July 16, 1999


The latest issue of the New York Fed’s Second District Highlights --Can New York City Bank on Wall Street?-- is enclosed for your review.

New York Fed economists Jason Bram and James Orr assess the potential response of New York City’s economy to a protracted slump in securities industry jobs and income. New York City has experienced two major post-war economic downturns -- one in the early 1970s and another in the late 1980s -- both of which coincided with severe slumps in the securities industry.

Wall Street -- always a prominent local industry -- plays a greater role in the New York City economy than it has at any time in the past. The securities industry’s share of total city earnings has climbed from 11 percent in 1987 to 19 percent in 1998. Moreover, the securities industry has been the primary engine of New York City’s earnings growth over the current expansion: between 1994 and 1998, Wall Street firms directly contributed about $23 billion (or 37 percent) to the estimated $62 billion increase in total earnings.

While securities firms directly account for only five percent of city employment, another nine percent of the city’s jobs are indirectly tied to this industry. These jobs are in industries that support Wall Street firms or industries that benefit from Wall Street income.

Given the industry’s contribution to the local economy, it’s unlikely that the effects of significant cuts in Wall Street jobs and income could be entirely offset by gains in other industries, the authors say. The fallout, however, could be limited by strength in other areas of the city’s economy.

In particular, other sectors that played a role in earlier downturns appear to be on more solid footing than in the past. In addition, the presence of fast-growing industries that do not depend expressly on financial jobs or earnings--such as health care, private education, and new media enterprises--could help ease the adverse effects of a securities industry downturn.

Contact: Douglas Tillett

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