The 2008 financial crisis set in motion shock waves that are still reverberating through the American, European, and global economies, touching everything from housing to jobs to college tuition.
In March 2009, I wrote a piece for The Atlantic outlining the likely effects of the crisis on America’s economic landscape. Several years into the crisis, I wanted to look at how the crisis might have affected the geography of finance across America.
With the help of my Martin Prosperity Institute (MPI) colleague Charlotta Mellander, I looked at two dimensions of finance. The first covers the geography of the firms and establishments that make up the finance and insurance industry based on 2010 data from the U.S. Bureau of Economic Analysis. The second covers the geography of finance and related jobs and wages based on 2011 data from the U.S. Bureau of labour Statistics. The MPI’s Zara Matheson mapped the data.
The table below shows the nation’s leading financial centres across four key metrics.
America’s Leading Finance Metros Finance and Insurance Employment Finance-Related Occupations Finance Wages and Salaries (billions) Finance and Insurance Output (billions) New York 899,646 New York 477,800 New York $40.9 New York $214.0 Los Angeles 415,736 Los Angeles 285,440 D.C. $23.8 Chicago $58.3 Chicago 393,883 D.C. 281,560 Los Angeles $21.0 Philadelphia $54.4 Dallas 319,000 Chicago 243,500 Chicago $17.3 Los Angeles $45.9 Philadelphia 251,686 Dallas 154,790 Boston $12.0 Boston $37.1 Boston 223,139 Boston 151,290 San Francisco $11.8 San Francisco $27.2 Miami 204,707 Philadelphia 150,930 Dallas $10.9 Charlotte $26.5 Houston 188,390 Atlanta 137,430 Philadelphia $10.9 Hartford $24.8 San Francisco 175,294 San Francisco 135,970 Atlanta $10.1 Minneapolis $22.9 Phoenix 168,107 Minneapolis 115,430 Houston $8.1 Houston $20.5Note on Sources: Bureau of Economic Analysis (Columns 1 & 4), Bureau of labour Statistics (Columns 2 & 3). Finance and Insurance Output is not published for Washington, D.C., for confidentiality reasons. For the BLS data, Boston refers to the Boston NECTA Division, not the MSA.
Greater New York is far and away the nation’s leading financial centre, topping the list in all four categories:
- It had nearly half a million people employed in finance-related jobs, nearly double that of the next largest centres on this measure, Los Angeles, Washington, D.C., and Chicago.
- Nearly 900,000 people were employed in New York’s finance and insurance industries in 2010, up from 785,531 in 2006 — more than twice the amount of the next two largest centres on this indicator, L.A., and Chicago.
- New York’s finance occupations generated roughly $40 billion in wages and salaries, almost twice the amount of the next two centres on this variable, greater Washington, D.C. and L.A.
- New York’s financial sector produced more than $200 billion in economic output, about four times that of the next-largest financial centres on this metric, Chicago, Philadelphia, and L.A.
The nation’s other leading financial centres include L.A., Chicago, Boston, Philadelphia, and San Francisco (which rank among the top 10 in all four categories); Dallas and Houston (which make the top 10 rankings in three); Atlanta, Minneapolis-St. Paul, and Washington, D.C. (which place in the top 10 in two); and Miami, Hartford, Charlotte, and Phoenix (which make it in one each).
The first map (below) charts the share of employment in finance and insurance establishments across U.S. metros.
Map by MPI’s Zara Matheson
Finance and insurance employment averaged nearly 6 per cent of employment across all metros. Among large metros (those with more than one million people), Hartford, Connecticut, with its large concentration of insurance companies, leads with roughly 11 per cent of its total employment in finance and insurance firms. Greater New York is fourth among large metros with 8.3 per cent. Somewhat surprisingly, Jacksonville, Florida (8.7 per cent) and Salt Lake City, Utah (8.6 per cent) rank ahead of New York, falling in second and third place, respectively. Dallas is fifth, Denver sixth, and Charlotte, North Carolina, with its cluster of large banks, is seventh among large metros. Philadelphia is 11th, Minneapolis-St. Paul 12th, Boston 13th, Chicago 14th, Miami 18th, and San Francisco 19th among large metros.
The second map (below) takes a different cut: It charts the share of total regional employment composed of people who work in all finance-related occupations, as opposed to in finance and insurance firms.
Map by MPI’s Zara Matheson
Greater New York, surprisingly, ranks just 18th of large metros, with 5.8 of its workforce employed in finance-related occupations, up from 5.3 per cent in 2006.
Also surprising: The top-ranked large metro in the country is greater Washington, D.C., where finance occupations make up nearly 10 per cent (9.8 per cent) of total employment, up from 8 per cent in 2006. Denver is second with 7.7 per cent, followed by San Francisco with 7.1 per cent, and Hartford, Connecticut, with its large concentration of insurance companies, is 10th. Boston ranks 11th, Charlotte 14th, and Chicago 20th.
The third map, below, charts the finance sector’s share of wages across U.S. metros.
Map by MPI’s Zara Matheson
There is substantial geographic variation: 74 metros are above the national average and 289 metros fall below it.
Greater New York is now ninth among large metros, tied with Baltimore, with 8.9 per cent of its wages coming from the finance-related jobs — up from 2006 when the share was 7.8 per cent. The average 2011 salary for finance jobs in New York was $85,580, up from $72,870 in 2006. This was fifth in the country behind Bridgeport-Stamford-Norwalk, Connecticut ($95,510), San Jose-Sunnyvale, California ($90,260), and San Francisco ($86,700).
Greater Washington, D.C., again tops the list of large metros with 13.2 per cent of its wages from finance-related occupations, up from 11.1 per cent in 2006. The average salary for finance-related jobs in D.C. was $84,370, just slightly less than in New York, and up from $72,290 in 2006. Next in line are Denver, San Francisco, Richmond, and Atlanta. Charlotte is seventh, Hartford 15th, Boston 16th, Chicago 19th, and Philadelphia 20th among large metros.
Perhaps the most striking thing in our analysis is this: While finance was the main force in precipitating the crisis, its share of occupations and wages has increased in its wake. The finance share of all U.S. occupations grew from 4.4 per cent in 2006 to 4.8 per cent in 2011 according to our analysis, while the finance sector’s share of wages grew from 6.8 per cent to 7.3 per cent over the same period. During this time, nearly three-quarters (73.3 per cent) of U.S. metros saw their share of finance jobs grow, while nearly 60 per cent of metros saw their share of finance wages increase. The average wages and salary for finance-related jobs increased from $60,000 in 2006 to $68,740 in 2011.
This stands out from historical trends. Influential studies by New York University economist Thomas Philippon traced the growth and decline of the U.S. financial sector since the mid-19th century. Philippon plotted the expansion of the U.S. financial sector from 1860 to 2007, as it grew from 1.1 per cent of GDP in the late-19th century to four per cent in the 1970’s, before hitting 8.3 per cent of GDP in 2006. A related study [PDF] by Philippon and the University of Virginia’s Ariell Reshef tracked wages and skills in the financial sector from 1909 to 2006 and found wages in the financial sector to be “excessively high” around 1930, and again from the mid-1990’s until 2006. Philippon’s research found that the finance sector closely tracks booms and busts — its share of and role in the U.S. economy fell back considerably in terms of its share of the economy in the wake of major crises like the Great Depression.
Philippon and other economists who cover the subject note that America’s financial sector became bloated and over-blown in the years leading up to the crisis. Instead of channeling capital productively into the economy, the sector generated mega-profits by moving money around in highly speculative ways. When the house of cards came crashing down, it was thought that finance would be brought back under control; Our economy would shift away from its speculative “trading” orientation back to “building” up the real economy, and the finance share of the total economy would revert to historic norms.
But that does not appears to have happened, according to our analysis. While our data is based on different sources than Philippon’s, and although the crisis has not run its full course, we find that instead of contracting, the financial sector overall has only continued to expand since the deep economic and financial crisis, which still reverberates through the U.S. and global economies.