Although the total number of employees in the financial sector remained relatively stable, higher than average wages in the finance industry led to a diversion of highly-skilled individuals from the real economy to the financial sector. 14 For instance, in 2006 a financial industry employee earned 35% more than an engineer with a similar level of education. These numbers speak a clear language.
Financial creativity had its price. Banks increased their demand for highly-skilled talents, bidding up the market clearing wage in this industry. Whether or not financial employees have been overcompensated is a difficult question. But they have certainly been given the wrong incentives. A less difficult question is whether talent was always and everywhere employed in a productive way. Here my answer is no.