Employer Dominance and Worker Earnings in Finance
August 2024
Working Paper Number:
CES-24-41
Abstract
Large firms in the U.S. financial system achieve substantial economic gains. Their dominance sets them apart while also raising concerns about the suppression of worker earnings. Utilizing administrative data, this study reveals that the largest financial firms pay workers an average of 30.2% more than their smallest counterparts, significantly exceeding the 7.9% disparity in nonfinance sectors. This positive size-earnings relationship is consistently more pronounced in finance, even during the 2008 crisis or compared to the hightech sector. Evidence suggests that large financial firms' excessive gains, coupled with their workers' sought-after skills, explain this distinct relationship.
Document Tags and Keywords
Keywords
Keywords are automatically generated using KeyBERT, a powerful and innovative
keyword extraction tool that utilizes BERT embeddings to ensure high-quality and contextually relevant
keywords.
By analyzing the content of working papers, KeyBERT identifies terms and phrases that capture the essence of the
text, highlighting the most significant topics and trends. This approach not only enhances searchability but
provides connections that go beyond potentially domain-specific author-defined keywords.
:
investment,
economist,
earnings,
corporation,
employee,
corporate,
financial,
finance,
leverage,
firms size,
larger firms,
lender,
economically,
profit,
revenue,
salary,
earn,
earner,
banking,
earnings age
Tags
Tags are automatically generated using a pretrained language model from spaCy, which excels at
several tasks, including entity tagging.
The model is able to label words and phrases by part-of-speech,
including "organizations." By filtering for frequent words and phrases labeled as "organizations", papers are
identified to contain references to specific institutions, datasets, and other organizations.
:
Standard Industrial Classification,
Bureau of Labor Statistics,
Longitudinal Business Database,
Council of Economic Advisers,
American Community Survey,
Alfred P Sloan Foundation,
Longitudinal Employer Household Dynamics,
Employment History File,
Individual Characteristics File,
Business Register Bridge,
Census Bureau Disclosure Review Board,
Herfindahl-Hirschman,
Federal Statistical Research Data Center
Similar Working Papers
Similarity between working papers are determined by an unsupervised neural
network model
know as Doc2Vec.
Doc2Vec is a model that represents entire documents as fixed-length vectors, allowing for the
capture of semantic meaning in a way that relates to the context of words within the document. The model learns to
associate a unique vector with each document while simultaneously learning word vectors, enabling tasks such as
document classification, clustering, and similarity detection by preserving the order and structure of words. The
document vectors are compared using cosine similarity/distance to determine the most similar working papers.
Papers identified with 🔥 are in the top 20% of similarity.
The 10 most similar working papers to the working paper 'Employer Dominance and Worker Earnings in Finance' are listed below in order of similarity.
-
Working PaperAccess to Financing and Racial Pay Gap Inside Firms
July 2023
Working Paper Number:
CES-23-36
How does access to financing influence racial pay inequality inside firms? We answer this question using the employer-employee matched data administered by the U.S. Census Bureau and detailed resume data recording workers' career trajectories. Exploiting exogenous shocks to firms' debt capacity, we find that better access to debt financing significantly narrows the earnings gap between minority and white workers. Minority workers experience a persistent increase in earnings and also a rise in the pay rank relative to white workers in the same firm. The effect is more pronounced among mid- and high-skill minority workers, in areas where white workers are in shorter supply, and for firms with ex-ante less diverse boards and greater pre-existing racial inequality. With better access to financing, minority workers are also more likely to be promoted or be reassigned to technology-oriented occupations compared to white workers. Our evidence is consistent with access to financing making firms better utilize minority workers' human capital.View Full Paper PDF
-
Working PaperPay, Productivity and Management
September 2021
Working Paper Number:
CES-21-31
Using confidential Census matched employer-employee earnings data we find that employees at more productive firms, and firms with more structured management practices, have substantially higher pay, both on average and across every percentile of the pay distribution. This pay-performance relationship is particularly strong amongst higher paid employees, with a doubling of firm productivity associated with 11% more pay for the highest-paid employee (likely the CEO) compared to 4.7% for the median worker. This pay-performance link holds in public and private firms, although it is almost twice as strong in public firms for the highest-paid employees. Top pay volatility is also strongly related to productivity and structured management, suggesting this performance-pay relationship arises from more aggressive monitoring and incentive practices for top earners.View Full Paper PDF
-
Working PaperThe Employee Clientele of Corporate Leverage: Evidence from Personal Labor Income Diversification
January 2018
Working Paper Number:
CES-18-01
Using employee job-level data, we empirically test the equilibrium matching between a firm's debt usage and its employee job risk aversion ('clientele effect'), as predicted by the existing theories. We measure job risk aversion for a firm's employees using their labor income concentration in the firm, calculated as the fraction of the employees' total personal labor income or total household labor income that is accounted for by their income from this particular firm. Using a sample of about 1,400 U.S. public firms from 1990-2008, we find a robust negative relation between leverage and employee job risk aversion, which is consistent with the clientele effect. Specifically, when a firm's existing employees have higher labor income concentration in it, the firm tends to have lower contemporaneous and future leverage. Moreover, in terms of new hires, firms with lower leverage are more likely to recruit employees with less alternative labor income. Our results continue to hold after we control for firm fixed effects, other employee characteristics such as wages, gender, age, race, and education, and managerial risk attitudes. Further, the matching between a firm's leverage and its workers' labor income concentration in it is more pronounced for firms with higher labor intensity and those in financial distress.View Full Paper PDF
-
Working PaperHow Do Health Insurance Costs Affect Firm Labor Composition and Technology Investment?
September 2023
Working Paper Number:
CES-23-47
Employer-sponsored health insurance is a significant component of labor costs. We examine the causal effect of health insurance premiums on firms' employment, both in terms of quantity and composition, and their technology investment decisions. To address endogeneity concerns, we instrument for insurance premiums using idiosyncratic variation in insurers' recent losses, which is plausibly exogenous to their customers who are employers. Using Census microdata, we show that following an increase in premiums, firms reduce employment. Relative to higher-income coworkers, lower-income workers see a larger increase in their likelihood of being separated from their jobs and becoming unemployed. Firms also invest more in information technology, potentially to substitute labor.View Full Paper PDF
-
Working PaperHiring through Startup Acquisitions: Preference Mismatch and Employee Departures
September 2018
Working Paper Number:
CES-18-41
This paper investigates the effectiveness of startup acquisitions as a hiring strategy. Unlike conventional hires who choose to join a new firm on their own volition, most acquired employees do not have a voice in the decision to be acquired, much less by whom to be acquired. The lack of worker agency may result in a preference mismatch between the acquired employees and the acquiring firm, leading to elevated rates of turnover. Using comprehensive employee-employer matched data from the US Census, I document that acquired workers are significantly more likely to leave compared to regular hires. By constructing a novel peer-based proxy for worker preferences, I show that acquired employees who prefer to work for startups ' rather than established firms ' are the most likely to leave after the acquisition, lending support to the preference mismatch theory. Moreover, these departures suggest a deeper strategic cost of competitive spawning: upon leaving, acquired workers are more likely to found their own companies, many of which appear to be competitive threats that impair the acquirer's long-run performance.View Full Paper PDF
-
Working PaperEmployer Concentration and Labor Force Participation
March 2022
Working Paper Number:
CES-22-08
This paper examines the association between employer concentration and labor outcomes (labor force participation and employment). It uses restricted data from the U.S. Census Bureau's Longitudinal Business Database to estimate, at the county level, to what extent more concentrated labor markets have lower labor force participation rates and lower employment. The analysis also examines whether unionization rates and education levels mediate these associations.View Full Paper PDF
-
Working PaperDestructive Creation at Work: How Financial Distress Spurs Entrepreneurship
January 2017
Working Paper Number:
CES-17-19
Using US Census employer-employee matched data, I show that employer financial distress accelerates the exit of employees to found start-ups. This effect is particularly evident when distressed firms are less able to enforce contracts restricting employee mobility into competing firms. Entrepreneurs exiting financially distressed employers earn higher wages prior to the exit and after founding start-ups, compared to entrepreneurs exiting non-distressed firms. Consistent with distressed firms losing higher-quality workers, their start-ups have higher average employment and payroll growth. The results suggest that the social costs of distress might be lower than the private costs to financially distressed firms.View Full Paper PDF
-
Working PaperHUMAN CAPITAL LOSS IN CORPORATE BANKRUPTCY
July 2013
Working Paper Number:
CES-13-37
This paper quantifies the 'human costs of bankruptcy' by estimating employee wage losses induced by the bankruptcy filing of employers using employee-employer matched data from the U.S. Census Bureau's LEHD program. We find that employee wages begin to deteriorate one year prior to bankruptcy. One year after bankruptcy, the magnitude of the decline in annual wages is 30% of pre-bankruptcy wages. The decrease in wages persists (at least) for five years post-bankruptcy. The present value of wage losses summed up to five years after bankruptcy amounts to 29-49% of the average pre-bankruptcy market value of firm. Furthermore, we find that the ex-ante wage premium to compensate for the ex-post wage loss due to bankruptcy can be of similar magnitude with that of the tax benefits of debt.View Full Paper PDF
-
Working PaperImpact Investing and Worker Outcomes
May 2025
Working Paper Number:
CES-25-30
Impact investors claim to distinguish themselves from traditional venture capital and growth equity investors by also pursuing environmental, social, and governance (ESG) objectives. Whether they successfully do so in practice is unclear. We use confidential Census Bureau microdata to assess worker outcomes across portfolio companies. Impact investors are more likely than other private equity firms to fund businesses in economically disadvantaged areas, and the performance of these companies lags behind those held by traditional private investors. We show that post-funding impact-backed firms are more likely to hire minorities, unskilled workers, and individuals with lower historical earnings, perhaps reflecting the higher representation of minorities in top positions. They also allocate wage increases more favorably to minorities and rank-and-file workers than VC-backed firms. Our results are consistent with impact investors and their portfolio companies acting according to non-pecuniary social goals and thus are not consistent with mere window dressing or cosmetic changes.View Full Paper PDF
-
Working PaperWork Organization and Cumulative Advantage
March 2025
Working Paper Number:
CES-25-18
Over decades of wage stagnation, researchers have argued that reorganizing work can boost pay for disadvantaged workers. But upgrading jobs could inadvertently shift hiring away from those workers, exacerbating their disadvantage. We theorize how work organization affects cumulative advantage in the labor market, or the extent to which high-paying positions are increasingly allocated to already-advantaged workers. Specifically, raising technical skill demands exacerbates cumulative advantage by shifting hiring towards higher-skilled applicants. In contrast, when employers increase autonomy or skills learned on-the-job, they raise wages to buy worker consent or commitment, rather than pre-existing skill. To test this idea, we match administrative earnings to task descriptions from job posts. We compare earnings for workers hired into the same occupation and firm, but under different task allocations. When employers raise complexity and autonomy, new hires' starting earnings increase and grow faster. However, while the earnings boost from complex, technical tasks shifts employment toward workers with higher prior earnings, worker selection changes less for tasks learned on-the-job and very little for high autonomy tasks. These results demonstrate how reorganizing work can interrupt cumulative advantage.View Full Paper PDF
