OECD Economics Department Working Papers

ISSN: 
1815-1973 (online)
http://dx.doi.org/10.1787/18151973
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Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

 

Financial sector pay and labour income inequality

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Author(s):
Oliver Denk1
Author Affiliations
  • 1: OECD, France

17 June 2015
Bibliographic information
No.:
1225
Pages:
36
http://dx.doi.org/10.1787/5js04v5wjw9p-en

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Public questioning about the role of finance has been fuelled by the perception that financial sector pay is an important factor behind high economic inequalities. This paper is the first to provide a comprehensive look at the level of earnings in finance and the implications for labour income inequality for European countries. Financial sector workers are shown to make up 19% among the top 1% earners, although the overall employment share of finance is only 4%. Nonetheless, the relatively small size of the sector limits the contribution that financial sector pay has on income inequality to a small, but noticeable amount. Simulations indicate that most of this contribution is explained by financial institutions paying salaries and bonuses which are above what employees with similar profiles get in other sectors. Estimations that allow for heterogeneity across workers reveal that this wage premium is more than twice as high for financial sector workers at the top of the distribution than at the bottom. The labour market in finance displays other symptoms of imperfection, with, for example, male financial sector workers earning a large wage premium over female financial sector workers, again especially at the top.
Keywords:
wage differential, earnings, gender inequality, finance, income inequality, Wage premium, Gini coefficient, European Union
JEL Classification:
  • D63: Microeconomics / Welfare Economics / Equity, Justice, Inequality, and Other Normative Criteria and Measurement
  • G21: Financial Economics / Financial Institutions and Services / Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages
  • G22: Financial Economics / Financial Institutions and Services / Insurance ; Insurance Companies ; Actuarial Studies
  • J16: Labor and Demographic Economics / Demographic Economics / Economics of Gender ; Non-labor Discrimination
  • J24: Labor and Demographic Economics / Demand and Supply of Labor / Human Capital ; Skills ; Occupational Choice ; Labor Productivity
  • J31: Labor and Demographic Economics / Wages, Compensation, and Labor Costs / Wage Level and Structure ; Wage Differentials
 
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