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.