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Junior bankers deserve their bonuses. Really.

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Bonuses for junior bankers are a bit smaller than they were last year, the mostly anonymous Wall Street Oasis banking discussion board revealed last week, and junior bankers aren’t too happy about it. . I worked on Wall Street for seven years and saw many compensation cycles. While the media is generally eager to report with some relish on lower wages – bankers are generally unsympathetic characters for much of America – the complaints of young men and women who fiddle with spreadsheets and do much of the manual labor in investment banking should not be dismissed out of hand.

Ordinarily, a job with high prestige and a high salary would result in a comfortable standard of living. And of course, the pay is high – there aren’t many jobs that pay $200,000 a year for people in their twenties. But the average rent has risen to $5,000 a month in Manhattan, and it’s hard to find an apartment for less than that with anything in the way of amenities. That $60,000 annual rent eats up about 30% of the typical salary, a lot goes to taxes, and there’s not much left over in terms of savings. I could argue that one of these bankers could work, say, in South Carolina, earn $60,000 a year and enjoy a higher standard of living, but there would be a loss of prestige.

Young people work in banks and accept being underpaid because there is the promise of becoming an old person in a bank and being overpaid. And even if that doesn’t happen, a banking analyst has a good few years of experience that can be a stepping stone to something better. In 2001, Lehman Brothers hired 12 equity partners, including me. Seven years later, I was the only one left. But almost everyone has moved on to bigger and better things. An investment bank is a graduation school unmatched in the business world. You learn skills (and build character) that last a lifetime. But the first years are the hardest. I started earning $135,000 a year, and it took five years before my earnings exceeded $300,000. I didn’t feel rich, and it took me a while to do that.

The reason why bankers’ salaries have not increased, and in some cases are even falling, is due to an imbalance between labor supply and demand. In bear markets, banks may pay less because they know there are fewer other opportunities and people won’t leave. The tech industry is currently in shambles and private equity is facing a rising interest rate environment that will most likely dampen its activity. In bull markets, when the trading calendar is jam-packed, banks have to compete for a shrinking pool of available labor, and wages and bonuses rise.

Junior bankers are generally willing to accept less compensation in exchange for prestige, even if the terms are tough. There’s a social motto to being able to name your business at cocktail parties. But inflation erodes the real value of a bonus. With inflation running at 9.1% per year, a drop in wages is extremely painful when the rent increases by 30% or more. This causes an existential crisis in some young bankers who ask, “Why am I doing this?

I know what it’s like to be disappointed with compensation. I had good years and bad years. The bank is filled with disappointment. It is demoralizing to work 100 hours a week and sacrifice physical and mental health to make no progress. In fact, the best reason for banks to maintain at least a somewhat generous level of pay is for morale. Happy employees are more productive employees. And what’s amazing is that it doesn’t take much – an extra $20,000 is enough and provides plenty of leeway with expenses. There are many ways for a bank to cut expenses, but cutting junior employee bonuses is practically the worst way to do it.

More other writers at Bloomberg Opinion:

• Drought for rainmakers threatens banker job cuts: Paul J. Davies

• Technology is collapsing, so say goodbye to your bonus: Chris Bryant

• Citigroup Age Bias lawsuit not over yet: Stephen L. Carter

This column does not necessarily reflect the opinion of the Editorial Board or of Bloomberg LP and its owners.

Jared Dillian is the editor and publisher of Daily Dirtnap. Investment strategist at Mauldin Economics, he is the author of “All the Evil of This World”. He may have an interest in the areas he writes about.

More stories like this are available at bloomberg.com/opinion