A piece at Bloomberg today confirms that the financial crisis did nothing to shift the gap between what someone can earn on Wall Street versus more worthwhile lines of work:
Wall Street traders discouraged by declining bonuses this month can take solace: They still earn much more than brain surgeons and top U.S. generals.
An oil trader with 10 years in the business is likely to earn at least $1 million this year, while a neurosurgeon with similar time on the job makes less than $600,000, recruiters estimated. After a decade of deal-making, merger bankers take home about $2 million, more than 10 times what a similarly seasoned cancer researcher gets (see table below).
The pay gap between finance and other professions widened between the 1980s and 2006, exceeding the record set before the Great Depression, according to a 2009 study by Thomas Philippon, a professor at New York University’s Stern School of Business. After the 2008 financial crisis, Wall Street started paying a larger portion of bonuses in stock and restricted cash. Yet there’s little sign the gap with Main Street is narrowing.
“I don’t think it’s healthy for the economy to be this skewed,” said Stephen Rose, a 63-year-old professor at Georgetown University’s Center on Education and the Workforce. “I believe there’s some sort of connection between value added to the economy and pay. Everyone is losing sight of any fundamentals.”
It’s important to stress that this is a new pattern. In the stone ages of my youth, top earners in investment banking were on a par roughly with top heart surgeons and when someone became a partner at Goldman, his cash compensation fell sharply. The old line was that partners lived poor and died rich.
And their aspirations were modest by contemporary standards: a nice apartment in the better sections of the Upper East side, having their kids in private schools, and having a summer home, likely in the Hamptons (which were much cheaper then than now).
One of the perverse elements of the pay escalation in finance is that more dollars are being thrown at social signaling. Anthropologists would have a field day. To a significant degree, top end goods have been repriced upwards to reflect competition for the same assets (paintings, luxury goods, prime residential real estate), with admittedly some new creature comforts now on the list (private jets).