Incentives matter, an example of where students want to work

Higher salaries do attract people to study for those jobs.

It was these gender differences that Katz and Goldin set out to study with their survey, dubbed “Harvard and Beyond,” conducted in 2006 and 2007. Men still command higher salaries, on average, than women with the same educational attainment, and even in some cases with the same type of job; this appears to be due to women’s preference for family-friendly jobs and employers (see “Girl Power: What’s Changed for Women and What Hasn’t,” January-February, page 34). Goldin is the author of Understanding the Gender Gap: An Economic History of American Women, and the two previously collaborated on a study of the role of the birth-control pill vis-à-vis women’s decisions regarding career and marriage.

But the new survey also turned up plenty of other things, including the size of the shift into finance, and the reason for that shift. For the entire respondent pool, across all occupations, the median income for men was $162,000, and for women $90,000; graduates working in finance earned nearly three times that median, in a pool of people already paid far more than average. (Among the general U.S. population in 2006, men’s median income was just over $42,000, and women’s was under $33,000.)

Finance’s extremely high compensation has lured Harvard graduates who might otherwise have pursued law or medicine: the prevalence of those fields, combined, declined from 39 percent to 30 percent between the two cohorts. Although some of those employed in finance have M.B.A.s, many of the jobs, unlike those in law and medicine, require no advanced degree.

This pattern among Harvard graduates reflects a similar pattern in the wider society. The finance sector’s contribution to the U.S. gross domestic product swelled from 4.4 percent in 1977 to 7.7 percent, or roughly $950 billion, in 2005, according to a report on the survey by Wall Street Journal columnist David Wessel. One of every 13 dollars of employee compensation in the United States today goes to people working in finance, the column noted, and in 2004, the combined income of the top 25 hedge-fund managers exceeded the combined income of the CEOs of all Standard & Poor’s 500 companies. . . .

Hat tip to Craig Newmark on this.