A common argument among more socialist-leaning folk is that higher corporate profits inevitably comes at the expense of workers. Research from the University of Bonn suggests that isn’t really the case, as companies that earn more seem to offer above-average wage increases to workers.

The researchers explored wages in the financial sector to try and understand why they’ve been rising so sharply since the 1980s. They gathered data from both Sweden and the US, which showed that financial workers typically earn around 70% more than the average worker across the economy more broadly. This has risen considerably, as in the mid-1980s it was just 10%, and the researchers believe this is due to the increased profits in the financial sector.

Higher wages

Initially, the researchers assumed that higher wages were a result of higher skill levels, but after examining not only salary data but also the cognitive and emotional performance of workers in Sweden, it emerged that this wasn’t the case. When data from the US was assessed for comparison, a similar trend appeared and made clear that the rise in wages was not linked to employee talent.

The next step was to compare the wages of workers with the financial results of their employer. The analysis showed that companies were typically able to share around 10% of their income with employees, with employees at all levels of the business seeming to benefit.

Indeed, the researchers believe that around half of all in the sector can be explained by this process, with the researchers suggesting that things like high levels of regulation, a lack of transparency, and competition for talent playing a part.

“Our study shows that some industries pay higher wages regardless of employee performance,” the researchers explain.

While the prospects for those in the sector were good, however, the researchers found that entry into it was not particularly equal or egalitarian, with entry often dependent on family or social contacts.

“Whether someone enters the industry depends in part on whether their parents or other social contacts work in finance, and whether that leads to employment,” they explain. “Moreover, workers’ resumes show that they only become high earners after about ten years in the financial industry.”