Structural Changes in Manhattan's Post-9/11 Economy: Since the Terrorist Attacks of September 11, 2001, Manhattan's "Global Economy" Has Seen Its Employment Diminish While Its Role as a Wage Generator Has Increased; High Wages in the Global Sector May Be Driving Demand in the Local Sector

Dolfman, Michael L., Wasser, Solidelle F., Skelly, Kevin, Monthly Labor Review

Business cycle ebbs and flows are common features of the U.S. economy. In Manhattan, where there is a concentration of finance, information, and professional services industries, the economic downturn of 2001 started earlier and lasted longer than it did in other parts of the country. (1)

The national economic downturn that hit Manhattan hard in early 2001 was exacerbated by the terrorist attack on the World Trade Center on September 11. As this article will show, the economic decline, lasting from 2001 until 2004, was unique in its contribution to a fundamental shift in Manhattan's economy.

In previous decades, job creation in Manhattan's "global sector" was the economic engine driving the borough's entire economy. Today, as a result of the 2001 downturn, high wages generated by global-sector industries emerge as a new determinant of Manhattan's economy.

The Manhattan economy

With approximately 1.8 million private-sector jobs, or about 61 percent of New York City's total job base, and an average annual wage exceeding $92,000 in 2005, (2) Manhattan is the driving force of the city's and the New York regional economy. While modern-day business is the focus of Manhattan, along with many historical attractions, the borough also has numerous vibrant neighborhoods, each with a unique mix of restaurants, shops, and riving accommodations.

The short-term effects of the 9/11 attack on the Manhattan and New York City economies were examined in a previous article. (3) Here, attention will be directed at how Manhattan has fared following the economic decline that gripped the borough immediately after September 11.

In order to assess Manhattan's recovery from the events of 2001, it is essential to understand first that Manhattan's labor market economy is unique. With the prominence of its financial sector and other advanced industries, as well as its focus on international finance, global markets, and transnational enterprises, Manhattan has contributed to the development of a new conception of what global economics implies. In effect, the borough has become a world center for the servicing and financing of international trade, for investment, and for headquarters operations. (4)

However, the rise in importance of these sectors not only has driven the New York regional economy, but also has changed the nature of Manhattan itself. Specifically, the changes have deepened a duality in the borough's economic structure. By virtue of its location, industry, labor markets, and population, Manhattan (though only a county (5)) has become nothing less than a "global city"--a city characterized by a notable number of highly paid workers who exert significant effects on the consumption patterns in the neighborhoods, city, and region in which they work and live.

Having soaring incomes and little time, those global-city workers who live in Manhattan demand and pay for high levels of personal consumer services provided by other workers. Thus, Manhattan--the "global city"--is really two interdependent components, one composed of highly paid workers who focus their activities on international pursuits and another, locally based, that provides services and commodities to the "globally focused" workers and Manhattan's other workers, residents, and visitors.

To assess how Manhattan has recovered from the terrorist attacks and economic downturn of 2001, it is essential not only to examine changes in both aspects of the borough's economy, but also to gain insights into the interrelationship between these two components--that is, how expansion or contraction in the global sector influences developments in the local sector. Although conceptually independent, each sector is unable to support itself; therefore, both must be assessed as an integrated entity.

Global and local industries

To understand the interrelationship between Manhattan's global and local economies, it is necessary to define the industries they comprise. Table 1 provides a measure of economic diversification within Manhattan's economy, compared with that of other core counties of major cities throughout the Nation. The figures shown are based on the relative employment concentrations of specific North American Industry Classification System (NAICS) industrial sectors. The table describes which regional economies have greater shares of specific industries, compared with those industries' shares at the national level. As the high location quotients in the table show, Manhattan has a concentration of jobs that is proportionally higher than the U.S. average in several advanced service industries: finance and insurance; information; professional, scientific, and technical services; management of companies; and real estate and leasing sectors. This employment concentration is evidence of Manhattan's robust global sector, because jobs in these industries are more numerous than what is needed to service the local economy.

With high concentrations of employment in these global industries, it is possible to appreciate why they are global and also to understand why Manhattan has become a national and world leader in such services: (6) the rise in importance of the global industries has come to dominate the economic base of Manhattan and to drive the entire New York regional economy.

Methodology

The analysis that follows focuses on Manhattan's economy, with a special emphasis on the influence of the global sector. Attention will be directed toward answering the question "How have structural changes in that sector affected overall economic performance in Manhattan?" Throughout, the article tests the assumption that the global sector is the foremost cause of regional economic growth and the engine which drives the local economy. Does this assumption hold true during economic booms as well as economic declines? Does it still apply after the latest economic downturn?

In order to gauge how changes in the global sector have influenced the Manhattan economy--particularly its recovery after 2001--a 15-year analytic framework, the period 1990-2004, (7) will be used. An understanding of trends over that timeframe provides both a firm basis for assessing Manhattan's post-2001 recovery and a conceptual foundation for interpreting the results of the analysis.

The article employs the following analytic approach:

1. A 15-year overview of Manhattan's economy outlines general trends in employment, in total wages, and in average weekly wages. The data are then partitioned to track the individual 15-year performances of industries in the global and local sectors.

2. Recognizing that two downturns and a period of expansion have defined the Manhattan economy during the 15-year period under study, the article examines the impact of each individual business cycle in detail. Particular attention is directed toward assessing not only the performance of the global economy in general, but also that of the specific sectors--and their separate components--which make up the global economy.

3. To understand better the relationship between the global and local economies at various points in time, economic-base analytic techniques--that is, base multipliers--are employed. The base multiplier is a statistical tool used in this analysis to quantify the relationship between the global and local sectors. The base multipliers presented are related to the ratios of the global sector's employment and total wages in the first quarter of each year to total employment and total wages in the county and period examined. These ratios are then used to compare patterns of change between periods in order to address the structural dynamics of the changes involved. The analysis does not seek to make long term predictions using the base multipliers, but rather focuses on the extent to which the labor market realities in a particular year in Manhattan have tracked the predictions of the base multipliers. (8)

4. An analytic framework critically examines how the Manhattan economy--particularly those components which have powered the global economy--has fared during the 15-year period studied and assesses how the Manhattan economy of 2004 has changed over those 15 years.

5. The framework developed is used to analyze and describe the Manhattan economy of the first quarter of 2005 and to assess the overall recovery of the borough's economy.

The Manhattan economy over 15 years

To quantify the significance of the global sector on Manhattan's economic structure and performance, tables 2 and 3 and charts 1 and 2 provide a 15-year summary (from 1990 to 2004) of first quarter employment, total wages (exclusive of benefits), and average weekly wages of Manhattan workers.

[GRAPHICS 1-2 OMITTED]

In the aggregate, during the 15-year period, the Manhattan economy lost 102,973 jobs, or 5.7 percent of its 1990 job base. Despite these job losses, total wages in Manhattan increased by $28.5 billion, a gain of 143.1 percent, while the average weekly wage increased 157.8 percent, from $846 to $2,181. (The increase in the real average weekly wage, discounting inflation, was 73.0 percent.)

A comparison with the overall American economy during this same 15-year period reveals a different pattern: nationwide, the economy gained 16 million jobs, for an increase of 19.1 percent; at 106.0 percent, total wage growth was lower than in Manhattan, and the average weekly U.S. wage increased 73.0 percent (15.0 percent after accounting for inflation), to $756.

Global and local sectors

During the 15 years studied, Manhattan's global sector lost 87,403 jobs, or 10.2 percent of its 1990 job base. Still, total wages increased $24.4 billion (184.3 percent), while the average weekly sector wage rose 216.6 percent, to $3,764. (9) (Real wages increased 112.6 percent.)

Unlike the situation in Manhattan, global-sector industries' employment grew by 25.9 percent nationally, total wages increased by 164.7 percent, and average weekly wages increased by 110.1 percent, to $1,315. (Real wages rose 44.2 percent.)

Changes in Manhattan's local sector were less striking. Job losses totaled 15,569 (only 1.6 percent of the 1990 job base), while total wages increased $4.1 billion (61.6 percent) and the average sector wage increased 64.2 percent (10.2 percent discounting inflation), to $885.

Nationally, employment in those industries characterized as local-sector industries in Manhattan grew by 17.6 percent, total wages increased by 85.1 percent, and average weekly wages rose by 57.5 percent, to $622. (Real wages increased 8.0 percent.)

In assessing the 15-year trend, the influence of the global sector on the overall Manhattan economy becomes apparent: 84.9 percent of all jobs lost and 85.5 percent of all wages gained were in that sector.

Business cycles

Although an examination of the beginning and end of the 15-year period under study provides insights into the Manhattan economy, it does not focus adequate attention on the economic fluctuations and disruptions that occurred during that period--specifically, the effects of two economic declines and an economic expansion. From 1990 to 1993, Manhattan's economy contracted; from 1993 to 2001, the economy expand ed; and beginning in 2001 and continuing to the end of the 15-year timeframe in 2004, the economy entered another decline. (10) Manhattan's economic response to each of these three business cycles was different.

The analysis begins with the 2001-04 downturn in order to identify the fact that structural change, the focus of the article, did occur. The change is specified by contrasting the 2001-04 period (see table 4) with the earlier downturn that occurred between 1990 and 1993. The expansionary period from 1993 to 2001 is then examined to determine whether the recently emerging recovery in Manhattan differs in its characteristics from that following 1993.

Manhattan's downturns

The latest downturn, 2001-04: the determinant of structural change. By the dawn of the 21st century, the economic expansion that had defined much of the 1990s began to falter. A recession enveloped Manhattan and the Nation when the tech-stock bubble burst on Wall Street at the beginning of 2001. This event was followed by the attacks on the World Trade Towers on September 11, a spate of corporate scandals, and a drop in overall consumer confidence throughout the country, all of which had a detrimental effect on the Manhattan economy.

During this economic downturn, the Manhattan economy lost 177,745 jobs, or 9.4 percent of its 2001 private-sector job base. Total wages decreased 8.9 percent, or $4.7 billion, while the average weekly wage increased 0.7 percent, from 2001 to 2004.

In Manhattan, the 2001 resident unemployment rate of 5.0 percent increased to 7.9 percent in 2002, decreased to 7.5 percent in 2003, and decreased further to 7.1 percent in 2004. (11) It remained above the Nation's average rate despite the fact that the number of payroll jobs in the borough exceeded the number of local residents.

During the 2001-04 downturn, all lost wages were in global-sector industries. The global sector lost $4.9 billion in total wages (104 percent of all lost wages), while the local sector had a net gain of $0.21 billion in total wages, somewhat mitigating the overall economic effect of the downturn. (Some local-sector industries did lose wages.) Average weekly wages in the global sector increased 3.0 percent, to $3,764, while average weekly wages in the local sector rose 7.5 percent, to $885. (All wages are nominal unless otherwise specified.)

In 2004, the average first-quarter weekly wage in the local sector was just 23.5 percent of that in the global sector. (This differential was influenced by the spike effect of bonuses; see note 9.)

The global sector, 2001-04. With the global sector accounting for more than 70 percent of all lost jobs from 2001 to 2004, the effect of the economic decline was focused principally on Manhattan's role as a global city and thus had consequences felt throughout the world economy.

Table 5 shows that 101.6 percent of all lost global-economy jobs were associated with three sectors: finance and insurance; professional, scientific, and technical services; and information. Job gains were recorded in the management of companies, as indicated by an increase from 1.6 to 1.8 in the Manhattan location quotient for that industry between 2001 and 2004. Real estate also improved, with its Manhattan location quotient moving from 2.1 to 2.2 over the same period.

The overall financial impact of the job losses on the Manhattan economy was significant. With 2004 first-quarter average weekly wages of $6,861 in finance and insurance (see note 9), $1,790 in professional, scientific, and technical services, and $2,127 in information, these highly paid segments of the Manhattan workforce bore the brunt of the decline. In examining each of these sectors in detail, it is possible to gain a clearer perspective of the economic and structural effect of the downturn. (See chart 3.)

[GRAPHIC 3 OMITTED]

1. Finance and insurance. Job losses in the finance and insurance sector accounted for 45.1 percent of all global-sector job losses. Two components--securities brokerage and commercial banking--accounted for 80.0 percent of all lost jobs in finance and insurance.

2. Professional, scientific, and technical services. Job losses in the professional, scientific, and technical services sector accounted for 28.4 percent of all global-economy job losses. Negative economic effects felt in finance and insurance often spill over into the professional, scientific, and technical sector. These effects were clearly present in the 2001--04 downturn, most notably in computer systems design components (possibly compounded by the aftermath of preparing for Y2K), other management consulting services, and advertising services.

3. Information. Job losses in information represented 28.1 percent of all lost global-sector jobs. Both publishing components and the motion picture and video production component were particularly affected by the economic downturn.

The 1990-93 downturn. During the 1990-93 downturn (see table 6), job losses were shared equally by the global and local sectors. The shock that precipitated the downturn can be traced to the 1987 stock market crash, which sent waves throughout the financial world and led to a downsizing in the securities industry. During the early 1990s, a national economic downturn and widespread downsizing in the corporate realm had significant effects on both the Nation's and Manhattan's economic structure.

The 1990-93 business downturn saw the Manhattan economy lose 221,775 jobs, or 12.2 percent of its 1990 job base. By contrast, in the later recession, the job loss was 177,745, or 9.4 percent of the borough's 2001 job base. Total wages during the 1990-93 period decreased by about $759 million, or 3.8 percent, while the average weekly wage increased by 9.6 percent, to $927. In Manhattan, the 1990 resident unemployment rate of 6.0 percent increased to 7.7 percent in 1991, increased further to 9.5 percent in 1992, and declined slightly to 9.0 percent in 1993. (See note 11.)

In 1990, 47.3 percent of all Manhattan jobs were in the global sector. During the 3 years of economic stagnation, this sector lost 100,801 jobs (45.5 percent of all jobs lost), or 11.8 percent of its job base. In 1993, despite the job losses, the global sector still represented 47.5 percent of all Manhattan private-sector jobs.

The local sector, which accounted for 52.7 percent of Manhattan jobs in 1990, lost 12.7 percent of its job base (120,975 jobs) during the 3-year downturn. Nonetheless, the sector still accounted for 52.5 percent of all Manhattan private-sector jobs in 1993.

Differences, however, were apparent in the effect of the economic decline on total wages and average weekly wages. Although the global sector represented less than 50 percent of all Manhattan jobs, the sector accounted for 53.4 percent ($405 million) of the decline in total wages----obviously the effect of the higher average weekly wages earned by global-economy workers. (Total wages in the sector declined by 3.1 percent; average weekly wages increased by 9.8 percent, to $1,306.)

In the local-economy sector, total wages declined by 5.3 percent ($354 million) and accounted for 46.6 percent of the total loss in wages. Average weekly wages, by contrast, increased by 8.3 percent to $584, but were just 44.7 percent of the global-sector average weekly wage.

The global economy, 1990-93. Although the 1990-93 recession produced job losses in …

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Publication information: Article title: Structural Changes in Manhattan's Post-9/11 Economy: Since the Terrorist Attacks of September 11, 2001, Manhattan's "Global Economy" Has Seen Its Employment Diminish While Its Role as a Wage Generator Has Increased; High Wages in the Global Sector May Be Driving Demand in the Local Sector. Contributors: Dolfman, Michael L. - Author, Wasser, Solidelle F. - Author, Skelly, Kevin - Author. Journal title: Monthly Labor Review. Volume: 129. Issue: 10 Publication date: October 2006. Page number: 58+. © 1999 U.S. Bureau of Labor Statistics. COPYRIGHT 2006 Gale Group.

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