Financial Regulation

Federal Regulations Have Forced Lower-Skilled Workers Out of Banking Jobs

Regulations have hiked up the cost of doing business, causing firms to automate and hire more employees with advanced degrees.

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As the federal government has piled new regulations on the financial system, lower-skilled employees have been forced out of the industry—a tradeoff that hasn't necessarily helped consumers.

"It's just raising the costs," Christos Makridis, a scholar with the Mercatus Center, a free market think tank at George Mason University, tells Reason.

Makridis is one of the authors of a new study, along with Alberto Rossi, that investigates an under-acknowledged effect of federal regulations on the financial services sector imposed since the Great Recession. More regulation has brought increased automation, and lower-skilled workers have been pushed out as firms seek to hire fewer but more highly-specialized science, technology, engineering, and mathematics (STEM) workers.

The study notes that regulations on the financial services sector have increased significantly more in recent years than regulations on other businesses. The Dodd-Frank bill, which was passed in the wake of the 2008 financial collapse and, among other things, created the new Consumer Financial Protection Bureau, is one of the main culprits.

In the report, Makridis and Rossi say that the financial services sector has seen a 50 percent increase in regulation between 2008 and 2017. For every 10 percent increase in regulation, STEM employment increases by 5.3 percent, they report. The study also found that increases in regulation caused wages to increase, as financial firms hired fewer people working for more money.

"Financial services firms may have sought to 'escape' regulatory exposure by hiring STEM workers who could automate more tasks and pursue activities outside the scope of existing regulation," the report concludes.

Older, more established firms have the ability to weather more of these expensive new regulations. Big banks have the resources to hire the legal teams that let them dodge regulatory restrictions while smaller ones don't.

Despite the Obama administration's desire to make the financial services sector more resilient when economic downturns happen, Makridis notes, "the surge in regulation that occurred from the Dodd-Frank legislation led to heightened polarization in the labor market where firms responded by hiring more STEM workers and firing a lot of non-STEM workers, middle- and lower-skilled jobs." Big banks respond to regulation by automation, and as a consequence replace lower-skilled workers with people who have greater technical skills and are thus able to operate these automated systems.

The banking system might be more secure, but a lot of former workers in the industry probably aren't.

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  1. So the regulation loving democrats hate poor people with a public school education that did not teach them how to add and subtract, just how to hate America?
    Damn, whodathunkit?

    1. Democrats hate everyone, themselves most of all.

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    2. All they have is projection.

      1. And they can’t even do that right.

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  2. “For every 10 percent increase in regulation, STEM employment increases by 5.3 percent, they report”

    Increasing regulations increases the number of high-paying jobs.
    *Brain imploding*

    1. Big college is behind it all.

  3. Big banks have the resources to hire the legal teams that let them dodge regulatory restrictions while smaller ones don’t.

    Regulatory capture creating barriers to entry and higher prices. That’s the point of regulations.

    People like Warren are the tools and cronies of big banks.

  4. There is a prediction [Tyler Cowen, The End of Mediocrity] that due to increases in technology, AI, and subsequent productivity, that as few as 15% of the population will have anything approaching “meaningful work” and that the rest will end op on the dole. There just will not be anything for them to do, but exist.

    For the ancient Romans bread and the circus managed to keep them in line, for the most part.

    Personally I see a big jump in the ranks of antifa if that comes to pass. Mass “equity” will just not be enough.

    1. I foresee gene-tailored plagues. We’re not very far away. Just as soon as AI and self-repairing, self-creating robotics create workers that are roughly equivalent to a 90 IQ human.

      The hordes will at first be stupefied by bread, circuses, and drugs, as you note. A la Brazil. Eventually, they’ll be numerous enough, and dehumanized enough, that removing them as a threat will be seen as a necessity.

      It’s one solution at least to the, “What shall we do with the Useless Eaters?” question.

      1. Hey, don’t sugar coat it, Sunshine.

        But it certainly does beg a big question; what the fuck are we going to do with ourselves? In the 70s best seller “Future Shock” Toffler predicted we would have all kinds of leisure time d/t technology and productivity. Personally in the succeeding decades I found I just had more to do because of the technology [I could be more productive and get more done faster]; but are we approaching a tipping point? But if we don’t have the consumers, what [and who] the hell are we doing it for? Will be proceed into a world with a small number of “haves” who just don’t need anyone else to make their stuff or do their bidding? All of these predictions seem to leave out one elephant in the room factor; the power of the mass and the ability to revolt against the machine.

        1. “Will [w]e proceed into a world with a small number of “haves” who just don’t need anyone else to make their stuff or do their bidding?”

          Yes. The trend is toward increasing automation, and has been since the shift from agrarian to industrial societies. Look at how many people it takes to farm 1 acre now, vs 100 years ago, and look at production for that acre. Similarly, while manufacturing is indeed more productive now in the US vs the 1950s, at least on a constant adjusted dollar basis, look at how few people are needed to cause those lines to make 335is, F-35s, and remdesivir. To pick on a few of the high value, technically complex products our manufacturing sector makes on the whole.

          Services are going the same way. At least in the professional services department. Synthetic vision systems replacing radiologists, AI/OCR systems replacing document review legal personnel. Hell, TurboTax replacing CPAs.

          Yes, bright workers can retrain. But we don’t have, and never had, that many bright people. Moreover, we do a shittier job now vs 1960 of identifying them and training them to be productive, contributing members of society.

          1. Was just talking with a colleague this morning how specialists like radiologists are going by the way within the next decade; software, overseen by a bright physician and engineer in Bangalore, will take care of that. Surgery will be done by more advanced Davinci systems.

            Personally, I plan to retire before then but regardless will while away my hours with paperbacks and cheap red wine. Always thought I’d end up a bohemian any way.

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    2. The other 85% can subsist by monetizing ASMR and reaction videos on YouTube

      1. Combine the two and react to ASMR videos.

    3. There is a prediction [Tyler Cowen, The End of Mediocrity] that due to increases in technology, AI, and subsequent productivity, that as few as 15% of the population will have anything approaching “meaningful work” and that the rest will end op on the dole. There just will not be anything for them to do, but exist.

      But that’s a good thing, isn’t it? AI will make us rich enough that 85% of us won’t have to work. We won’t just exist, we’ll “work” on hobbies like art and writing.

    4. The “bread and circus” route may become an unavailable option, at least the “circus” part. There is increasing support from the left to make mask wearing and social distancing a permanent part of our lives, since even after the “pandemic” passes, people will still continue to die from airborne ailments such as the flu, as they have for the entirety of human existence, because “if it saves just one life.” This will of course lead to the end of most of our recreational activities. I foresee grave consequences should this new movement from the left continue to gain purchase.

  5. Regulation to make business and employment unaffordable is the goal. The want the power to shut down any one they don’t like. Can we please stop assuming the regulators have good intentions?

    1. Recent events have put such assumptions forever to rest, O Rite Reverent.

  6. I literally have not walked into a bank to do my banking business in over 25 years. Everything has been remote since then. This is not a recent development at all.

    1. Same here. I’m not sure what these lower skill jobs were but it wouldn’t surprise me if the number of tellers is down 90%. The weekly outing to the bank to deposit a paper check was a huge waste of time and effort and it was eliminated for most people with direct deposit. That has nothing to do with Dodd Frank. And it was hugely beneficial for productivity too. The point of the economy isn’t to employ people in needless paper pushing jobs.

  7. Excess population and noth’n to do? Send ’em all to Mars, and what happens happens.

  8. It might help if the article gave some examples, because I’m bewildered. What jobs have banking regulations in particular priced out of the market?

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