Finance, Insurance, and Real Estate: Employment Growth during 1982-87
Nardone, Thomas, Monthly Labor Review
Finance, insurance, and real estate: employment growth during 1982-87
On October 19, 1987, the stock market had its largest 1day loss in history. The crash on "Black Monday" raised questions about the future strength of the finance, insurance, and real estate industries. Between late 1982 and 1987, rising real estate and financial markets made this group-often referred to as "financial services"-the source of 1.3 million new jobs.
Job growth among the principal components of the group has been uneven, however.' Increased competition brought on by deregulation in some industries affected both the extent and composition of employment growth. Indeed, in some areas there was little change in employment.
In December 1987, employment in the financial services was 6.6 million, up 24 percent from the end of 1982.2 Total nonfarm employment grew by 17 percent. Pronounced differences occurred within the major components of finance, insurance, and real estate, (See table 1.) Over the 5-year period, holding and investment companies, securities and commodities firms, nonbank credit agencies, insurance agencies, and real estate firms typically had much higher growth rates than insurance carriers and banks. (See table 2.) The last two industries, however, made up over half of the total employment in the finance, insurance, and real estate group in 1982.
The real estate and financial markets were the major forces behind the job gains in financial services. Falling interest rates and the start of the economic recovery in late 1982 led to sharp gains in housing sales and commercial real estate activity, directly boosting employment in real estate development and sales firms. Activity in real estate markets also raised employment in related industries, such as title insurance, savings and loan institutions, and mortgage banking. In addition, there was a massive refinancing of mortgages when interest rates fell in 1986. Reflecting these developments, employment in the relatively small mortgage banking industry more than doubled from late 1982 to 1987.
Over the 5-year period, the securities markets were buoyed by the economic recovery, lower interest rates, and a rash of corporate takeovers. Trading of stocks and bonds as well as of other financial instruments surged. Between September of 1982 and 1987, the value of stocks traded rose 221 percent. The development of worldwide financial markets, made possible by advances in telecommunications, also contributed to heightened financial activity and employment growth in the securities and investment industries.
While events in the real estate and financial markets accounted for the bulk of the employment growth in financial services, other factors shaped employment trends in some industries. The above-average job growth in medical and health insurance firms, for example, reflected the continuing rise in demand for health care and for new means of financing rapidly advancing health costs.
Increased competition also affected employment growth. Since the 1930's, many financial services had been tightly regulated. Regulations limited the interest rates that banks and savings and loans could pay, the types of loans they could make, and the geographic areas they could serve. At the same time, regulation provided institutions with profitable niches in the financial services market. Banks had been the sole source of demand deposits and the main source of commercial loans; savings and loans handied most mortgage financing; and securities firms and investment banks sold and underwrote stocks and bonds. Competition among the major financial service industries and even within industries was limited. Interest rate volatility altered this characteristic of the financial service market.
Rising interest rates during the mid-1970's increased the competition for funds among the components of the financial services industry. …