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The Times discovers Wall Street near-shoring

by Robert Teitelman | Published July 2, 2012 at 11:23 AM

The New York Times has a story on the front page today worrying about the departure of finance jobs out of New York ("near-shoring") and its effect on the city's tax base. The headline, "Financial Giants Are Moving Jobs Off Wall Street," suggest a dire crisis -- one that the story then fails to support. In fact, this is one of those recurring Wall Street stories, like the notion, usually after some market reversal, that Wall Street has ceased to be fun anymore and some great exodus is occurring to run B&Bs in New England or to take up sailing or polo. Not that any of these stories are wrong; and who knows, perhaps there are deep secular, as opposed to cyclical changes, afoot that will reduce the size of finance, or worse, shrink the role of New York (or London) as a financial capital. But it's easy to blow these stories out of proportion.

The nut graf on the Times story does just that: "The potential shift has profound implications for New York's tax base and economy because of Wall Street's outsize financial profile." Notice the qualifier "potential."

Are some midlevel jobs drifting off to other, less expensive locations, both in the U.S. and abroad? Undoubtedly. Of course, it's been a trend for any number of years -- first to Brooklyn and New Jersey, then to Delaware, North Carolina and Bangalore, India. Globalization accounts for some of it. But that centrifugal trend has to be juxtaposed against the proportionately larger increase in finance jobs over the last half-century or so, and to the increasing centripetal concentration of finance in New York (and overseas into a handful of central hubs, such as London). There is a complex centrifugal and centripetal dynamic here; but for decades now, despite anxiety over rival venues such as Greenwich and Stamford, Conn., and Jersey City, N.J., the forces of increasing concentration and mounting scale have won out. This financialization has been a huge boon to New York and London.

Has this tendency toward concentration, despite the power of computers and communication to operate at great distances, now begun to reverse itself? Well, probably not; when the Times gets right down to it, it admits that the best-paying jobs, those that are involved in generating the greatest profits, are not moving. (The Times itself waxed poetically on Friday over the glitzy world Goldman, Sachs & Co. has carved out for itself around its new building off Wall Street. The paper may view Goldman with distrust, but it can't help itself from gushing when Goldman decides to spend its money.) But the problem here is that the Times can't separate out the effect of midlevel jobs leaving because of the crisis and recession or because of a changing mix of business brought on by changing regulation and a tough macroeconomy. What we can conclude (and the Times says this) is that many of these jobs are in the back office in securities processing, accounting, legal, compliance and customer services. These are jobs associated with products in which the banks run large volumes with great efficiency to generate commodity profits. (The Times typically doesn't define what "Wall Street" or financial jobs really mean. The bulk of the 1,200 jobs JPMorgan Chase & Co. has "sent" to Wilmington, Del., are probably tied to credit card processing or other retail products. The time frame is unclear. Over how many years has this buildup been occurring?) I'm sure places such as North Carolina or Delaware want these jobs, and they can help a local economy. But they are also the jobs most vulnerable to automation, or to shifting elsewhere with a lower cost base. A high-level relationship banker or trader will resist automation far more effectively than a midlevel lawyer and customer service rep and pay a lot more in taxes.

The longer-term question here is whether finance, in light of all the problems of the last few years, is growing increasingly commoditized. Competition remains sharp, and a lot of profits have been squeezed out of a lot of products. It's unclear whether regulation has slowed the pace of innovation -- one would guess so -- and since it all came apart in 2008 there haven't been new, high-margined products to really drive profits. Dealmaking has been slow, putting pressure on the investment banking side, and markets have been volatile and difficult, putting pressure on trading. There has been a centrifugal tendency among the largest firms, as both senior traders and bankers left for hedge funds and boutiques. But that doesn't necessarily reduce the scale of finance in New York; in fact, it may increase it. Physical proximity still counts among the most intellectually rigorous and higher value-added pursuits in finance.

It's very difficult to discern any of these trends from anecdotal evidence of some midlevel jobs migrating to cheaper locations. The impression the Times leaves, in fact, is that finance, for good or for ill, has survived the crisis and recession quite well. The jobs that have left are lower paying and might have left anyway. And employment has bounced back reasonably well, just a few percentage points below precrisis levels. The expectation that Wall Street would employ more high-paying souls than before the crisis is crazy. After all, since the crisis, we've heard again and again how financialization has lurked behind not only the crash but related woes like inequality. You can't decry the size and power of Wall Street on one hand, and then wring your hands when a few midlevel jobs depart. - Robert Teitelman

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