An Analysis of Reservation Wage Levels in the UK and German Financial Services Sectors

As a result of increasing competition, European financial intermediaries have had to place an increasing emphasis on reducing total costs. Although expenditure on wages represent a major element of these costs there is a dearth of studies analyzing wage levels in the sector. This paper examines reservation wage levels in the financial services sector by utilizing OLS and stochastic frontier methodologies in two leading European economies: UK and Germany. The results indicate that in both economies reservation wage levels are generally high in the financial services sector, that wage achievement is higher in the UK financial services sector than Germany and that human capital characteristics should be taken into account when estimating wage achievement. When these characteristics are taken into account, wage overpayment falls, but does not disappear when compared to the national average.