Executive summary:
New York City remains the preferred headquarters of the global financial services industry. Among the largest private sector employers, however, there is a growing trend to move jobs and business operations to lower cost, more business-friendly environments. Absent public actions to address high costs, high taxes, aging infrastructure and a hostile political and regulatory climate, the city’s future as the world financial capital is at risk. This is the conclusion of a comprehensive survey of the city’s financial services industry conducted by the Partnership for New York City and GLG (Gerson Lehrman Group). The purpose of the survey was to better understand how the industry is evolving and what measures are needed to maintain New York’s competitive advantage as a global financial center.
The importance of finance to the overall well-being of the city cannot be overstated. At 20% of the city’s economic output, the contribution of financial services is at least twice that of the next top-grossing industry. Although the industry represents only 9% of the city’s private sector jobs, it accounts for nearly a third of the private sector payroll. It also pays at least $8 billion, or 18%, of the city’s annual tax revenues.
The survey found that certain sectors of the financial services industry in New York are growing and adding new jobs, but the industry’s rate of growth has slowed to about half that of the overall private sector. During the past five years, the city experienced a net loss of about 25,000 financial services jobs. This is not alarming, but the fact that these are largely middle wage jobs held by residents of the five boroughs — and that job losses are projected to accelerate over the next five years — is reason for concern.
Fifty firms, including large banks, insurance companies and asset managers, as well as private equity firms, hedge funds and financial technology (“FinTech”) startups, responded to the survey, providing detailed data on their current status and future plans. Collectively, survey respondents represent nearly one-third of total industry employment in the city. Eight real estate firms were also surveyed to incorporate their observations. Furthermore, GLG conducted research on the city’s global and domestic competitive position, including interviews with GLG Council Members and other experts in the field.i Econometric research was provided by EMSI, Inc.
[drizzle]Overall, the survey found that there is growing domestic and foreign competition for financial services industry jobs and operations that historically have been located in New York City. The industry continues to favor New York as a place that provides excellent access to both talent and customers, a relatively stable business environment, and many lifestyle amenities. But there are rising concerns about high costs, high tax rates, aging infrastructure and a hostile political and regulatory climate. Survey responses suggest that, absent public actions to address these concerns, the city’s future as the world financial capital is at risk.
Importance of the Financial Services Industry to New York
The financial services industry is the largest contributor to New York City’s economic output or Gross City Product (“GCP”).ii It currently generates 20% of GCP, roughly double the contribution of the next largest industries (professional, scientific, and technical services and real estate, which each generate 10% of GCP).1 The financial services industry accomplishes this with only 8% of the city’s employees, or about 310,000 — down from a peak of 360,000 in 2000.2 The industry includes almost 23,000 high-technology jobs in areas such as software, data processing and network management.3 About half of the industry’s jobs are in securities brokerage.
The financial services industry generates even greater economic impact due to what is known as the economic multiplier effect, which is a standard economic measure of the additional indirect and induced jobs, wages and demand in non-financial services industries resulting from an increase or decrease in financial services industry employment. If the multiplier impact on jobs and earnings is accounted for, the contribution of financial services to the economy grows to 37% of GCP, or a total of one million New York City jobs.
The financial services industry also has a significant impact on creating new jobs in nonfinancial industries. The addition of 100 jobs in commercial banking, for example, results in a total of 354 new jobs within financial services as well as such industries as healthcare, hospitality (hotel and food services), and retail trade. The commercial banking multiplier of 3.5 is about average for the industry. Most other sectors in the financial services industry have multipliers between 2.0 (meaning for every 100 jobs created in the sector, 200 jobs are created elsewhere in the economy) and 4.0.
Loss of financial services jobs has an equally negative impact on the overall economy. A decline of 100 commercial banking jobs will trigger a total loss of 354 jobs. Today, more than 700,000 jobs in other sectors of the city economy depend on financial services.
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