Economic Crisis Begins Its Trickle Down

Financial Times, “Wall Street Faces Heavy Job Loss”; Financial Times, “Goldman to Cut 10% of Workforce”; Financial Times, “'Thousands’ of Merrill Jobs May Be Cut”; Financial Times, “Jobs in City Hard to Find Amid Failures”

The fallout from the global credit crisis and its failing firms has reared its ugly head in the form of plummeting employment in one of the world’s leading financial centers. According to a Federal Reserve report, Current Issues in Economics and Finance, “[New York City]’s finance sector stands on the verge of a significant multiyear downturn in employment and in real earnings.”

Two percent of the finance jobs in New York were cut between March and August 2008. In September, there were 460,000 finance jobs left. In previous economic downturns of comparable magnitude, finance jobs in New York have gone down 12–17%, which could mean 55,000–70,000 less jobs now. The New York City comptroller estimates that the city could lose up to 35,000 jobs in the coming months, largely due to the collapse of Bear Stearns and Lehman Brothers.

With several more firms forecasting job cuts, including Merrill Lynch and Goldman Sachs, the city is facing a downturn of employment in terms of both wages and real jobs. Jobs in finance are traditionally higher paying, and each job is thought to create two-and-a-half other jobs in the city. Other firms, such as HSBC, Bradford & Bingley, UBS, and Fidelity are streamlining their workforces as their funds contract. To make matters worse, failing firms’ employees, like those laid off from Lehman, are flooding the shrinking market.

A similar problem is wreaking havoc on London’s job market, where the number of job vacancies in London fell by 40% compared to the same time period in 2007, as 42% more finance workers are looking for jobs.

Questions for discussion:

1) Will the job cycle remain cyclical as it has in the past? How will the market handle an influx of skilled finance workers?

2) The shrinking pool of finance workers has already started trickling down to other sectors of the New York City economy; for example, cab and limo drivers are seeing a drastic drop in their incomes because fewer people are around to take taxis or limos and those who do are opting for more economical transportation, such as mass transit. How do you think the market will respond to this?