We study the relationship among occupational employment, occupational wages, and wage inequality. In all occupations, entrants and leavers earn less than stayers, suggesting negative selection effects for growing occupations and positive effects for shrinking ones. We estimate a model of occupational prices and skills that includes specific skill accumulation and endogenous switching. Contrary to uncorrected wages, prices and employment growth are positively related. Forty percent of selection is due to age, as entrants and leavers have had less time to accumulate skills. The remainder is Roy-type selection. Skill prices establish a quantitative connection of occupational changes with surging wage inequality.

We quantify firm heterogeneity in skill returns and present direct evidence of worker-firm complementarities. Within a model of firms’ demand for cognitive and noncognitive attributes, we show that identification depends on the availability of skill measures. Linking administrative data to test scores, we document worker sorting and convex earnings-skill relationships. We find that (1) both skills’ returns vary substantially across employers and correlate weakly within firms; (2) workers with large endowments of a skill populate firms with higher returns to it, and sorting intensifies with the cross-sectional dispersion of returns; and (3) complementarities and sorting significantly influence the earnings distribution.

Abstract Financial sector wages have increased extraordinarily over the last decades. We address two potential explanations for this increase: (1) rising demand for talent and (2) firms sharing rents with their employees. Matching administrative data of Swedish workers, which include unique measures of individual talent, with financial information on their employers, we find no evidence that talent in finance improved, neither on average nor at the top. The increase in relative finance wages is present across talent and education levels, which together can explain at most 20% of it. In contrast, rising financial sector profits that are shared with employees account for up to half of the relative wage increase. The limited labour supply response may partly be explained by the importance of early-career entry and social connections in finance. Our findings alleviate concerns about “brain drain” into finance but suggest that finance workers have captured rising rents over time.