DODD-FRANK IS DRIVING THE WRONG KIND OF INNOVATION.

• Author: Rutzick, Sam
• Position: REGULATION

AS THE FEDERAL government responded to the 2008 mortgage crisis by piling new regulations on the financial system, a new study reports, lower-skilled finance employees were replaced by workers with degrees in science, technology, engineering, and mathematics (STEM).

Christos Makridis and Alberto Rossi, researchers with George Mason University's Mercatus Center, found evidence that "financial services firms may have sought to 'escape' regulatory exposure by hiring STEM workers who could automate more tasks and pursue activities outside the scope of existing regulation." The influx of STEM workers and ensuing automation following the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act may have "productivity-enhancing effects," they note. But "this has come at the expense of low- and middle-skilled workers in the sector."

The tradeoff has not necessarily helped consumers. "It's just raising the costs," Makridis says.

According to the paper, the financial services sector saw a 50 percent increase in federal...