Academic journal article Monthly Labor Review

Manhattan's Financial Sector and the 2005-07 Employment Dynamic

Academic journal article Monthly Labor Review

Manhattan's Financial Sector and the 2005-07 Employment Dynamic

Article excerpt

The New York metropolitan area, accounting for nearly $1.1 trillion dollars, or 9 percent of the Nation's gross domestic product, ranks as "the largest metropolitan area economy." (1) At the core of that economy is New York County, otherwise known as Manhattan. To a large degree, the financial activities industry has powered the Manhattan economic engine. This article takes a new look at what distinguished both that industry and Manhattan in light of newly released Business Employment Dynamics (BED) data from the Bureau of Labor Statistics (BLS).

BED data offer a different perspective on the labor market, measuring the summation of gross job gains and losses at the establishment level. This approach is in contrast to the periodic release of other BLS employment numbers, which the Agency refers to as payroll data. With those data, the difference obtained between two periods is the net change, a static measure, such as -100,000. By contrast, the dynamic captured by BED statistics is the level of job change activity behind the net change: how did the economy end up with a net job loss of 100,000? BED data measure how many jobs were created by establishment openings and expansions, in addition to how many jobs were destroyed by establishment closings and contractions. (2)

In other words, BED gross job gains and gross job losses attest to the volume of activity in labor market demand, and the numbers help explain payroll employment change, an outcome of that activity. The study of Manhattan employment presented in this article analyzes both of these aspects: gross activity and net payroll change. Taken together, these two elements enable us to gauge excess job reallocation, (3) and this information adds a unique dimension to economists' understanding of local employment trends.

In the course of the period for which BED data are available, namely, 1992-2008, the U.S. economy experienced two recessions. (4) Prior to the 2001 recession, the high point in the payroll job count occurred in the fourth quarter of 2000 in both the Nation and Manhattan. Although the timing of the economic recovery differed, the United States and Manhattan shared a post-2001 employment crest in the fourth quarter of 2007.

Manhattan employment never quite rebounded as high as it did during the earlier peak, and on the surface, it may have appeared that the events of 2001 inflicted permanent damage to the economy. Nevertheless, despite great loss, the pace of employment growth, as measured by BLS payroll data, grew to finally exceed that of the Nation during the 3-year period prior to the December 2007 peak. Paradoxically, BED data show that this event occurred at a time of diminished job creation--that is, noticeably fewer job gains. So, what differentiated the periods leading to the last two employment peaks?

Part of the answer to this question lies with structural changes that occurred in Manhattan's base industries--information, financial activities, and professional and business services--shortly after 2001. (5) This study narrows the perspective to the Manhattan financial sector, an industry characterized by a deceleration in job creation along with extraordinary wage escalation. The unique vantage point of that perspective yields a better understanding of the mechanics of employment demand.

After summarizing Manhattan job creation and destruction between 1992 and 2007, the article focuses on job flows into and out of financial activities, contrasting the period prior to the 2007 employment peak with the one prior to the 2000 peak. Next, the discussion goes on to frame the BED job change data in the context of payroll data from the Quarterly Census of Employment and Wages (QCEW), highlighting those characteristics which may have factored into the job flow patterns of the financial sector. Finally, the article examines the relationship between job activity and wage change in Manhattan.

The analysis indicates that Manhattan's payroll growth prior to the 2007 recession was attributable largely to a slower rate of job destruction, as opposed to a higher rate of job creation. …

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