Friends with (Wage) Benefits: Random Assignment of MBA Peers and Reallocation to the Financial Industry Isaac Hacamo and Kristoph Kleiner∗ Indiana University, Kelley School of Business April 29th, 2016 Abstract We study one channel that links peer effects to lifetime earnings: workers can more easily trans- fer industries with peer support, resulting in long-term wage benefits even after the interaction de- clines. By incorporating a random assignment of MBA students into small-sized teams matched with employee-employer linked data, we first document that individuals in the same team are more likely to work in the same industry after graduation; yet the results are exclusively driven by the financial sector. We estimate that having a peer in the financial industry increases the chance a low-wage- industry worker can transfer to the financial industry by 5%. The results are strongest when (i) a worker intends to enter the industry after MBA graduation and (ii) during high industry growth. Interestingly, peer effects are inexistent during recession times. At a lower-bound, having a peer in the financial industry increases five-year compensation by $8,192 for all students and $40,964 for intended finance majors. Overall, professional networking plays a valuable role in the allocation of MBA graduates to the financial sector, and more broadly explains how past peer networks affect lifetime earnings. ∗Department of Finance, Indiana University, 1309 East 10th Street, Bloomington, IN 47405. Email:
[email protected]. We thank Nandini Gupta for helpful comments. 1 1 Introduction Economists have long been interested the determinants of life time earnings, especially in the char- acteristics of high-wage workers [Abowd et al., 1999].