Can Human Capital Explain Income-based Disparities in Financial Services?

Authors

Ruidi Huang, Southern Methodist University (SMU) - Finance DepartmentFollow
James S. Linck, Southern Methodist University (SMU) - Finance DepartmentFollow
Erik J. Mayer, University of Wisconsin-Madison, Finance DepartmentFollow
Chris Parsons, University of Southern California - Marshall School of BusinessFollow

Publication Date

2-1-2024

Abstract

Research shows that access to high-quality financial services varies with local income and wealth. We study how financial firms' internal allocation of human capital contributes to these disparities. Using a near-comprehensive panel of over 350,000 U.S. mortgage loan officers, we document large and persistent differences in productivity and performance. We find that firms' hiring and promotion practices allocate workers with less experience or poor track records to branches serving low-income customers. Further, the consequences of poor performance differ by location: low sales, bad loans, and misconduct are more tolerated in low-income branches, exacerbating income-based disparities in financial services.

Document Type

Article

Keywords

Financial Services, Labor Market, Human Capital, Loan Officer, Mortgage, Housing

Disciplines

Finance

DOI

10.2139/ssrn.4164137

Source

SMU Cox: Finance (Topic)

Language

English