over the last 100 years.

Abstract
We use detailed information about wages, education and occupations to shed light on
the evolution of the U.S. financial sector over the past century. We uncover a set of
new, interrelated stylized facts: financial jobs were relatively skill intensive, complex, and highly paid until the 1930s and after the 1980s, but not in the interim period. We investigate the determinants of this evolution and find that financial deregulation and corporate activities linked to IPOs and credit risk increase the demand for skills in financial jobs. Computers and information technology play a more limited role. Our analysis also shows that wages in finance were excessively high around 1930 and from the mid 1990s until 2006. For the recent period we estimate that rents accounted for 30% to 50% of the wage differential between the financial sector and the rest of the private sector.

It pays not to know your colleagues' pay

People like you get on my nerves. That is, if you are paid more than I am. And if we work together. Apart from that you're fine. This is on the basis of this recent NBER paper which looks at how work satisfaction is diminished when people find out how much more their colleagues are paid. Knowing how much less some colleagues are paid on the other hand doesn't matter. So there is envy but no smugness. That's something I suppose. Sometimes a little knowledge is a dangerous thing.

Inequality at Work: The Effect of Peer Salaries on Job Satisfaction
David Card, Alexandre Mas, Enrico Moretti, Emmanuel Saez

Economists have long speculated that individuals care about both their absolute income and their income relative to others. We use a simple theoretical framework and a randomized manipulation of access to information on peers' wages to provide new evidence on the effects of relative pay on individual utility. A randomly chosen subset of employees of the University of California was informed about a new website listing the pay of all University employees. All employees were then surveyed about their job satisfaction and job search intentions. Our information treatment doubles the fraction of employees using the website, with the vast majority of new users accessing data on the pay of colleagues in their own department. We find an asymmetric response to the information treatment: workers with salaries below the median for their pay unit and occupation report lower pay and job satisfaction, while those earning above the median report no higher satisfaction. Likewise, below-median earners report a significant increase in the likelihood of looking for a new job, while above-median earners are unaffected. Our findings indicate that utility depends directly on relative pay comparisons, and that this relationship is non-linear.

Minimum Wages in Europe

Google Public Data has been expanded. Below are charts based on the minimum wage data-set for European countries (for a random selection of countries). Unsurprisingly, Ireland is at or near the top in both cases. It is also possible to take logs of these series. If, like me, you want to read more about where this data comes from, here is the link to the Eurostat page. Scroll along the charts to see wage levels at any point in time (other countries fade out).

1. National minimum wages in Euros per month before deduction of income tax and social security contributions. Not adjusted for inflation. In euro.



2. National minimum wages in Euros per month before deduction of income tax and social security contributions. Not adjusted for inflation. In terms of purchasing power parity.

Executive Pay

Thanks to Seamus McManus for pointing to this article about executive pay and the efficiency of the market in setting executive pay levels

http://www.nytimes.com/2009/08/18/us/18bar.html

Skill Upgrading and Wages in Appalachia

Next Wednesday 22th April (3pm), Prof. James Ziliak from the University of Kentucky will present in the UCD School of Economics seminar series on "Down from the Mountain: Skill Upgrading and Wages in Appalachia". Prof. Ziliak is director of the University of Kentucky Centre for Poverty Research. He has written on a range of topics (papers available here), including tax-induced behavioural responses, food stamps and mental health, human capital and poverty, and life-cycle consumption and the age-adjusted value of life.

University Quality and Graduate Wages in the UK

In a new IZA working paper, Iftikhar Hussain, Sandra McNally and Shqiponja Telhaj examine the links between various measures of university quality and graduate earnings in the United Kingdom. They explore the implications of using different measures of quality and combining them into an aggregate measure. Their findings suggest a positive return to university quality with an average earnings differential of about 6 percent for a one standard deviation rise in university quality. However, the relationship between university quality and wages is highly non-linear, with a much higher return at the top of the distribution. There is some indication that returns may be increasing over time.

http://ftp.iza.org/dp4043.pdf

Psychological Traits and the Gender Gap in Wages

Nils Braakmann from Leuphana University, Lüneburg has used the German Socio-Economic Panel to show that differences in various non-cognitive traits, specifically the “Big Five”, positive and negative reciprocity, locus of control and risk aversion, contribute to gender inequalities in wages and employment. The evidence suggests that gender differences in psychological traits are more important for inequalities in wages than in employment. Differences in the “Big Five”, in particular in agreeableness, conscientiousness and neurocitism matter for both wages and employment. The paper is available here.

What is the going rate for flipping burgers?

In the current edition of Princeton Weekly, there is an article about Professor Orley Ashenfelter, from the Department of Economics and Industrial Relations Section at Princeton University. When faced with the question as to whether China’s and India’s growing economies will soon rival that of the United States, Ashenfelter poses the question: "What is the going rate for flipping burgers?"

He is conducting a study of McDonald’s employees’ wages in many countries to illustrate the relative strength of their economies, and early results indicate that developing nations still have a long climb. While the average hourly “McWage” is around $6 in the United States and other western nations, the same job in China, India and other developing countries pays less than 50 cents.

NBER -- Body Composition and Wages

URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:13595&r=hea
This paper examines the effect of body composition on wages. They develop measures of body composition “ body fat (BF) and fat-free mass (FFM) “ using data on bioelectrical impedance analysis (BIA) that are available in the National Health and Nutrition Examination Survey III and estimate wage models for respondents in the National Longitudinal Survey of Youth 1979. Their results indicate that increased body fat is unambiguously associated with decreased wages for both males and females. This result is in contrast to the mixed and sometimes inconsistent results from the previous research using body mass index (BMI). They also find new evidence indicating that a higher level of fat-free body mass is consistently associated with increased hourly wages. Finally they present further evidence that these results are not the artifacts of unobserved heterogeneity and show their findings robust to numerous specification checks and to a large number of alternative BIA prediction equations from which the body composition measures are derived. This work addresses an important limitation of the current literature on the economics of obesity. Previous research relied on body weight or BMI for measuring obesity despite the growing agreement in the medical literature that they represent misleading measures of obesity because of their inability to distinguish between body fat and fat-free body mass. Body composition measures used in this paper represent significant improvements over the previously used measures because they allow for the effects of fat and fat free components of body composition to be separately identified. The work also contributes to the growing literature on the role of non-cognitive characteristics on wage determination.

Does Obesity Hurt Your Wages More in Dublin than in Madrid? Evidence from ECHP

BEATRICE D'HOMBRES,,GIORGIO BRUNELLO

IZA Discussion Paper No. 1704

Abstract:
We use data from the European Community Household Panel to investigate the impact of obesity on wages in 9 European countries, ranging from Ireland to Spain. We find that the common impact of obesity on wages is negative and statistically significant, independently of gender. Given the nature of European labor markets, however, we believe that a common impact is overly restrictive. When we allow this impact to vary across countries, we find a negative relationship between the BMI and wages in the countries of the European "olive belt" and a positive relationship in the countries of the "beer belt". We speculate that such difference could be driven by the interaction between the weather, BMI and individual (unobserved) productivity.