FINANCIAL SERVICES
Financial crisis has been little more than a blip for the pay of bankers
Rising bonuses paid to bankers have accounted for around two-thirds of the increase in the national wage bill – the “earnings pie” - taken by the top 1% of workers since 1999. Surprisingly, even after the financial crisis bankers took at least as large a share of the earnings pie in 2011 as they did at the peak of the boom in 2007. These are the main findings to emerge from a new study by Brian Bell and John Van Reenen for the Centre for Economic Performance.
As Bell and Van Reenen note: “Even more remarkably, while the crisis years have seen a fall in the share of income going to the top percentile, top bankers’ pay had fully recovered by 2011 to the point at which they were taking slightly more of total income than they were before the crisis began.”
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Having described the scale of bankers’ pay, the authors discuss the policy responses that have been proposed to address the issue such as transparency, numerical bonus targets, bonus clawbacks and taxation.
Bell is a Research Fellow at the Centre for Economic Performance, London School of Economics and Political Science, while Van Reenen is Director of the Centre for Economic Performance and Professor of Economics, London School of Economics and Political Science.
A final word
“If bankers are paid in a competitive labour market and simply rewarded for their talent, there seems little reason for government intervention, at least on efficiency grounds. However, there seems to be substantial evidence of rents within the sector – a result of imperfect competition or arising from the implicit and explicit guarantees and subsidies that the sector receives from the government due to the ‘too big to fail’ problem.” - Brian Bell and John Van Reenen, Centre for Economic Performance.
Want to know more?
Title: “Bankers and their bonuses”, by Brian Bell and John Van Reenen, Occasional Paper 35, Centre for Economic Performance, February 2013.
Availability: Download the report in PDF format at http://cep.lse.ac.uk/_new/publications/abstract.asp?index=4183.
The Centre for Economic Performance is an interdisciplinary research centre at the LSE Research Laboratory. It was established by the Economic and Social Research Council (ESRC) in 1990 and is now one of the leading economic research groups in Europe.