With minimum wage laws a topic of policy discussion recently, this article asks the question –is there a correlation between higher minimum wage rates and financial employment by state?

The main theory is that states with financial centers may get pressure from the public to increase the minimum wage above what elected officials experience in other states because of the idea that financial professionals are overpaid.  As the theory goes, because financial professionals are overpaid, why not help out the least off by taking from the “rich” financiers.  Before addressing whether any relationship exists, here’s some background.

The federal minimum wage was first imposed at $0.25 per hour in 1938.  Since that time, the minimum wage has grown to $7.25 in 2014, an increase of 2,800, or about 4.5% per annum.  Interestingly, the 4.5% average annual growth rate in is about a percent higher than economy-wide average annual wages.

Federal Minimum Wage

In its history, on an annual basis, the federal minimum wage has been bumped up 25 times.  The largest increases happened in 2007, 2008, and 2009, when the minimum wage increased $0.70 each year, going from $5.15 in 2006, to $5.85 in 2007, to $6.55 in 2008, and $7.25 in 2009.

Besides the methodical three-year increase in the minimum wage from 2007 to 2009, increases have been sporadic, akin to most political decisions.

Increases in the Federal Minimum Wage

The federal minimum wage is, of course, only part of the story.  States have the option of increasing, but not lowering, minimum wage rates for most employees.

As of 2014, 24 states have a minimum wage that’s higher than the federally imposed rate.  Highest among the states is Washington at $2.07 above the federal level, followed by Oregon at $1.85, Vermont at $1.48, and Connecticut at $1.45.  (Isn’t it interesting that less than half of U.S. states have found it prudent to increase the minimum wage above that which the federal government imposes.)

Minimum Wage by State, 2014 (1)

Changes in the minimum wage rates at the state level are also seemingly random.  The following is a plot of changes in the minimum wage rates by state across time.  (As a note, the details by state are not meant to be decipherable, rather just the clustering of changes by state.)

The first state to risk a minimum wage above the federal standard was Alaska at $0.50 in 1960.  Alaska was followed by the District of Columbia, Connecticut, and Massachusetts.  Interestingly, Alaska’s $0.50 difference from the federal government continues to this day.

Also interesting to note is the slew of states imposing higher minimum wage laws in 2006 and 2007, at the peak of the housing market boom.

Differences in the Minimum Wage Rates by State from 1938 to 2014

With this minimum wage background in mind, the next part of the question is – where is financial employment clustered in the United States? The following has that plot, which shows the percentage of total employment in a given state employed in the financial industry. On top of the financial industry centers is Delaware, with 10.1% of employment from financial businesses headquartered there.  Delaware is followed by Connecticut at 8.1%, New York at 7.8%, and Nebraska at 7.4%.

On the other end, the financial industry has not, relatively speaking, set up shop in West Virginia, with only 3.7% of total employment working in the financial industry.  Other states with less financial industry influence include Wyoming at 3.7%, Vermont at 4.0%, Alaska at 4.0%, and Mississippi at 4.0%.

Financial Industry Employment Concentration by State

So, what does the connection look like between financial industry-concentrated states and states with high minimum wage laws? Here’s a scatterplot look. Interestingly, not only are the two not related, the linear regression line indicates the opposite conclusion – financial center states generally do not impose higher minimum wage laws.  As a note, the regression line is not statistically significant.

Scatterplot of State Minimum Wage Laws and Financial Employment by State

The conclusion that there is no relationship between a given state’s minimum wage and financial employment may surprise some observers, given the political nature of the discussion, but it’s true.


Individuals in the private equity industry work a lot.  They also make a lot for those long hours.

If one divided working individuals into 10 hour groups – meaning some percentage of individuals work 40 to 49 hours per week and some individuals work say 80 to 89 hours per week – which hour group would you guess is the most common?  Which group would you guess is the least common?

Here’s what the data look like.

In terms of percentage of total, individuals working 50 to 59 hours per week represent the largest group at 37% of the total.  Following this group are individuals working 60 to 69 hours per week at 35%.

The remaining 28% of individuals are grouped as follows:

  • Individuals working 70 to 79 hours per week at 11%;
  • Individuals working 40 to 49 hours per week at 8%;
  • Individuals working 80 to 89 hours per week at 6%;
  • Individuals working 90+ hours per week at 2%; and
  • Individuals working less than 40 hours per week 1%.
Percentage of Total Private Equity Employment by Hours Worked Source: www.jobsearchdigest.com


How do these working hours worked connect with annual compensation?  Would you guess private equity professionals working the most – i.e. 90+ hours per week – make the most?  Would you guess individuals working less than 40 hours per week – i.e. individuals running the show – make the least?

Here’s what the data look like.

Interestingly, on top of the annual compensation pyramid is individuals working 70 to 79 hours per week at $308,000 per year.  Following them are individuals working 60 to 69 hours per week, bringing in $291,000 annually.

The remainder of the survey results are as follows:

  • Individuals working 40 to 49 hours per week at $285,000 annually;
  • Individuals working 80 to 89 hours per week at $251,000 annually;
  • Individuals working 90+ hours per week at $239,000 annually;
  • Individuals working 50 to 59 hours per week at $233,000 annually; and
  • Individuals working less than 40 hours per week at $183,000 annually.
Pay by Hours Worked per Week Source: www.jobsearchdigest.com

So, the sweet spot for being on top is 70 to 79 hours per week, with the next highest at 60 to 69 hours per week.

What does this mean?  A few observations.

First, by and large, the reward for being a successful private equity professional is not devoting less of one’s life to one’s working life, but rather, more.  The most highly compensated private equity professionals spend 14 or 15 hours per day evaluating or managing deals, whereas those spending perhaps 8 or so hours for only five days per week receive lower compensation.

Second, to be successful in the private equity universe, one likely will be devoting at least 50 hours every week to one’s working life.

Overall, private equity professionals working 70 to 79 hours per week generally make the most per year at an average of $308,000 per year, essentially spending most of their waking lives looking for or managing private equity investments.


Since at least the 1980s, a large, disproportionate share of venture capital investments have been made in firms located in California. When will this trend come to an end?

First, here is some background.  The following animated GIF shows venture capital investments by year by state since 1995 (a link to the interactive Tableau Public data and graphs is here). The figure clearly shows the cluster of venture capital investments in certain states, chief among them California, with an estimated 52 percent of venture capital investments made in 2013 according to data gathered by Price Waterhouse Coopers.

VC by State

The advantage of startup businesses located in California over businesses located in other states is large.  Businesses located in Massachusetts – the state where the second most venture capital dollars flowed in 2013 – come in far behind at about 11 percent.  Massachusetts is followed by businesses located in New York at about 8 percent, Texas at around 4 percent, Maryland at 3 percent, and Washington at 2 percent.

Interestingly, and perhaps surprising, the dollar value of venture capital investments have become more concentrated in certain geographic areas rather than branching out to competing businesses in other locations.  For example, the share of venture capital investments made in California has increased to 52 percent compared to about 39 percent in 1995 (below; top line is California).

Another interesting observation is the mobility of venture capital money.

Percentage of Total Dollar Investments by Venture Capital Firms Across Time by State

When Will This Cluster Bias End?

There are, of course, many potential answers to this speculative question.  One potential answer is never.  Venture capital money searches for firms with the highest anticipated return, and businesses located in California are tops by this characteristic – at least when measured by investments.  The problem with this response is that it’s not forward looking or broad, but rather very narrow in nature.

Another potential answer is eventually, but not soon.  This more honest response is based on the observation that venture capital money is largely “herd” based, meaning individuals running venture capital firms follow one another into investments rather than look for competing, perhaps better investments.  As with any herd behavior, attention eventually shifts to other areas, the causes of which could be cost of doing business, better standard of living elsewhere, higher expected profitability elsewhere, and many others.  The assumption behind this response is that the herd behavior stays intact, with the only difference being attention.

A third potential answer is soon – within the coming decade.  This response rests on the assumption that financial mavericks are able to find more profitable venture capital investment ideas in competing geographic areas.  In contrast to the herd answer, for this option to materialize, venture capital fund managers would have to shift away from the herd mentality.

Overall, venture capital investments continue to be clustered in a select few geographic areas, with investments in businesses located in California at the top.  When the cluster bias will end is just speculation, but one thing is for sure: venture capital investment money is highly mobile.  Eventually venture capital firms will branch out to more businesses run by bright individuals located in competing geographic areas; they just need to be convinced to broaden their perspective.


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