Wall Street doesn't have monopoly on the best and the brightest

Over the last 35 years, Wall Street grew into outsize part of the American economy. The financial sector now accounts for one fifth of U.S. corporate profits, which puts it neck and neck with manufacturing, an industry that employs twice as many workers.

During its transformation in the 1980s, Wall Street also turned into a top recruiter of graduates from fancy colleges. This is still true. Despite the humiliations of the financial crisis, which revealed how Wall Street's complex dealings had undermined the public interest, it remains the most popular destination for Harvard and Yale students entering the workforce.

In October, President Barack Obama scolded banks and hedge funds for gobbling up so many of America's top students. "Too many potential physicists and engineers spend their careers shifting money around in the financial sector, instead of applying their talents to innovating in the real economy," he said in an editorial for the Economist.

Obama is hardly the first to complain about the Wall Street brain drain. But the concern is more urgent now that algorithms are increasingly executing investment strategies. The financial sector hungers not only for highly-credentialed workers, but also for those with technical chops. Science and engineering programs have sent a startling number of students into banking and investment careers over the past decade. Right before the Great Recession, when demand and supply were at their peak, almost a third of MIT engineering majors entering the workforce had jobs lined up in finance.

So in that sense, it would seem Wall Street has deprived the nation of thousands of scientists and inventors.

But according to recent research from Pian Shu, an economist at Harvard Business School, the kinds of students who end up working for Goldman Sachs or Merrill Lynch aren't always the best, the brightest - or the most innovative.

Shu finds that MIT science and engineering majors who took their first jobs in finance had more modest academic achievements, on average, than the highflying types who pursued research careers right after school.

"The two groups seem very different even at college entry and pursue different activities in college," Shu said in an email. Students destined for Wall Street tended to arrive at MIT with weaker high school records, and later graduated with lower college GPAs. They were also more likely to be members of a fraternity or sorority.

In addition to confidential academic records, Shu also analyzed the self-evaluation surveys given to students at graduation. People going into finance were less likely to say they gained an "in-depth knowledge of a field" or that they better understood "the process of science and experimentation" after their four years at MIT.

Looking at MIT science and engineering graduates between 1994 and 2008, Shu found that those higher GPAs were far more likely to end up with patents, which is a crude sign that they were "innovating in the real economy," as Obama put it. In contrast, during the run-up to the Great Recession, it was precisely the opposite kind of MIT student - the low achiever, the struggler - who most gravitated toward jobs in the financial sector.