New York City's economic dependence on Wall Street

Challenge, March-April, 1999

As for New York State as a whole, its economic and fiscal dependence on Wall Street parallels that of New York City. Flush times on Wall Street echoed in Albany where sizable tax-cut and spending commitments were made and which rise steadily in their recurring impacts, creating the prospect for substantial budget gaps that reach $5.5 billion in 2000-2001.

It is too early to say whether New York City will relive its post-1987 economic decline, since the extent of Wall Street's ongoing retrenchment is not yet known. Among the crosscurrents at work is the fact that the city's real estate market is not nearly as heated as it was ten years ago. Local government employment has been reduced in the 1990s, whereas it was increased during the 1980s, adding to budget pressures when tax revenues fell. On the other hand, the health-care sector, which cushioned the citywide job declines the last time around, now has limited growth potential in the managed-care era. Another major difference is that, ten years ago, in the aftermath of the 1987 stock market crash, the city continued to benefit from rising international demand for the city's financial, business, and professional services, while today the outlook is for far weaker international growth.

In the long run, the city needs to build on some positive developments in diversifying its economic base beyond Wall Street. Tourism, culture and media production, computer software, and management consulting firms have all prospered in recent years, and in many cases the city has increased its national and international share of activity. It is important that these trends continue if the city is to better manage the risks associated with its heavy reliance on Wall Street. On the other hand, despite its apparent potential for greater synergy with local design and marketing strengths, the city's light manufacturing sector has continued to contract, taking with it blue-collar jobs critical to providing a range of employment opportunities.

The city is well served by its truly cosmopolitan and international nature. Besides acting as a magnet to draw in ambitious young people from all over the nation, New York City is probably the most ethnically diverse and hospitable to immigrants of any global city. In attracting thousands of immigrants each year, the city taps a rich source of entrepreneurial energy.

Among the challenges the city faces, one of the most daunting is a still-high unemployment rate and the prospect of absorbing large numbers of new labor-force entrants under welfare reform. This task is complicated by the pressures that welfare reform places on the working poor For the city to ensure that it has an educated and productive labor force as it enters a new century in addition to upgrading public education it needs to address the rising demand for good-quality, affordable child care and the growing number of residents without health insurance. An adequate supply of affordable housing and a modernized infrastructure are also key ingredients for the city's economic future.