A study by academics at the University of Sheffield has confirmed what people working in finance have long known and long suspected. Firstly, they earn more than everyone else, even for comparable jobs. Secondly, they are more intelligent than the rest.
The Sheffield economists looked at pay figures provided by the UK’s Office of National Statistics and observed that, on average, finance professionals earn 64% more than non-finance professionals. They also observed that the pay differential is largest for broker dealers, who earn 213% more than the average UK worker.
Intelligence has something to do with it. 25% of all the UK’s economics graduates work in the finance sector, along with 10% of the country’s maths graduates and 11% of its computing graduates. People working in finance also have superior cognitive skills from an early age. The Sheffield academics examined the childhood literacy and numerical test scores of 6,000 finance professionals and found that the children who went into banking scored significantly higher for both than children who didn’t go into finance.
The complexity of bank jobs also has something to do with finance workers’ superior remuneration. The academics observed that finance jobs involve a higher proportion of non-routine tasks and computer use than non-banking jobs. These jobs typically attract higher compensation. And yet, even comparable jobs pay more in the finance sector – secretaries, IT professionals and office managers all get paid more in finance than other sectors, despite the fact that their roles are pretty much the same.
Career change, earn less
Ultimately, the Sheffield academics discovered that even when variables like intelligence, task complexity and gender are all eliminated, finance professionals still earn plenty more than non-finance professionals. They also found that there’s no real explanation for this (except the dubious economic practice of ‘rent sharing’ in imperfect markets).
That inexplicable pay differential has an important consequence for anyone who changes careers out of the finance sector. They will almost certainly earn less.
Using the so-called ‘New Earnings Survey Panel Dataset’, the academics looked at the pay consequences for 11,655 people who moved into the UK finance sector and for 11,371 people who moved out of it. On average, they found that the people who changed careers out of finance experienced a 31% drop in their wages. Meanwhile, people who changed careers into finance experienced a 20% increase in their wages. Worryingly, the differential between finance and non-finance pay is increasing all the time.
In the circumstances, do you really want to quit your finance? If you leave finance only to change your mind and come back again, you could end up around 20% worse off than you were before. Anecdotally, it seems bankers are deciding to not to take that risk – banks complain of a glut of senior staff who just won’t quit. This looks entirely rational. Finance professionals are too intelligent to swap sectors simply for the sake of it. Why quit when you’ll simply end up earning less for similar work?