The Financial Sector Anomaly In New York’s Economy

Taken in small doses, it’s easy to be excited by economic and workforce data. Without context, numbers can seem deceptively optimistic or too promising. The key to properly using Big Data like EMSI’s labor market information is to put the statistics it generates into proper context, and to look for anomalous data that significantly affects the big picture. New York City serves as a perfect example of how to do this properly.

With a population of 8 million and a 2012 workforce of more than 5 million, New York City’s five boroughs compose, in and of themselves, a larger economy than many of the world’s countries. And, at a cursory glance, New York’s economy seems almost unbelievably prosperous. Look at these statistics we pulled out of a quick Analyst report on the New York economy:

Those are some extremely impressive numbers: New Yorkers are earning, on average, over 50% more than the rest of the nation. That sounds like an economy which the entire population should be trying to join.

Life in a city, however, is about more than simply average earnings. People not only earn money, they have to spend it as well. We thought we’d get a better idea of how well off New Yorkers actually are by comparing what they earn (that attractive 153%) with the average cost of living in New York. To get that context, we used cost-of-living data from Sperling’s Best Places (www.bestplaces.net) to find out how expensive it is to live in New York. The answer was sobering. While New Yorkers earn 153% of the national average, they also pay 168.9% of the national average on housing, food, and other necessities.

New Yorkers’ earnings, then, are actually 16% behind their expenses, as people are paying a higher premium to live in New York than they are gaining in earnings benefits. So, if New York is so much more expensive than its average earnings can support, how do so many people manage to live there? We broke down EMSI’s industry data on New York into broad, 2-digit NAICS categories to find out where the real money is in New York, the high salaries that drive the cost of living so high. EMSI’s industry wage figures, which are found by dividing an industry’s total earnings by the number of jobs in that industry, do tend to skew somewhat higher than actual average wages by occupation. They still provide a good picture of the overall quality of the jobs in an industry, as we see here:

We’re interested in the two columns on the right: average earnings, and national average. ¹ For the most part, these broadly defined industries earn slightly more than usual in New York. A few of them earn only a paltry 5% to 10% more, but most of them are, like construction (27%) or education services (37%), higher than average while still falling short of that 53% we saw in the region overview. Where are those exceptionally high-paying jobs that pull up the average?

The answer, unsurprisingly, is in finance/insurance and the management of companies. Jobs in the management of companies are earning a full 77% above the national average, but as of 2012 there were only 66,000 jobs in that category in New York. That’s not a big enough area of the workforce to pull up the whole economy. The real activity, unsurprisingly, comes from the finance sector. New York workers in finance and insurance are earning an enormous 280% of the national average — an average of $220K, to a national average of $79K. Not only are they earning enormous percentages above the national average, there are also a large number of them — more than 453,000, the largest private-sector industry category in New York.

We can find out more about where the money goes by looking at more detailed industry classifications within finance.

Of all these sub-sectors, all but two have earnings almost 100% more than the national average. Interestingly, the largest sectors (securities and commodity contracts intermediation and brokerage, and other financial investment activities) are also two of the most profitable, both with annual salaries more than double the average.

With the highest-paid — and largest — sectors of the New York economy offering salaries so much higher than the national average, it should be no surprise that the cost of living in New York is sky high. Looking only at the average salary of the city as a whole doesn’t show this imbalance in the city’s economy; we have to look closer to find out how livable New York actually is. As high as its average income may be, New York is still a difficult and not necessarily attractive place to find an income — unless you work on Wall Street. For finance sector workers, New York’s enormous financial advantages make living there seem almost irresistible.

Data for this post came from Analyst, EMSI’s web-based labor market tool. Follow us on Twitter @desktopecon. Email Josh Wright if you have any questions or comments, or would like to see further data. Illustration by Gabe Stevenson.