Compensation in the Financial Sector: Are all Bankers Superstars?

Based on a survey among French engineers, I find that employees in the financial sector are highly paid. I also find large pay differences within the sector and that a large share of compensation is variable. I develop a simple partial equilibrium model where employees in the financial sector acquire heterogeneous industry specific skills in the first part of their career. In the second part, firms compete over this industry specific human capital and financers are matched to heterogeneously scaled projects. This model has empirical implications concerning wages, firm size per employee and career dynamics. First, the variance and skewness of wages are high and increase over the career. Second, returns to seniority are large and there is persistence in career in the sector. Third, wages can be explained by size effects. I test these implications and find that the premium in the financial sector could be explained by the combination of very specific industry human capital and a higher sensitivity to talent