A Federal Reserve Bank of New York employment outlook concludes that the financial industry in the New York area faces either a large and prolonged loss of jobs or 25 percent-plus decline in aggregate compensation, or both.
The seven-page report, titled, "Employment in the New York-New Jersey Region: 2008 Review and Outlook," likens the present securities industry downturn to previous episodes that followed the 1987 stock-market crash and the bursting tech-stock bubble in 2000. In those instances, New York city's financial services sector shed 95,000 and 60,000 jobs, respectively. Real earnings in the sector shrank 10 percent and 27 percent, respectively. Both declines were drawn-out - financial sector employment in New York didn't start to recover until 1993 and 2004, more than five years and three years after it had peaked.
Through August 2008, the city's overall finance sector employment had declined by 10,000 jobs from its peak, or about 2 percent. Most of that decline reflects the loss of 9,000 jobs in the more narrowly defined securities industry, or 5 percent of peak employment within that subsector, according to the New York Fed.
During the 2001-2003 decline, overall finance sector employment in New York shrank 12 percent from its peak. However, securities employment shrank 20 percent, according to U.S. Labor Department data. Applying the 20 percent ratio to last year's peak employment figure would point to a cumulative decline of about 40,000 jobs this cycle, or 30,000 more than the net job losses reported through August.
A Repeat of 2000?
"The relatively severe downturns in 1987 and 2000 appear to have several elements in common with the current cycle," the New York Fed report states. "Although the job losses reported through the summer of 2008 were relatively moderate, the sharp losses that accompanied the finance sector weakness in the late 1980s might indicate that the city's finance sector stands on the verge of a significant multiyear downturn in employment and in real earnings."
It goes on to state that similar to the 2000 downturn, the current weakness might take the form of "severe declines in income rather than in employment....However, this outcome would also imply that the losses in real earnings would be at the higher end of the historical range, perhaps as much as, or more than, the 27 percent decline seen in the 2000 cycle, compared with the smaller income losses experienced in the 1980s and 1990s cycles."
The securities industry accounted for 5 percent of New York's total employment in 2007, roughly nine times the national average, and almost 25 percent of earnings, the
highest share in the city's history. Securities industry workers in New York City earned almost $400,000 on average last year. Each New York securities industry job is estimated to generate 2.3 other jobs in fields such as such as legal services, software development, and real estate, as well as other services like hotels and restaurants.