The Making of an Investment Banker: Macroeconomic Shocks, Career Choice, and Lifetime Income

Paul Oyer

NBER Working Paper No. 12059
Issued in February 2006
NBER Program(s):Corporate Finance, Labor Studies

New graduates of elite MBA programs flock to Wall Street during bull markets and start their careers elsewhere when the stock market is weak. Given the transferability of MBA skills, it seems likely that any effect of stock returns on MBA placement would be short-lived. In this paper, I use a survey of Stanford MBAs from the classes of 1960 through 1997 to analyze the relationship between the state of the stock market at graduation, initial job placement, and long-term labor market outcomes. Using stock market conditions at graduation as an instrument for first job, I show that there is a strong causal effect of initial placement in investment banking on the likelihood of working on Wall Street anywhere from three to twenty years later. I then measure the investment banking compensation premium relative to other jobs and estimate the additional income generated by an MBA cohort where a higher fraction starts in higher-paid jobs relative to a cohort that starts in lower-paid areas. The results lead to several conclusions. First, random factors play a large role in determining the industries and incomes of members of this high-skill group. Second, there is a deep pool of potential investment bankers in any given Stanford MBA class. During the time these people are in school, factors beyond their control sort them into or out of banking upon graduation. Finally, industry-specific or task-specific human capital appears to be important for young investment bankers.

download in pdf format
   (326 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w12059

Published: Oyer, Paul. "The Making of an Investment Banker: Macroeconomic Shocks, Career Choice, and Lifetime Income." The Journal of Finance 63 (December 2008): 2601-2628.

Users who downloaded this paper also downloaded* these:
Schoar and Zuo w17590 Shaped by Booms and Busts: How the Economy Impacts CEO Careers and Management Styles
Oyer w12157 The Macro-Foundations of Microeconomics: Initial Labor Market Conditions and Long-Term Outcomes for Economists
Oreopoulos, von Wachter, and Heisz w12159 The Short- and Long-Term Career Effects of Graduating in a Recession: Hysteresis and Heterogeneity in the Market for College Graduates
Lucas and McDonald w2422 Bank Financing and Investment Decisions with Asymmetric Information
Field w12282 Educational Debt Burden and Career Choice: Evidence from a Financial Aid Experiment at NYU Law School
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us