Bankers’ pay closely tied to deregulation

Banking sector pay is a topic that arouses political passions, but it is also a good barometer of what has been happening in finance over the past century.

Thomas Philippon and Ariell Reshef have shown how closely linked pay has been to deregulation of the sector.

The chart shows wages in the finance industry relative to the rest of the US economy, plotted against the two academics’ own “deregulation index”, which is based on legislative activity related to finance.

One of the big questions today is: will banking sector pay relative to non-financial pay fall back again as it did in the mid 20th century? Or is it the case that this time it’s different and financial professionals will continue to be paid very well?