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Second District Highlights
New York-New Jersey Job Expansion to Moderate in 2001
|March 2001 Volume 7, Number 3||
|JEL classification: R00, R10||
Employment in the New York-New Jersey region expanded for an eighth straight year in 2000. Total job growth reached 2.2 percent, falling short of the 2.7 percent pace set by the region in 1999 but surpassing the nations 2.1 percent growth rate.
Within the region, New Jersey posted a 2.5 percent rate of employment growth in 2000 that roughly matched its 1999 rate and marked the states fourth consecutive year of growth in excess of 2.0 percent. While job growth in New York State slowed from its robust 1999 rate to a more modest 2.1 percent, it kept pace with job growth in the nation. Employment figures for New York City show that total jobs there expanded at a healthy 2.8 percent clip, continuing an acceleration that began in 1996.
During 2000, developments in the securities and computer-related services industries threatened to slow job growth in New York City and, to a lesser extent, in the New York-New Jersey region as a whole. The retrenchment in the stock market led to a sharp drop in the volume of initial public offerings, mergers and acquisitions, and other financial activities beginning in the third quarter. At about the same time, the failure of an increasing number of Internet, or dot-com, start-ups and the more conservative financing standards imposed on Internet firms by investors seemed to signal that job growth in computer-related services was cooling. Nevertheless, the record profits earned by the securities industry during the first three quarters of the year and the strong pipeline demand for employees with computer and Internet-related skills minimized the negative impact of these developments on job growth in the city and region. Moreover, despite some mild deceleration in job growth in the second half of the year, the region entered 2001 with employment growth rates for the private sector that were well above the corresponding national rate.
Looking ahead, we expect that the expansion of employment in the New York-New Jersey region will continue in 2001, although the rate of job growth will moderate to 1.5 percent. Our forecast for slower growth takes into account the Blue Chip Consensus prediction of a relatively sharp 3.0-percentage-point deceleration in the nation's output (real GDP) growth.1 It also assumes that broad stock market measures such as the S&P 500 will not decline much below their February 2001 average values for sustained periods of time.
In this issue of Second District Highlights, we review employment developments in the New York-New Jersey region in 2000 and present our forecasts for job growth in New York State, New York City, and New Jersey in 2001. We give particular attention to trends in the computer services and securities industries and the effects of these trends on near-term job growth in New York City.2000 in Review
Total employment in the New YorkNew Jersey region expanded by 2.2 percent, or roughly 275,000 new jobs, last year. This growth rate was modestly slower than the 2.7 percent pace of job growth in 1999. Private-sector employment expanded 2.4 percent, down from last year's 2.9 percent pace but significantly above the corresponding rate for the nation (see chart). An increase in state and local government jobs prompted a mild acceleration of public-sector employment growth in 2000.
The services and construction sectors recorded the highest rates of employment expansion in the region. Services, the largest of the region's major sectors, grew about 3.6 percent and accounted for roughly 155,000 new jobs. Job gains in this sector were led by an increase of more than 6.0 percent in business services employment, a category that includes jobs in many of the high-tech, new-media, and other computer-related firms. Growth in construction employment remained strong, reaching 6.2 percent in 2000, following a 9.2 percent gain in 1999.
The wholesale and retail trade sector
contributed to the regions job growth with the creation
of more than 62,000 new jobs in 2000. The securities industry
accounted for the bulk of job growth in the FIRE (finance,
insurance, and real estate) sector; banking, by contrast,
saw employment levels fall as institutions consolidated and
then downsized. Employment in the transportation, communications,
and public utilities sector expanded only slightly, while
the manufacturing sector continued to experience relatively
In the state's services sector, employment growth moderated to a still-healthy 3.6 percent pace, representing about 105,000 new jobs, with strong gains in business services, engineering and management services, motion picture production, and recreation services. Among the major sectors, construction saw the most rapid expansion, 5.7 percent; the creation of 18,000 new jobs continued the strong growth trend established in this sector in the past several years. The manufacturing sector, by contrast, weighed down the states job growth, shedding jobs at a rate just slightly below the 1999 rate. Job increases in Buffalo and Rochester were off their 1999 pace, while growth rates in both Syracuse and Binghamton roughly matched their 1999 rates. Within the New York City metropolitan area, both Long Island and the northern counties (Rockland, Putnam, and Westchester) saw jobs expand about 2.0 percent-roughly in step with the U.S. employment growth rate.New York City
Despite adverse developments in both the stock market and Internet-related industries, job growth surged to 2.8 percent in 2000 from 2.6 percent in 1999. Moreover, New York City's job performance showed few signs of weakening in the final months of the year. Private-sector employment grew 3.3 percent in 2000, representing about 100,000 new jobs. The citys rate of private-sector job growth has matched or exceeded the nationwide rate for the past three years. The expansion of employment was led by an acceleration of growth in the services sector to 5.2 percent, yielding almost 72,000 new jobs. Business servicesin particular, the computer and data processing services industrygrew sharply. Jobs in the construction sector also expanded rapidly, by 7.0 percent, although this rate was below the 11.0 percent expansion of the sector in 1999. Ongoing employment growth in the securities industry helped to overcome declining banking employment and allowed the citys FIRE sector to expand modestly.
Forecast for 2001
Overall job growth in the New York-New Jersey region is projected to slow to 1.5 percent in 2001, from 2.2 percent in 2000 (see table). With this slower growth rate, the region should see the creation of roughly 190,000 new jobs. In the private sector, employment growth is expected to drop from 2.4 percent to 1.7 percent. The cutback in national economic growth predicted for 2001 will put significant downward pressure on the growth of regional employment.
Employment trends will again be
most favorable in trade, services, and construction, but even
in these sectors, jobs will grow at rates below those of 2000.
The transportation, communications, and public utilities sector
is projected to experience little growth. The FIRE sector
in 2001 will maintain its moderate rate of expansion, about
0.7 percent, and proportionately more of the new jobs
in this sector will be located in New Jersey. Manufacturing
jobs will contract at a higher rate than in 2000 as declining
national activity adds to the ongoing pressures for restructuring
and relocation. Finally, the continued expansion of local
government employment will contribute to moderate growth in
Within the region, job growth will continue the patterns that emerged in 2000:
Our look at regional employment trends indicates that New York City has enjoyed more robust job growth than either New Jersey or New York State. While both states saw their expansions slow in 2000, the rate of job gains in New York City accelerated. In 2001, job growth is expected to moderate across the region, but employment will still expand faster in the city than in New York State and New Jersey.
One factor that has given New York City an edge in maintaining and strengthening its job gains in recent years is the rapid growth of the citys computer-related services firms. These firms employ workers with design and graphic skills and workers with technical skills who create computer systems, provide desktop support, and keep software programs running. The firms not only serve end users directly but also meet the intermediate demands of businesses in the New York metropolitan area and beyond, particularly in industries such as telecommunications, finance, and insurance. Employment in these firms has grown about 10 percent per year for much of the 1990s, contributing significantly to the continuing diversification of the citys job base.5 In 2000 alone, the number of new establishments in the industry increased 8.4 percent. In that same year, employment at computer-related firms accounted for an estimated 15 percent of the net new job growth in New York City.6
The computer-related services industry has also been a source of relatively high-paying jobs. In 1999 (the latest year for which data are available at this disaggregated level), the average wage for these services in New York City was $77,400, well above the $42,200 average wage for all New York State industries. Moreover, although the average wage in the citys computer services industry is comparable to the average wage in the same industry in New Jersey, it is considerably higher than the $59,000 average wage paid in the computer and data processing industry in upstate and western New York. Since wages reflect the productivity or "value added" of workers, this pronounced wage gap suggests that most of the work conducted in the New York metropolitan area involves advanced functions such as content design and system development, while computer services upstate may involve a greater range of skills and activities.
The high level of compensation in New York Citys computer services industry is also noteworthy because it has undoubtedly contributed to job growth in other sectors of the citys economy. Workers in the industry spend some portion of their considerable earnings on housing and in the citys retail, restaurant, and entertainment establishments. The income that flows into the local economy through this channel in turn supports the creation of new jobs.
A second factor stimulating employment growth in New York City has been the strong performance of the securities industry. Unlike computer services, however, the citys securities industry has not greatly expanded the ranks of its own workers. In fact, between 1990 and 2000, job growth in this industry averaged just 0.4 percent a year, and securities businesses barely increased their share of the employment base in New York City.7
Nevertheless, the securities industrylike computer serviceshas encouraged employment growth in other sectors. First, the industry generates jobs in firms that supply legal, business, marketing, and other support services to securities firms. When securities firms prosper, their demand for such support services typically grows, prompting suppliers to meet the heightened demand by expanding their payrolls.
Second, the securities industry has fostered job growth accross sectors through its effect on income. Pay levels for this industry far exceed those in the citys other major sectors. In the past several years, the securities industry has been the single most important source of wage and salary growth in New York City, accounting for 54 percent of wage growth between 1993 and 1998, 10 percent in 1999, and 40 percent in the first quarter of 2000.8 The yearly bonuses paid to employeesa direct reflection of industry profitabilityhave also increased significantly as industry profits have reached record highs for four consecutive years.9 When this wage and bonus income is pumped back into the local economy, it stimulates business activity and job creation in other sectors.New York City Industry Trends in 2001
How will the citys computer services and securities industries fare this year? Will they continue to give New York an advantage in maintaining and strengthening job gains?
Computer services in 2001 should again provide a boost to the citys job growth. Even in the current environment of slowly decelerating economic activity, the demand for high value-added workers in this industry appears to be growing. Much of this demand comes from firms seeking to expand their business on the Internet or to upgrade their current computer systems and software. In addition, there is evidence that at the same time many dot-coms are failing, other firms are seeking to hire high-tech workers and to revive projects that had been set aside because of staffing shortages created by tight labor markets in 2000.10
Nevertheless, while demand in this first part of the year shows signs of continuing strength, we expect slower growth as the year progresses. Given the change in the stock market, the venture capital that supported the operation of many dot-coms in the past may very well be diverted to other industries this year. In the New York City metro area in 2000, this funding rose to $6 billion, more than double its level in 1999.11 Comparable funds are unlikely to be made available to dot-coms in 2001. In addition, the slower growth rate forecast for the U.S. economy should ultimately retard employment growth in the city's computer and technology services sector.
The securities industry in 2001 may also experience a slowdown in job growth, but the industry is still projected to be a source of stimulus to the citys economy. Employees of securities firms receive a large proportion of their annual earnings in the form of bonuses, paid out in the last month of the year or the first month or two of the following year. Bonuses paid between December 2000 and February 2001 are estimated to total between $12 billion and $13 billion, a sum exceeding last years record payout (Byrne 2001). Although this bonus income reflects last years activity, it should help to fortify the city's economy into 2001.
Nevertheless, the downside risk for New York City's securities industry has increased in 2001. We make no forecast of the stock market. However, if broad market measures such as the S&P 500 sustain a prolonged decline below their February 2001 average values, the reduction in the securities business will take a toll on the income earned in the industry and ultimately, through a variety of indirect channels, on employment in the broader city economy.12 Because the effects on overall city employment will occur with a lag, they may be slight this year, but they could produce a significant slowdown in job growth in 2002.
One way in which a decline in the securities business would be expected to affect the city economy is through a reduction in the bonuses paid at the end of the current year and the beginning of 2002. Nevertheless, while bonuses have accounted for much of the citys wage growth in the last several years, they may be somewhat less influential now than in the past. The reason is that the citys other sectors have begun to see significant wage growth. Wages for all sectors excluding securities rose 6.8 percent in 1999 and 11.1 percent in the first quarter of 2000. Thus, even if 2001 proves to be a poor year on Wall Street and bonus income drops markedly, the city's economy may be partially cushioned by relatively healthy job and wage growth in other sectors.Conclusion
Employment in the New York-New Jersey region is poised for moderate growth in 2001. Assuming that broad stock market measures such as the S&P 500 will not decline much below their February 2001 average values for sustained periods, and that the Blue Chip Consensus Forecast of a 3.0-percentage-point deceleration in U.S. economic growth is on target, we project regional job growth of 1.5 percent in 2001. New York City will set the pace at 1.9 percent, while growth will be somewhat slower in New Jersey and the balance of New York State. Should stock market activity stagnate or contract significantly this year, we would expect further slowing in job growth in the region in 2002, particularly in New York City.
|About the Authors
James Orr is a research officer in the Domestic Research Function of the Research and Market Analysis Group; Rae D. Rosen is a senior economist and public information officer in the Bank's Public Information Area.
2. See Bram and Anderson (2001) for a detailed examination of longer term job trends in the manufacturing sector in the New York-New Jersey region.
3. Revised payroll employment figures
for 1999 and 2000 were released by the New Jersey State Department
of Labor in late February 2001. The preliminary estimates
had shown a deceleration in job growth rates in the state.
4. See Deitz
and Garcia (2000) for a discussion of job growth in
Buffalo and upstate New York in 1999.
5. We note, however, that the computer
services industry is still relatively new in New York City.
Even after a decade of strong growth, the industry currently
represents only about 2 percent of total city employment.
and De Mott (1998).
6. These establishment and employment
figures are based on the New York State Department of Labor's
ES202 data on the computer and data processing services industry
for the first quarter of 2000. In light of the numerous failures
of firms in this industry in subsequent quarters, these figures
could overestimate full-year growth rates.
7. Note that during the same decade,
New Jersey's securities industry added nearly 25,000 jobs.
This increase in part reflects a relocation of jobs from New
York City. Although New York City's share of total U. S. securities
employment has declined, its share of total securities wages
has held at 13 percent, suggesting that the highest paying
jobs are increasingly concentrated there. Nevertheless, full-year
ES202 wage and salary data from the New Jersey State Department
of Labor indicate that the average wage in New Jersey's securities
industry reached $100,000 in 1999-a clear indication that
mid- to upper level functions are carried out in the state
and that the states job gains in this industry do not
simply represent the relocation of back-office operations
from New York City.
8. See Orr
and Rosen (2000).
9. In 2000, the unprecedented earnings
accumulated during just the first quarter of the year offset
the progressively weaker quarterly results that followed and
enabled the securities industry to achieve record-high profitability
Industry Association 2000.
10. See, for example, "New Media
Bankruptcies Leaving Crumbs," Crains New York Business,
October 16, 1999; "Alley Layoffs a Surprising Boon
to City Hall," Crains New York Business, October 30,
2000; and "Silicon Alley's Revenues Fall, and More Layoffs
Are Planned," New York
Times, November 11, 2000.
11. PricewaterhouseCoopers. 2001. Money
Tree Survey. <http://www.pwcmoneytree.com>
(March 16, 2001).
12. Bram and Orr (1999) discuss the link between the securities industry and overall employment in New York City.
Bram, Jason, and Mike De Mott. 1998.
York City's New-Media Boom: Real or Virtual?"
Federal Reserve Bank of New York Current
Issues in Economics and Finance 4,
no. 10 (October).
Bram, Jason, and James Orr. 1999. "Can
New York City Bank on Wall Street?" Federal Reserve
Bank of New York Current Issues
in Economics and Finance 5,
no. 11 (July).
Blue Chip Economic Indicators.
2001. Vol. 26, no. 3, March 10.
Byrne, John A. 2001. "At Deadlines."
Securities Data Publishing, Inc. January 1.
Deitz, Richard, and Ramon Garcia. 2000.
"Buffalo's Employment on the Rise." The
Regional Economy of Upstate New York.
Federal Reserve Bank of New York, Buffalo Branch. Spring.
Orr, James, and Rae Rosen. 2000. "The
Financial Services Sector in London and New York." In
The London-New York Study: The
Economies of Two Great Cities at the Millennium.
London: Corporation of London, June.
Securities Industry Association., 2000. Research Reports 1, no 11 (December 27).