New York City's economic dependence on Wall Street

Challenge, March-April, 1999

Nonetheless, the securities sector was the largest contributor to overall earnings growth, accounting for 23 percent of the real earnings gain in the city during the 1983-88 period. However, the industry did not dominate the earnings picture the way it did during the 1992-97 period, when it contributed half of the real earnings growth. Earnings, which comprise wages and proprietors' income, account for about 62 percent of total personal income in New York City.

The city's growth was also fairly diverse in the 1980s, with eight of sixteen sectors each accounting for at least 5 percent of the earnings growth. These included, in decreasing order, securities, professional services, government, business services, culture and media, health services, construction, and banking. In contrast, in the 1990s only four sectors (securities, business services, insurance and real estate, and culture and media) each accounted for at least 5 percent of real earnings growth.

Reflecting the city's stronger output and income growth in the 1980s expansion, real earnings grew by $38 billion from 1983 through 1988 compared with a growth of $22 billion in the 199297 period.

Wall Street's Role in the City's Recovery and Expansion in the 1990s

The 1990s national economic expansion, with a duration that rivals that of the expansions of the 1960s and the 1980s, has been led by business investment, consumer durables purchases, housing construction, and merchandise exports. New York City's expansion, on the other hand, has been dominated largely by Wall Street investment banking and securities trading activities.

The impressive rise in the stock market, accompanied by a sizable growth in trading volume, has been a powerful force in the national economy in the 1990s [ILLUSTRATION FOR FIGURE 2 OMITTED]. More than in any decade since the 1920s, a sustained financial market boom has boosted the value of financial assets and provided a substantial lift to personal consumption expenditures. As Alan Greenspan has noted, largely as a result of the rise in stock prices, $12.5 trillion was added to the value of household assets nationally from 1994 to 1997. As the home of the largest U.S. securities firms, which account for the lion's share of Wall Street profits (see Table 2), New York City has been one of the bull market's greatest beneficiaries.

Bullish NYC Earnings

Figure 3 shows that Wall Street's 156,000 jobs represented 4.6 percent of city employment in 1997 and an estimated 16.8 percent of earnings - wages plus proprietors' income. However, between 1992 and 1997, the industry accounted for 20.5 percent of the growth in average annual employment. An analysis of the latest data on earnings indicates that, in inflation-adjusted or real terms, Wall Street has accounted for over half, or 51 percent, of the increase in aggregate earnings in New York City.

Sectors such as business services, culture and media, and retail trade that have accounted for more job growth than securities have contributed far less to the real earnings growth in the 1990s. For example, while business services added 56,000 jobs, or 45 percent of job growth during the 1992-97 expansion, they accounted for 15 percent of the growth in real earnings. Retail employment has grown by 39,000, providing nearly one-third of the city's job growth this decade, but has accounted for only 2.4 percent of real earnings growth.