OPINION:
COMMENTARY:
The reformation of the financial sector of the U.S. economy - its downsizing, deleveraging, and reregulation - will be bittersweet. Once excessive risk taking is contained and transparency restored, confidence and stability will return to financial markets, albeit weighed down by the heavy hand of government. Wall Street will pay the price in reduced profits, fewer jobs and lower pay. That in turn will bring about a reallocation of talent and skills that may turn out to be a boon to the economy.
Before the current crisis, the lure of high pay and big bonuses in financial service jobs, investment banking in particular, was siphoning off the top talent in our colleges and graduate schools.
A 2007 Harvard Crimson survey of seniors found 58 percent of the men who planned to take jobs immediately after graduation were going into finance or consulting, and more than 20 percent were going into investment banking.
The percentage of Harvard graduates choosing to work in finance has “increased drastically over time,” according to an article in the May-June issue of Harvard Magazine that cites a study by Harvard Professors Claudia Goldin and Lawrence Katz. And not surprising: Ms. Goldin and Mr. Katz found the median income of Harvard graduates in finance jobs, men and women, was almost 3 times the median for Harvard graduates in all occupations.
For MBA graduates from the top schools in the country, it has not been uncommon to start their first jobs at six-figure salaries supplemented by generous annual bonuses.
With financial markets shedding jobs and outplacement firms working overtime, business students nationwide have become jittery and are rethinking their career options. No one is sure what the new world of finance will look like.
Students are asking university officials to bring in more potential employers outside the field of finance to host on-campus recruitment sessions. Wall Street no longer smells so sweet and job security has become an elevated concern. The dream of becoming a master of the universe has become - a dream.
Fortunately, much of the knowledge acquired by undergraduate and graduate students studying finance is not Wall Street-specific but is transferable to a variety of occupations. That’s also the case for workers in financial services who have recently become unemployed.
The nonfinancial sector - mainstream American companies - can make good use of the knowledge and skills freed up by the crash in big-bucks finance. There is an abundance of talent that, instead of creating paper wealth, can be productively employed in solid career jobs outside Wall Street, jobs that create something tangible. In the future, students are less likely to choose careers in finance and instead look to, for example, engineering, science, medicine, teaching, information technology or management.
Despite this new direction, the bottom will not fall out of the financial job market, if only because of the inexorable march of globalization (although such jobs in developing countries typically pay less than here). Domestically, many midsize and regional banks have been largely untouched by the current financial crisis and remain viable career options.
Fewer job opportunities in finance will also mean greater competition between unemployed Americans who have fallen victim to the Wall Street crisis and immigrants who are in the United States on visas and holding down jobs the Americans could fill. It remains to be seen whether employers will put our citizens first, especially since immigrants work cheaply. If not, as long as Congress is sticking its finger in a lot of financial pies these days, let it also intervene to give job preference to our own citizens.
The financial sector’s contribution to overall economic growth, as we measure it, has increased over time. But those days may be behind us. Nevertheless, the nonfinancial sector, newly reinvigorated by top talent, can more than make up the loss to the benefit of all. Another plus from the fallout is the deflation of financial sector salaries, which will help to reduce the growing inequality in the distribution of income in America - a ticking time bomb.
As many of our best minds turn away from finance and spread out into new fields, the synergistic sparks will fly, helping to boost productivity and re-energize the economy.
Alfred Tella is former Georgetown University research professor of economics.
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