The New Geography of Finance
The 2008 financial crisis set in motion shock waves that are still reverberating through the American, European, and global economies, touching everything from housing to jobs to college tuition.
In March 2009, I wrote a piece for The Atlantic outlining the likely effects of the crisis on America’s economic landscape. Several years into the crisis, I wanted to look at how the crisis might have affected the geography of finance across America.
With the help of my Martin Prosperity Institute (MPI) colleague Charlotta Mellander, I looked at two dimensions of finance. The first covers the geography of the firms and establishments that make up the finance and insurance industry based on 2010 data from the U.S. Bureau of Economic Analysis. The second covers the geography of finance and related jobs and wages based on 2011 data from the U.S. Bureau of Labor Statistics. The MPI’s Zara Matheson mapped the data.
The table below shows the nation’s leading financial centers across four key metrics.
|America’s Leading Finance Metros|
|Finance and Insurance Employment||Finance-Related Occupations||Finance Wages and Salaries (billions)||Finance and Insurance Output (billions)|
|New York||899,646||New York||477,800||New York||$40.9||New York||$214.0|
|Los Angeles||415,736||Los Angeles||285,440||D.C.||$23.8||Chicago||$58.3|
|Boston||223,139||Boston||151,290||San Francisco||$11.8||San Francisco||$27.2|
|San Francisco||175,294||San Francisco||135,970||Atlanta||$10.1||Minneapolis||$22.9|
Note on Sources: Bureau of Economic Analysis (Columns 1 & 4), Bureau of Labor Statistics (Columns 2 & 3). Finance and Insurance Output is not published for Washington, D.C., for confidentiality reasons. For the BLS data, Boston refers to the Boston NECTA Division, not the MSA.
Greater New York is far and away the nation’s leading financial center, topping the list in all four categories:
- It had nearly half a million people employed in finance-related jobs, nearly double that of the next largest centers on this measure, Los Angeles, Washington, D.C., and Chicago.
- Nearly 900,000 people were employed in New York's finance and insurance industries in 2010, up from 785,531 in 2006 — more than twice the amount of the next two largest centers on this indicator, L.A., and Chicago.
- New York's finance occupations generated roughly $40 billion in wages and salaries, almost twice the amount of the next two centers on this variable, greater Washington, D.C. and L.A.
- New York's financial sector produced more than $200 billion in economic output, about four times that of the next-largest financial centers on this metric, Chicago, Philadelphia, and L.A.
The nation's other leading financial centers include L.A., Chicago, Boston, Philadelphia, and San Francisco (which rank among the top ten in all four categories); Dallas and Houston (which make the top ten rankings in three); Atlanta, Minneapolis-St. Paul, and Washington, D.C. (which place in the top ten in two); and Miami, Hartford, Charlotte, and Phoenix (which make it in one each).
The first map (below) charts the share of employment in finance and insurance establishments across U.S. metros.
Map by MPI's Zara Matheson
Finance and insurance employment averaged nearly 6 percent of employment across all metros. Among large metros (those with more than one million people), Hartford, Connecticut, with its large concentration of insurance companies, leads with roughly 11 percent of its total employment in finance and insurance firms. Greater New York is fourth among large metros with 8.3 percent. Somewhat surprisingly, Jacksonville, Florida (8.7 percent) and Salt Lake City, Utah (8.6 percent) rank ahead of New York, falling in second and third place, respectively. Dallas is fifth, Denver sixth, and Charlotte, North Carolina, with its cluster of large banks, is seventh among large metros. Philadelphia is 11th, Minneapolis-St. Paul 12th, Boston 13th, Chicago 14th, Miami 18th, and San Francisco 19th among large metros.
The second map (below) takes a different cut: It charts the share of total regional employment composed of people who work in all finance-related occupations, as opposed to in finance and insurance firms. Map by MPI's Zara Matheson
Greater New York, surprisingly, ranks just 18th of large metros, with 5.8 of its workforce employed in finance-related occupations, up from 5.3 percent in 2006.
Also surprising: The top-ranked large metro in the country is greater Washington, D.C., where finance occupations make up nearly ten percent (9.8 percent) of total employment, up from 8 percent in 2006. Denver is second with 7.7 percent, followed by San Francisco with 7.1 percent, and Hartford, Connecticut, with its large concentration of insurance companies, is 10th. Boston ranks 11th, Charlotte 14th, and Chicago 20th.
The third map, below, charts the finance sector’s share of wages across U.S. metros.
Map by MPI's Zara Matheson
There is substantial geographic variation: 74 metros are above the national average and 289 metros fall below it.
Greater New York is now ninth among large metros, tied with Baltimore, with 8.9 percent of its wages coming from the finance-related jobs — up from 2006 when the share was 7.8 percent. The average 2011 salary for finance jobs in New York was $85,580, up from $72,870 in 2006. This was fifth in the country behind Bridgeport-Stamford-Norwalk, Connecticut ($95,510), San Jose-Sunnyvale, California ($90,260), and San Francisco ($86,700).
Greater Washington, D.C., again tops the list of large metros with 13.2 percent of its wages from finance-related occupations, up from 11.1 percent in 2006. The average salary for finance-related jobs in D.C. was $84,370, just slightly less than in New York, and up from $72,290 in 2006. Next in line are Denver, San Francisco, Richmond, and Atlanta. Charlotte is seventh, Hartford 15th, Boston 16th, Chicago 19th, and Philadelphia 20th among large metros.
Perhaps the most striking thing in our analysis is this: While finance was the main force in precipitating the crisis, its share of occupations and wages has increased in its wake. The finance share of all U.S. occupations grew from 4.4 percent in 2006 to 4.8 percent in 2011 according to our analysis, while the finance sector’s share of wages grew from 6.8 percent to 7.3 percent over the same period. During this time, nearly three-quarters (73.3 percent) of U.S. metros saw their share of finance jobs grow, while nearly 60 percent of metros saw their share of finance wages increase. The average wages and salary for finance-related jobs increased from $60,000 in 2006 to $68,740 in 2011.
This stands out from historical trends. Influential studies by New York University economist Thomas Philippon traced the growth and decline of the U.S. financial sector since the mid-19th century. Philippon plotted the expansion of the U.S. financial sector from 1860 to 2007, as it grew from 1.1 percent of GDP in the late-19th century to four percent in the 1970's, before hitting 8.3 percent of GDP in 2006. A related study [PDF] by Philippon and the University of Virginia’s Ariell Reshef tracked wages and skills in the financial sector from 1909 to 2006 and found wages in the financial sector to be "excessively high" around 1930, and again from the mid-1990's until 2006. Philippon's research found that the finance sector closely tracks booms and busts — its share of and role in the U.S. economy fell back considerably in terms of its share of the economy in the wake of major crises like the Great Depression.
Philippon and other economists who cover the subject note that America’s financial sector became bloated and over-blown in the years leading up to the crisis. Instead of channeling capital productively into the economy, the sector generated mega-profits by moving money around in highly speculative ways. When the house of cards came crashing down, it was thought that finance would be brought back under control; Our economy would shift away from its speculative "trading" orientation back to "building" up the real economy, and the finance share of the total economy would revert to historic norms.
But that does not appears to have happened, according to our analysis. While our data is based on different sources than Philippon’s, and although the crisis has not run its full course, we find that instead of contracting, the financial sector overall has only continued to expand since the deep economic and financial crisis, which still reverberates through the U.S. and global economies.
Top image: Brendan McDermid / Reuters