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New study: Smarter finance grads do make more

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When you look at people above you on the income ladder, you want to be able to qualify their success, cut it down a bit: “If all I cared about was money, I’d be raking it in, too”; or, “Just because you’re rich doesn’t mean you’re smarter than me.”

Well, actually, sometimes it does. That, at least, is the provocative conclusion of a new paper, “Are Bankers Worth Their Pay? Evidence from a Talent Measure,” co-authored by Harvard Business School Professor Boris Vallee.

The study looks at France, a country with a regimented education system that makes it relatively easy to compare raw talent and income. In France, aspiring engineers spend two years studying for a series of standardized tests that take 80 hours to complete. Performance on those tests is the sole factor that sorts students into one of the country’s 240 engineering colleges. As a result, it’s reasonable to conclude that students in the top schools have more mental horsepower than students who enroll at less selective schools.

Next, Vallee and his co-author, Claire Celerier, a professor at the University of Zurich, looked at an extensive survey of French engineers that included data on where they’d gone to school and what their current incomes were. They found that graduates of the most selective colleges earned, on average, 2.5 percent more than graduates of slightly less selective schools. More consequentially, the data showed that the salary gap was much higher among engineering graduates who went into finance: The “smartest” graduates in finance earned 9 percent more than the next smartest graduates in finance.


They explain this, writing, “wage returns to talent are relatively high in the finance industry.” This means that, aside from maybe professional sports, finance is the one field where you can truly earn money in proportion to your talent.


In a news release from Harvard Business School, Valle explains that if you’re, say, really good at managing an oil refinery, you’re not able to make 10 times as much money by managing 10 refineries. But if you’re a canny money manager, the sky’s the limit: If you invest $10 million well, next year maybe you get $100 million to play with, and your earning potential goes up accordingly.

This research doesn’t address a number of questions that have swirled in the debate about the financial sector over the last decade, like whether it’s good to have such powerful incentives to lure our most capable citizens into banking. But it does raise the possibility that the smartest move a smart banker ever made was choosing finance in the first place.

Kevin Hartnett is a writer in South Carolina. He can be reached at kshartnett18@gmail.com.