Why Financial Jobs Have Fared Relatively Well

I’ve been watching the job numbers in financial services with some degree of surprise.  Considering that the crisis was centered in the financial sector, it’s actually a bit odd that  financial jobs didn’t do worse. Finance and insurance employment is down 8% over the past three years–but the real job crashes came in construction and manufacturing, down 27% and 17% respectively, not in finance.

Now, I can explain why construction went down. But manufacturing’s job loss would have been hard to predict. 

Suppose that I took a time machine back to early 2007.  I tell your 2007-self a recession is coming, and ask you to predict whether manufacturing or finance will have the deeper job decline, based on these three facts:  (a) The U.S. will have the worst financial crisis in the last 80 years (b) Bear Stearns and Lehman will close their doors and (c) mortgage lending will dry up.   I’m sure that very few of you would have expected manufacturing to have much bigger job losses than finance.  

Equally odd, the unemployment rate in finance and insurance, at 7.3%,  is substantially lower than the 10.1% for the economy as a whole. And yes, part of that reflects education, but that doesn’t explain why finance unemployment is substantially lower than the unemployment rate in the information sector, which is also a high-education sector.  

And banks have started hiring again.  JP Morgan CEO Jamie Dimon said a month ago that his bank plans to hire almost 9,000 new employees in the U.S. Citigroup, the most troubled of the large banks, basically kept its employment flat in the first quarter of 2010.

In addition, wages have been rising in the financial sector. Over the last year, hourly wages for all workers rose by 3% in financial services,  roughly double the 1.6% gain for the economy as a whole. And let’s not forget the big profits reported by Wall Street banks for the first quarter.

 What does this all mean?  My theory is that as long as the U.S. is running a big trade deficit,  financial sector jobs are going to do very well.  The rest of the world has to lend large amounts of money to the U.S. to keep the global economy going, and all of that money has to be funnelled through Wall Street, which creats wel page jobs.

In some sense, Wall Street’s gain is proportional to Main Street’s pain.  The big trade deficits means less production at home, but the deficits needs to be financed by  debt–and any debt issuance, including U.S. Treasuries, ends up going through Wall Street.


  1. One year of data makes this comparison very weak.

    Look at the housing starts through the middle of the decade and one might infer a massive run up in construction jobs (bubble), then a collapse.

    The story isn’t about finance, it’s about housing.

    • CompEng says:

      I would say they’re very closely related, since people didn’t pay for their houses up front, but got great adjustable interest rates based on foreign capital…

      To the extent the trade deficit exceeds economic growth, it is funded by by speculative money and the sale of assets, and I think that is a story.

  2. Part of this may have to do with expectations. The housing industry is and will be propped up by either the Fed or other government agencies. However, the extent and timing is difficult to predict. So workers hang around, so to speak, waiting and trying to get jobs here. When adjustment is quick, workers adjust their expectations and look elsewhere for employment.


    • Mike Mandel says:

      Interesting thought. It’s certainly true that the unemployment rate in journalism was relatively low the last time I looked, because a lot of the journalists who were laid off simply left the field because they never expected the jobs to come back.

  3. James Kibler says:

    Coincidentally, I was looking at this dataset this morning. Breaking things down slightly differently produces very different results. I looked at non-seasonally adjusted data, with August 2006 as the starting point and August 2009 as the endpoint. (I am not claiming those are the best points to use, but they are reasonably representative of ‘pre’ and ‘post’ recession.)

    Also, I looked at slightly more specific categories, ‘Building Construction’ as opposed to the broader ‘Construction’ and ‘Credit Intermediation’ as opposed to ‘Finance and Insurance’ (the latter includes things like life insurance and property and casualty, which were not interesting for the analysis I wanted to do).

    My measure was:

    (‘number of jobs in August 2009’-‘number of jobs in August 2006′)/’number of jobs in August 2006’

    Looking at it this way, 12% of 2006 credit intermediation jobs no longer existed in 2009 versus 6% for ‘total private employment’, ranking it among the highest categories.

    • Mike Mandel says:

      I thought carefully about insurance, and I decided to include it because of the centrality of AIG and other insurers to the crisis.

      • Though the organization called “AIG” was seriously involved in the crisis, the crisis itself only affected the insurance part of the insurance industry by nicking off a year or two of past growth in their invested assets, which has been spectacular. Indeed, that business is still overcapitalized by many measures.

        Very little damage to the underlying business and so to its employment levels.

        CDS are not insurance and I’d say that AIG’s involvement in those kind of products represented a serious departure from its core business. Off the top of my head I can’t think of any other insurers that were involved in those kind of shenanigans.

  4. Dave Backus says:

    Manufacturing is notoriously cyclical. Once you know there’s a recession, it’s easy to guess it will be hit hard. Ditto trade, which is mostly manuf, and durables to boot.

  5. Buck Farmer says:

    Control for education…I think that’ll get you 90% of the way there.

    You’ll see few HS dropouts who’re also Masters of the Universe and few Harvard men on the assembly line.

  6. save_the_rustbelt says:

    The only reason manufacturing losses are so low is the losses have been happening at a large scale for about 20 years.

  7. If you looked at the beta for various employment, construction and manufacturing, particularly durables, must be among the highest, while finance has to be done regardless of the economy. In this case finance has even more work cleaning up its own mess. A challenge to you is to compute swings in various categories of employment over the median wage of such employment and plot against the capital intensity of such employment, or some such. It would probably explain a lot.

  8. You continue to retail the fallacy that a “trade deficit” must be financed by debt, which can only be explained by sheer ignorance or intentional deception on your part. If a company wants to spend more than their revenues allow, they can either borrow money, debt, or sell assets or more shares, equity. It is likely that the vast majority of the dollars making up the “trade deficit” are reinvested in assets or equity, that debt makes up very little of it. Now, debt can still grow because of other factors, like the easy availability of buyers for corporate or treasury debt, but you simply assume that the “trade deficit” is debt-financed, when it very likely isn’t.

  9. spencer says:

    Compared to other cycles the drop in finance and insurance employment is very severe.

    In the 2000 cycle the maximum employment drop in finance & insurance was 0.25% over four months in early 2002 and in the 1990 cycle the maximum drop was about 2% over some 18 months.

  10. I suspect that the finance industry got the biggest government hand out and that would pretty much explain it.

  11. I would offer two hypotheses for the relatively low financial industry unemployment.

    One is that banks are under tremendous pressure to field loan modification. They clearly have not risen to the task nor perhaps even accepted it, but there is obviously a level of employee effort put forth that might have been expected to disappear along with the demand for new mortgages.

    Secondly, I believe that the cash accumulation in corporations has been steadily increasing, perhaps even through the recession, to nearly $1 trillion. In the popular spirit of outsourcing, corporations are not likely to manage all of this money internally, so it falls to the financial industry to help make the best use of it. Likewise, other institutional hoards of money — pension funds, insurance, etc. — will not reduce their reliance upon the financial industry due to economic downturn. In other words, there is still plenty of money demanding management and products and custom attention.

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  13. The amount of rent escalation is written in the agreement, lease must meet or exceed the expected increase in the level of expenditure in the coming years, the landlord is otherwise going to lose money

  14. I agree with Mike Mandel

  15. The main task of financial management include

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  18. This reason is: incorrect relative wages. That is, an unwillingness or a delay in appropriate wage adjustment (downwards) in the face of shifts in demand, misdirections of resources caused in a prior inflationary period, or a decrease in the quantity of money, etc.


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