Do Men and Women Both Enjoy a Wage Premium for Working in Finance?

Ken-Hou Lin and Megan Tobias Neely

Introduction

Over the last three decades, compensation in financial sector jobs has grown dramatically. However, it is unclear whether men and women have received similar increases in their earnings.  Also, do men and women enjoy the same wage premium for working in finance?  That is, do men and women who work in finance earn more than their counterparts working in nonfinance jobs?  And how do wage premiums vary by gender and parental status?

Previous research has found that women in finance generally earn less than men with comparable qualifications.  In addition, being a parent has different effects on wages for men and women:  fathers earn much higher wages than men without children, while mothers earn lower wages compared to childless women.  Gendered beliefs about risk support these empirical findings:  fathers are more likely to be seen as prudent risk-takers—critical attributes for successful financiers—because their fatherhood status accords them a sense of both responsibility and obligation to provide for a wife and children.  Women, on the other hand, are perceived as too risk-averse or too prudent.  On top of that, mothers are perceived as not willing to put in the long hours required to be successful in finance.

This study uses data from the Current Population Survey (CPS) March files from 1975 to 2009.  The CPS survey, conducted by the Census Bureau and the Bureau of Labor Statistics, is representative of the U.S. population.  The authors use the March data because it includes both earnings in the previous year and earnings from bonuses, which together provide a more complete picture of wages in finance and other professional jobs.

Key Findings

  • Women working in financial sector jobs tend to earn more than women working in non-financial sector jobs; that is, women in finance earn a wage premium compared to similar women in non-financial sector jobs.
  • Women earn a greater wage premium than men in low-wage financial jobs such as bank tellers, bookkeepers, and receptionists; however, women’s wages in nonfinance low-wage jobs tend to be much lower compared to men’s low-wage jobs outside of the financial sector.
  • Men earn a greater wage premium than women in high-wage financial jobs such as stockbrokers or hedge fund managers.
  • Almost all of the increase in compensation in high finance has been captured by men, particularly fathers.
  • In sum, the financial sector simultaneously mitigates gender inequalities (among low-wage jobs) and exacerbates those inequalities (among high-wage jobs).

Policy Implications

These findings suggest that gender, a factor largely omitted from existing studies on widening income inequality, is crucial for understanding how elites gain access to economic rewards and resources.  This research supports hypotheses that fathers—who are presumed to have support at home—are viewed as more responsible and committed workers and are therefore better compensated.  Mothers, on the other hand, may not be considered for highly paid jobs in finance because of the assumption that long hours will conflict with their obligations to care for their home and children.  However, on the low end of the wage scale, women receive earning benefits in finance, a field in which risk-aversion and emotional labor are valued.

Policies that aim to address widening income inequality should contemplate the potential interaction between gender and skills. Contrary to the belief that high-skilled workplaces are more meritocratic, the authors find that gender inequality is greater among high-skilled than among low-skilled workers in finance.  Second, evidence indicates that women are discriminated against in high finance regardless of their parental status. Agencies such as the Equal Employment Opportunity Commission should target high finance as a key industry for their anti-discrimination enforcement and litigation. 

Predicted Wages Among White Workers by Gender and Parental Status, 2000-2009

lin-neely


This figure compares the predicted wages among finance and nonfinance workers. 
  • At the bottom of the wage distribution (upper left hand box), the wage premium in finance reduces the gender wage gap (that is, women make the same or more than comparable men). 
  • Starting with the 25th percentile of wages (upper right), men in finance earn higher wages than women.  However, women in finance at these incomes earn more than comparable women and some men in nonfinance; e.g., childless women in finance earn similar wages to childless men in nonfinance jobs.
  • By the 75th percentile (lower left), both childless men and fathers earn substantially more than their nonfinance counterparts and more than women in either finance or nonfinance jobs.  
  • Differences are starkest at the high end of the wage distribution (lower right):  fathers in finance earn four times annually what women in similar positions earn. 

    Data source: Current Population Survey March files, 2000 to 2009.

Reference

Lin, K-H., Neely, M. T. (2017). Gender, parental status, and the wage premium in finance. Social Currents. doi:10.1177/2329496516686622

Suggested Citation

Lin, K-H., Neely, M. T. (2017). Do men and women both enjoy a wage premium for working in finance? PRC Research Brief 2(5). https://doi.org/10.15781/T2JQ0T114

Acknowledgements

This research was supported by grant R24 HD042849 awarded to the Population Research Center at The University of Texas at Austin by the Eunice Kennedy Shriver National Institute of Child Health and Human Development.

About the Authors

Ken-Hou Lin (lin@austin.utexas.edu) is an assistant professor of sociology and faculty research associate in the Population Research Center, The University of Texas at Austin; Megan Tobias Neely is a PhD candidate in sociology at The University of Texas at Austin.


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