Wednesday, September 14, 2022
We study the effect of bank merger deregulation on market structure and wages in the banking industry. We show that state deregulation of bank mergers and acquisitions increased the market share of large, multi-state banks and lowered wages for bank workers by up to 8 percentage points, with wage reductions occurring uniformly across the wage distribution. Deregulation had no measurable effect on employment within the banking industry, and no direct effect on banking-market concentration, though its effect on wages was larger in states with lower initial levels of concentration. These findings suggest that enhanced product-market competition between banks eroded worker rents. In contrast to theories predicting that increased competition will lower the racial wage gap, we find that deregulation increased the wage gap between black and white bank workers--especially for higher-wage workers and managers. This increase in the racial wage gap cannot be fully explained by increased product market competition, changes in technology, or enhanced market power.