However, I believe there is a simple reason which explains the higher pay amongst economics majors; it is just the nature of the jobs they go on to do. As in previous discussions, it is clear that a lot of economics majors go on to the financial sector, many to investment banking.
Say, for example, an investment bank might be advising on a merger deal worth $5bn, and even if their fees is just 1%, that is still $50m coming into the bank. Multiply this by the number of deals they do, and that’s a lot of money earned within the firm, and to be paid to their employees. If you also consider the buy-side e.g. private equity, hedge funds, where the nature of the job deals with huge sums of money e.g. $30bn in assets under management for a substantial sized fund, and say management fees are a humble 2%, that’s still $600m to be shared between employees within the firm (which there isn’t that many compared to other fields).
Now if you consider a different liberal arts majors’ profession e.g. History or Psychology, you’ll be dealing more with things on a much smaller scale financially, as you are now dealing more with things which does not involve huge cash flows as a nature of it (unlike corporate transactions or investments). So because of the nature of the profession, there will be less money to go around the employees, and even though you might be earning a bigger percentage of the firm’s revenue, it may not be as much as the bankers and financiers.
The point is that the skills among economics majors compliments greatly, job industries such as banking, finance, consulting, research, etc. just like skills in an English major would compliment journalism, or a history major would compliment historical research. It just so happens that the economics majors ‘professions’ deal with transactions where a lot of money is involved, hence they would earn significantly more compared to other professions.
Interesting points made there!
However, I believe there is a simple reason which explains the higher pay amongst economics majors; it is just the nature of the jobs they go on to do. As in previous discussions, it is clear that a lot of economics majors go on to the financial sector, many to investment banking.
Say, for example, an investment bank might be advising on a merger deal worth $5bn, and even if their fees is just 1%, that is still $50m coming into the bank. Multiply this by the number of deals they do, and that’s a lot of money earned within the firm, and to be paid to their employees. If you also consider the buy-side e.g. private equity, hedge funds, where the nature of the job deals with huge sums of money e.g. $30bn in assets under management for a substantial sized fund, and say management fees are a humble 2%, that’s still $600m to be shared between employees within the firm (which there isn’t that many compared to other fields).
Now if you consider a different liberal arts majors’ profession e.g. History or Psychology, you’ll be dealing more with things on a much smaller scale financially, as you are now dealing more with things which does not involve huge cash flows as a nature of it (unlike corporate transactions or investments). So because of the nature of the profession, there will be less money to go around the employees, and even though you might be earning a bigger percentage of the firm’s revenue, it may not be as much as the bankers and financiers.
The point is that the skills among economics majors compliments greatly, job industries such as banking, finance, consulting, research, etc. just like skills in an English major would compliment journalism, or a history major would compliment historical research. It just so happens that the economics majors ‘professions’ deal with transactions where a lot of money is involved, hence they would earn significantly more compared to other professions.