On average, wages in the finance industry are higher compared to the rest of the economy. Two explanations suggested for this finance wage premium are (1) the positive correlation between risk-taking and wages, and (2) industry differences in information technology intensity. Using a comprehensive worker-firm panel dataset for the Netherlands, we estimate wage models with additive worker and firm fixed effects, and compute the finance wage premium as the average of the firm fixed effects in an industry. We then relate the estimated cross-section of firm fixed effects to a range of firm characteristics, and find that information technology investment, the average level of educational attainment at a firm, and the complementarity of the two are the main drivers of the finance wage premium, while firm risk only makes a small contribution.

I investigate how to best measure firms' climate transition risk. Therefore, I gather a new dataset of firm-level climate transition risk metrics including reported EU taxonomy alignments of capex and revenues as well as emission intensities, E-scores from Refinitiv and MSCI, The Refinitiv Business Classification (TRBC), and text-based metrics. I find a strong divergence in transition risk metrics for companies. Thus, depending on the transition risk metric – a portfolio's transition risk profile will differ substantially. To evaluate the transition risk metrics, I measure the return sensitivity of nine brown and green portfolios– each constructed using a specific firm-level transition risk metric – to market-wide news indices that track transition risk shocks: the higher the sensitivity, the more effective the transition risk proxy. For green portfolios, I find that taxonomy and TRBC portfolios react most strongly to climate transition risk shocks. Forward-looking metrics seem to be particularly useful. For brown portfolios, only the MSCI E-score portfolio reacts significantly negative to transition risk shocks. The findings are robust across different world regions, different weighting and sampling methodologies and in an event-study setting. I conclude that markets currently price the upside risk for green firms stronger than the downside risk for brown firms.