US Markets

Bull markets don't mean extra jobs for Wall Street

Nelson D. Schwartz
WATCH LIVE
Pedestrians walk outside the New York Stock Exchange.
Michael Nagle | Bloomberg | Getty Images

Bull markets aren't what they used to be, at least when it comes to New York's economy.

Although the stock market is surging and profits on Wall Street last year hit their highest level since 2012, the good times are not translating into jobs the way they did a decade ago, before the financial crisis and the Great Recession hit.

Employment in the securities industry in New York City has risen for three straight years. But, at 177,000, there are still 10,000 fewer jobs in the sector than in 2008. And even if the stock market keeps rising and shares of behemoths like Goldman Sachs and Morgan Stanley continue to hit postcrisis highs, don't expect a surge in hiring on the Street.

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"The securities industry is still a pretty important source of very highly paid, very highly skilled jobs, but it's not really contributing to growth in the number of jobs," said William C. Dudley, president of the Federal Reserve Bank of New York.

To be sure, financial services and banking remain a key part of the overall economy in the tristate area. The financial services and securities industry is the largest private-sector contributor to tax revenue in New York State.

What economists call the ''multiplier effect'' is especially high for finance jobs, since annual bonuses for bankers end up in the pockets of people like contractors, gardeners, jewelers, car dealers and real estate brokers.

What is more, Wall Street remains crucial for the region's tax base, especially for New York State. The securities industry accounted for 18.5 percent of Albany's tax revenues last year, and about 7 percent of the city's tax haul.

But as is the case for the rest of the country, the financial sector is no longer quite as dominant as it once was in New York, Mr. Dudley said. Finance has not gotten smaller; instead other sectors, like technology, have grown much faster since the financial crisis.

Mr. Dudley added that "New York's economy has become more diversified," citing strong growth in the technology, hospitality and tourism sectors. He said that with roughly 150,000 workers, the tech sector in New York City is quickly catching up with total employment in the securities industry.

"New York is no longer a one-horse town when it comes to what drives the economy," said Chris Jones, senior vice president at the Regional Plan Association, a nonprofit research group that focuses on the tristate area. "Tourism and technology have generated more jobs in the last decade and helped to diversify the economy."

And while bonuses on Wall Street still dwarf those in other industries, annual payouts are also well below what they were before 2008, when Lehman Brothers and Bear Stearns still existed.

The average bonus for the securities industry in New York City last year stood at $138,210, compared with a high of $191,360 in 2006, according to New York State's comptroller, Thomas P. DiNapoli.

The sector's healthy profits ($17.3 billion in 2016) come at a price. "Part of how they've kept profits up is that they've kept head count down," Mr. DiNapoli said.

In fact, the securities industry accounted for just 6 percent of newly created high-paying jobs from 2010 to 2015, compared with 25 percent in the 1990s and 2000s. "Wall Street is still an important contributor to the economy, but I wouldn't expect a lot of growth in employment," Mr. Dudley said.

Very low interest rates for years have also taken a toll, reducing profit margins at big banks, and forcing them to trim head counts and become more efficient.

Some jobs also disappeared because the go-go days of huge leverage and light regulation are over, thanks to the 2010 Dodd-Frank financial reforms. With higher capital requirements, riskier activities have been pruned back.

Even if some of that regulation is reversed, as President Trump has promised, memories of 2008 are likely to curb a return to the days of big bets and crowded trading desks.

"There's been a lot of pressure on trading jobs," said Laila Worrell, a partner at The Boston Consulting Group. "Since 2009, the regulatory climate hasn't been superconducive for trading volume growth at big financial institutions."

Trading by humans negotiating over the telephone has been replaced by trading via computers transacting in milliseconds.

And for jobs that can't be done by machines, greener and cheaper pastures beckon. While New York State recorded a 5 percent rise in securities industry jobs from 2010 to 2015, employment in the sector increased by 50 percent in Pennsylvania and 33 percent in Texas over the same period.

On the other hand, New York could stand to benefit if financial firms exit London in the wake of Britain's vote last summer to exit the European Union, the so-called Brexit.

New York and London have been rivals in the financial world for decades, with London's location and especially its time zone an advantage for traders dealing with Europe and Asia. Hedge funds expanded in the British capital, too, and some American policy makers feared London might overtake Wall Street.

Almost exactly a decade ago, Michael Bloomberg, then the mayor of New York City, and New York Sen. Chuck Schumer even commissioned a report warning that London and other cities were eroding New York's traditional dominance in financial services.

But in the wake of Brexit, and uncertainty about tax and regulatory policy looming for London-based firms, many finance jobs are up for grabs.

Experts cite locales like Paris, Luxembourg and Frankfurt as alternatives to London, but Mr. Dudley said, "New York is a potential place where people could ultimately move jobs, and the city could absorb them relatively easily."

There are also a few niches in New York where head count is growing rapidly, like financial technology, with new hires creating software and applications for banks and brokerages, and designing trading strategies using algorithms and artificial intelligence.

"New York has become the world's leading center for financial tech innovation," Ms. Worrell said. "It's surpassed Silicon Valley because the financial institutions these companies serve are in New York. Proximity is very important."

While the packed trading desks portrayed in 1980s classics like Oliver Stone's movie "Wall Street" or the book "Liar's Poker" by author Michael Lewis may be a thing of the past, not everyone misses that world.

Indeed, Mr. Dudley, an economist who joined Goldman Sachs in 1986 and spent more than two decades at the firm, said Wall Street's flatter trajectory is fine with him.

"The financial services industry is in a pretty good place right now," he said. "It's not quite rock 'n' roll like we had in 2005 and 2006, but I don't think we want to go back to that period. I would take a more boring financial industry if it helped create a more stable U.S. economy."

Mr. DiNapoli, the state comptroller, acknowledged that nearly a decade after the financial crisis, Wall Street remains unpopular in some quarters. But even if the big banks employ fewer of the masters of the universe than they once did, their outsize paychecks still ultimately benefit residents of the city and state.

"People have mixed opinions about Wall Street, but love 'em or hate 'em, it's still a big part of the city's economy," Mr. DiNapoli said. "We want New York to continue to be the capital of global finance."