The Securities Industry and the New York - New Jersey Region
Cantor, Richard, Federal Reserve Bank of New York Economic Policy Review
The securities industry in the New York--New Jersey region is currently enjoying strong growth in employment and salaries. The industry is particularly important to the region because it is concentrated locally and pays high wages. Although vulnerable to stock and bond market fluctuations, the industry has positive long-term prospects. The benefits from future growth, however, will likely flow predominantly to highly skilled workers as rapid technological change continues to widen existing income differentials.
RECENT DEVELOPMENTS IN THE REGION
Employment and salaries in the region's securities industry have recovered since coming off their previous peaks in the late 1980s. Chart 1 presents data on employment (top panel) and real salaries (bottom panel) in the securities industry for both New York State and New Jersey. Securities industry employment peaked at more than 180,000 jobs in 1987, then dropped to 155,000 at its trough in 1991. Since then, employment growth has increased steadily and may reach 190,000 jobs by year-end 1996. Annual salaries have recovered even more strongly: after rising above $18 billion (1995 dollars) in 1988, they dropped to $16 billion in 1989-91, then surged above $22 billion in 1992. Between 1993 and 1995, salaries averaged more than $21 billion and are expected to be strong again in 1996.
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THE INDUSTRY'S IMPORTANCE IN THE REGION
The economic impact of the securities industry is greater than suggested by its job numbers alone. First, the industry is heavily concentrated within the region. While it provides about 2.5 percent of all private sector jobs in New York State, about 90 percent of these jobs are in New York City, where the industry accounts for 5.3 percent of all private sector jobs. In New Jersey, the securities industry provides only 0.9 percent of private sector jobs, but the state's share of securities industry employment is growing. The industry provides a very significant share of the region's private salaries, 7.5 percent in New York State and 1.9 percent in New Jersey. In addition, the industry's impact extends into other sectors of the economy through the demand for ancillary services. For the past several years, employment and salaries have been moving out of New York into New Jersey, reflecting the gradual shift of back-office jobs from the higher cost to the lower cost state.
The recent performance of the region's securities industry contrasts sharply with the performance of the financial sector as a whole (Chart 2). Over the past fifteen years, the shares of regional employment held by the banking and insurance industries have been shrinking, while the share of the securities industry has been rising. An even greater difference, however, is evident in the shares of private salaries held by the three industries. The banking and insurance shares have been relatively flat, while the securities share has been rising sharply.
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Chart 3 provides another perspective on the importance of the securities industry to the region's broader economy. The chart depicts the annual growth in total private compensation and salaries for all workers in New York State and for employees of the securities industry subset of the larger group. …