The author finds that the securities industry in the New York-New Jersey region, while vulnerable to stock and bond market fluctuations, is enjoying strong growth in employment and salaries. Benefits from future growth, however, will likely flow predominantly to highly skilled workers as rapid technological change continues to widen existing income differentials.Securities ; Federal Reserve District, 2nd

Richard Cantor

English

Research Papers in Economics

FRBNY ECONOMIC POLICY REVIEW / FEBRUARY 1997 83
Chart 1
Securities Industry Employment and Salaries 
in the New York–New Jersey Region
Sources:  New York State Bureau of Labor Statistics; New Jersey Bureau of 
Labor Statistics.
1982 86 84 88 90 92 94 85 83 87 89 91 93 95
Employment
Salaries
0
50
100
150
200
250
Thousands of workers
Billions of 1995 dollars
0
5
10
15
20
25
New Jersey
New York
The Securities Industry and the 
New York–New Jersey Region
Richard Cantor*
The securities industry in the New York–New Jersey
region is currently enjoying strong growth in employment
and salaries. The industry is particularly important to the
region because it is concentrated locally and pays high
wages. Although vulnerable to stock and bond market
fluctuations, the industry has positive long-term prospects.
The benefits from future growth, however, will likely
flow predominantly to highly skilled workers as rapid
technological change continues to widen existing income
differentials.
RECENT DEVELOPMENTS IN THE REGION
Employment and salaries in the region’s securities industry
have recovered since coming off their previous peaks in the
late 1980s. Chart 1 presents data on employment (top
panel) and real salaries (bottom panel) in the securities
industry for both New York State and New Jersey. Securi-
ties industry employment peaked at more than 180,000
jobs in 1987, then dropped to 155,000 at its trough in
1991. Since then, employment growth has increased
steadily and may reach 190,000 jobs by year-end 1996.
Annual salaries have recovered even more strongly: after ris-
ing above $18 billion (1995 dollars) in 1988, they dropped
to $16 billion in 1989-91, then surged above $22 billion in
*Richard Cantor is an assistant vice president in the Research and Market
Analysis Group of the Federal Reserve Bank of New York.84 FRBNY ECONOMIC POLICY REVIEW / FEBRUARY 1997
Chart 3
Real Growth in New York State Labor Compensation
Annual Percentage Increase
Sources:  Securities Industry Association; New York State Bureau of Labor
Statistics; New Jersey Bureau of Labor Statistics.
1982 90 85 95
Percent
-40
-20
0
20
40
60
80
0
2
4
6
8
10
12
Scale
All employees
Scale
Percent
Securities industry
employees
Chart 2
Relative Importance of the Banking, Insurance, and
Securities Industries in the New York–New Jersey Region
Sources:  New York State Bureau of Labor Statistics; New Jersey Bureau of 
Labor Statistics.
1982 86 84 88 90 92 94 85 83 87 89 91 93 95
Industry Shares of Total Private Employment
Industry Shares of Total Private Salaries
1.0
1.5
2.0
2.5
3.0
3.5
Percent
2
3
4
5
6
Securities
Insurance
Banking
Securities
Insurance
Banking
1992. Between 1993 and 1995, salaries averaged more than
$21 billion and are expected to be strong again in 1996.
THE INDUSTRY’S IMPORTANCE IN 
THE REGION
The economic impact of the securities industry is greater
than suggested by its job numbers alone. First, the indus-
try is heavily concentrated within the region. While it pro-
vides about 2.5 percent of all private sector jobs in New
York State, about 90 percent of these jobs are in New York
City, where the industry accounts for 5.3 percent of all pri-
vate sector jobs. In New Jersey, the securities industry pro-
vides only 0.9 percent of private sector jobs, but the state’s
share of securities industry employment is growing. The
industry provides a very significant share of the region’s
private salaries, 7.5 percent in New York State and 1.9 per-
cent in New Jersey. In addition, the industry’s impact
extends into other sectors of the economy through the
demand for ancillary services. For the past several years,
employment and salaries have been moving out of New
York into New Jersey, reflecting the gradual shift of back-
office jobs from the higher cost to the lower cost state.
The recent performance of the region’s securities
industry contrasts sharply with the performance of the
financial sector as a whole (Chart 2). Over the past fifteen
years, the shares of regional employment held by the bank-
ing and insurance industries have been shrinking, while
the share of the securities industry has been rising. An even
greater difference, however, is evident in the shares of
private salaries held by the three industries. The banking
and insurance shares have been relatively flat, while the
securities share has been rising sharply.
Chart 3 provides another perspective on the impor-
tance of the securities industry to the region’s broader econ-
omy. The chart depicts the annual growth in total private
compensation and salaries for all workers in New York State
and for employees of the securities industry subset of the
larger group. The two series appear to be contemporane-
ously correlated, suggesting that increases in salaries in the
securities industry cause increases in income statewide.
TRENDS IN THE SECURITIES INDUSTRY
Over the past fifteen years, the national securities industry
has, on average, grown faster than other industries (Chart 4),
and this trend is likely to continue. Because of advances inFRBNY ECONOMIC POLICY REVIEW / FEBRUARY 1997 85
Chart 4
Securities Industry Share of National Private
Employment and Salaries
Sources:  New York State Bureau of Labor Statistics; New Jersey Bureau of
Labor Statistics.
1982 90 85 95
Percent Percent
0.25
0.30
0.35
0.40
0.45
0.50
0.6
0.8
1.0
1.2
1.4
1.6
Scale
Salaries
Scale
Employment
Chart 5
The New York–New Jersey Region’s Share 
of the National Securities Industry
Sources:  New York State Bureau of Labor Statistics; New Jersey Bureau of 
Labor Statistics.
1982 86 84 88 90 92 94 85 83 87 89 91 93 95
Employment
Salaries
Percent
New York
New Jersey
0
10
20
30
40
50
0
10
20
30
40
50
60
information technology, however, the rewards from such
growth are likely to be spread unevenly across the region.
On the one hand, such advances clearly enhance the pro-
ductivity of highly skilled workers, who are heavily con-
centrated in New York City. On the other hand, they
reduce the need to house retail brokers and back-office
operations nearby. As a result, the region’s share of the
nation’s employment in the securities industry is likely to
continue falling, while its share of salaries will probably
keep rising (Chart 5). These developments represent an
extreme example of a national phenomenon: technological
change is reducing the demand for low-skilled workers
while increasing the demand for high-skilled workers,
resulting in a further widening of income differentials.
There is some hope that employment in the securities
industry may be less volatile than in the past. Over the last
twenty years, the industry has diversified its revenue sources
away from stock sales commissions toward underwriting, trad-
ing, and mergers-and-acquisitions advising. Although we have
seen little reduction in employment volatility to date, recent
hiring patterns may help to lower employment volatility in
the future. In contrast to the excessive hiring spree of the mid-
1980s, hiring during the recent bull market has been con-
ducted at a more moderate pace and consequently need not be
sharply reversed when the bear market comes.
The overall outlook for the region’s securities
industry appears rather healthy. Apart from the usual mar-
ket vulnerabilities, few major problems will threaten the
industry over the next few years. Most of the brokerage
firms have already completed their planned back-office
relocations, and the major exchanges appear committed
to staying in the city. Future competitive challenges from
foreign financial centers are likely to be delayed by local
concerns, in particular by the upcoming monetary union in
Europe and the financial system difficulties in Japan.
Nevertheless, like the downside risks, the upside risks are
limited: it is hard to imagine much further improvement
in the health of the region’s securities industry. Current
market conditions are probably as good as they are going to
get, and foreign firms preoccupied with matters at home
are unlikely to expand their New York presence soon.
The author thanks Rae Rosen and Charles Steindel for comments and  Kathleen
Foley for research assistance.The views expressed in this article are those of the authors and do not necessarily reflect the position of the Federal
Reserve Bank of New York or the Federal Reserve System. The Federal Reserve Bank of New York provides no warranty,
express or implied, as to the accuracy, timeliness, completeness, merchantability, or fitness for any particular purpose of
any information contained in documents produced and provided by the Federal Reserve Bank of New York in any form or
manner whatsoever.

The securities industry and the New York - New Jersey region

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The securities industry and the New York - New Jersey region

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