Since the 2008 financial crisis, policy makers, professors, politicians, and others have expressed concern over America’s best and brightest minds electing to work in finance instead of pursuing potentially more socially valuable careers in science, medicine, and engineering. Just this past April, Harvard economics professor Sendhil Mullainathan wrote in the New York Times, “Many of the best students are not going to research cancer, teach, and inspire the next generation, or embark on careers in public service. Instead, large numbers are becoming traders, brokers, and bankers.”
Reports lamenting a shortage of STEM talent have only stoked the debate over Wall Street “brain drain.” The assumption is that massive finance salaries are luring graduates who would otherwise be making important scientific discoveries and leaving meaningful marks on society.
But a new working paper by Pian Shu, an assistant professor at Harvard Business School, suggests that this is not the case. Drawing on a sample of top science talent — 6,469 people who graduated from MIT between 2006 and 2012 — Shu shows that Wall Street is not attracting the best future scientists and engineers out of college (or at least, not the ones from MIT); they either continue on to grad school, or take a job in those fields. Rather, she finds that students who ultimately go into finance are different from those who pursue science in terms of their academic achievements and the ways they spend their time. This implies that the two sectors aren’t actually competing for the same talent.
That said, it’s easy to see where the concerns come from: Finance was the most popular industry among MIT graduates entering the labor market, with 8.4% of MIT graduates taking jobs in finance after graduation. That’s 25% more grads than went into computer and information technology, the most popular industry in the science and engineering category. Nearly a quarter of graduates entering finance had a science background, usually in engineering, math, or physics.
But Shu, who got her doctorate at MIT, found that, on average, the graduates who went into finance were not as academically accomplished as those who took to the sciences: they had lower GPAs and took fewer courses. Only 6.5% of graduates with top GPAs went into finance after graduation, while those from the bottom of the grade distribution were 16.5% more likely to enter finance. In other words, among this elite sample of students, those with the best grades seem less enamored by Wall Street.
While good grades don’t mean everything, they are an important marker of someone with scientific potential. “[The] production of knowledge, especially in science and engineering, is highly cumulative,” Shu told me. “A solid understanding of the field helps produce innovation.” She also used data from student surveys to examine other measures of academic performance, like how well students knew professors and how they felt their thinking skills improved. The results reinforce her main findings: Grads entering science and engineering are twice as likely to report knowing faculty members well and to report that their analytical and critical-thinking skills improved during college.
Future financiers, meanwhile, were 50% more likely to join a fraternity or sorority, a decision they typically made during their fIRSt semester of freshman year.
Notably, the two groups of students started showing different preferences even before entering college. In high school, students who would ultimately enter finance were much more likely to take leadership positions in varsity sports and student clubs like community service, student government, and student publications. Graduates who entered science and engineering were more likely to do performing arts like music or theater.
It’s important to note, of course, that there are plenty of individuals who didn’t fit these patterns — the paper is a look at the evidence on average. But a logical question does pop up here: Are would-be financiers just as good at science as the scientists — they simply don’t try as hard at it, because they’re already planning to go into finance? Shu’s research suggests the answer is no, “unless you believe that everyone knows exactly what they want to do career-wise at the start of college, which is probably a stretch.” She mostly rules out the possibility that financiers are making different choices specifically to prepare for their respective careers, since differences in GPA and social activities appear early and persist. Moreover, in interviews with MIT graduates, she learned that many of those who ended up in finance didn’t know about the industry when they fIRSt got to MIT; they learned about it their sophomore or junior year.
When I asked how salary might affect students’ career choices, Shu responded, “Future income still matters, but it matters at a later stage and is conditional on some of the decisions you’ve made already.” In other words, people may choose finance if they’re motivated by more money, but again, they’ve likely already demonstrated different preferences in terms of their academic achievement and social activities, beginning in high school.
Together, these results suggest that Wall Street “brain drain” may be overstated. One explanation Shu offers in her paper is that finance may prize certain specialized and analytical skills less than science and engineering sectors do, and it may call for other things, like social skills, more. “Finance does not attract the ‘best and brightest’ future scientists and engineers from MIT, but perhaps it hires those who will be most suited to working in finance,” she writes.
The financial crisis, however, did have a striking impact on the overall likelihood that MIT graduates will end up on Wall Street. Shu found that those who graduated between 2009 and 2012 were 45% less likely to choose finance than those who graduated between 2006 and 2008. Despite this, there was no evidence that the most accomplished students changed their academic performance in response to the crash. Only a very small proportion of students did, and all of them were closer to the bottom of the class in terms of their college-entry qualifications.
Because the data only included MIT graduates, these results aren’t meant to explain the effect of finance on career decisions throughout the economy. Shu says they may not generalize to all liberal arts colleges, or even average science and engineering programs. Rather, these findings mainly speak to the concentration of top talent at the most elite schools in these fields — Caltech, Berkeley’s College of engineering, and Harvard’s School of engineering and Applied Sciences.
“The MIT grads are very, very productive,” Shu said. “Understanding their career choices matters.”
This article was uPDated at 10:55am ET.