Why Young People go into Finance, Law, and Consulting

Tyler Cowen has a simple theory why young people tend to go into law, finance, and consulting:

The age structure of achievement is being ratcheted upward, due to specialization and the growth of knowledge.  Mathematicians used to prove theorems at age 20, now it happens at age 30, because there is so much to learn along the way.  If you are a smart 22-year-old, just out of Harvard, you probably cannot walk into a widget factory and quickly design a better machine.  (Note that in “immature” economic sectors, such as social networks circa 2006, young people can and do make immediate significant contributions and indeed they dominated the sector.)  Yet you and your parents expect you to earn a high income — now — and to affiliate with other smart, highly educated people, maybe even marry one of them.  It won’t work to move to Dayton and spend four years studying widget machines.

You will seek out jobs which reward a high “G factor,” or high general intelligence.  That means finance, law, and consulting.  You are productive fairly quickly, you make good contacts with other smart people, and you can demonstrate that you are smart, for future employment prospects.

Combined with the fact that these jobs tend to be higher-paying than anything else available, and we’ve got a recipe for young people to pass opportunities in technology, public service, and the like. This New York Times piece sheds some data on percentage of people from Ivy League schools that directly entered finance jobs. For example, those graduating from Harvard were more likely to enter finance than any other career (in fact, 17 percent of new grads did so in 2010, which is down from 28% in 2008, just before the financial crisis).

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