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For Gates-Like Wealth, Look Beyond Wall Street
The New York Times | April 05, 2012 | 01:06 PM EDT

To really understand the opportunities for — or the obstacles to — creating great wealth on Wall Street today, it is worth reading a study by Thomas Philippon and Ariell Reshef of the National Bureau of Economic Research , which traces industry wages over the last century. Its conclusion might not surprise you: financiers, to put it plainly, were overpaid.

The authors even quantified it. By their calculations, “30 to 50 percent of wage differentials” — the difference between an average worker’s income and that of a Wall Street financier — is the result of overpayment and “can be expected to disappear.” The study, “Wages and Human Capital in the U.S. Financial Industry: 1909-2006,” provides a striking history lesson that may prove to be a predictor of what Wall Street — and compensation — may look like over the next 30 years.

Before the Great Depression, the researchers found that the finance sector “was a high-skill, high-wage industry.” After the stock market crash, “a dramatic shift occurred,” the study said, as Wall Street’s “human capital” and “wage premium” started to decline. From 1950 to 1980, the trend continued, albeit at a “more moderate pace.”

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