The city is less dependent on the stock market than in ’87, right? Wrong. Almost 20 percent of the city’s income is made on Wall Street — which could mean catastrophe in a crash.


When the long-running bull market took a week off in the middle of April, many New Yorkers couldn’t help indulging in a little schadenfreude. After all, the Internal Revenue Service reports that 75 percent of the capital gains earned during the recent boom accrued to just the richest 2 percent of New York taxpayers. Many of the rest of us have often felt shut out, like hired help at a dot-com launch party.

Well, be careful what you wish for. Because if you live in the city, the New York Stock Exchange bell tolls for you, too. We all know that Manhattan’s fortunes rise and fall with the movements of the Dow: Every major recession in the city’s economy since the Second World War has closely followed a sharp contraction on Wall Street. But during the recent boom, few have noticed that instead of diversifying, the New York economy has actually become more vulnerable to upheaval on the Street.

According to a recent study by the Federal Reserve Bank of New York, the city is four times as dependent on Wall Street as in 1969, before a bear market pushed the city to the brink of bankruptcy, and half again as dependent on it as in 1987, when Black Monday on Wall Street dragged the city into a deep recession that hit New York City a year earlier and far harder than the rest of the country. “Because Wall Street represents a much larger share of the city economy than at any time in the past, a significant downturn in the industry could result in more severe employment and income losses than those recorded in the 1970s or the early 1990s,” Fed economists Jason Bram and James Orr warned in their little-noticed report.

“Wall Street’s share of the economy is probably as high as you can get in terms of a city’s dependence on one industry. What’s unique is the volatility. You don’t see 50 percent swings from year to year in Hollywood.”

Consider the numbers. In 1987, 157,800 people, or about 4.4 percent of the city’s workforce, worked for investment banks and brokerage firms in New York. In salary and bonuses, they took home 11 percent of the total earnings paid to anyone who worked in New York — more than one dollar in ten of the city’s total payroll. To many in the other 95.6 percent of New Yorkers, the wages of Wall Street’s “Masters of the Universe” seemed excessive, even obscene. Little did we know.

Wall Street employment and compensation shrank drastically in the aftermath of Black Monday in October 1987, and then swelled again through the past decade. This time, however, many of the lower-paid jobs were relocated out of New York, leaving a purer distillation of the industry’s highest-paid. And that elite grew rich enough to put the Masters of the Universe to shame.

In 1998, Wall Street employed 166,000 people, up slightly to 4.7 percent of the city’s workforce. Now, however, those one in twenty New Yorkers take home 19 percent of the town’s total pay — nearly a fifth of citywide earnings and a more than 50 percent larger portion than in 1987. Last year, Wall Street’s fourth-quarter bonus payments alone rose 20 percent, to total $13 billion. The big firms’ equity-underwriting fees alone came to about $12.1 billion. By comparison, the sum of all the paychecks in the city came to about $250 billion.

“Wall Street’s share of the New York City economy is probably as high as you can get in terms of a city’s dependence on one industry,” says James Parrott, chief economist at the labor-funded Fiscal Policy Institute. “What’s unique is the volatility — you don’t see 50 percent swings in earnings from one year to the next in Hollywood or the federal government.”

In his previous job, as Carl McCall’s chief economist, Parrott was the first to charge that New York’s booming economy was built on a precarious foundation. Charting the city’s recovery from 1990 to 1997, he discovered that 97 percent of the increase in the city’s total paychecks went to workers on Wall Street.

Mayor Giuliani and Governor Pataki instantly blasted the numbers as partisan propaganda. They pointed to the fact that although Wall Street began to rebound in 1990, the rest of the city didn’t turn around until 1992. So measuring from 1990 is like starting a race when one of the contestants is still in the locker room. (Parrott acknowledged that, starting from 1992, when the recovery had begun to spread, securities firms accounted for 56 percent of the total increase in citywide earnings by 1997 — which is still a rather remarkable number.)

In part because of this partisan controversy, the New York Federal Reserve Bank’s Bram and Orr conducted a study of their own, and essentially concurred with Parrott. “People think this recovery is more broad-based,” says Bram, “but the fact remains that Wall Street is actually more important to the city than ever.”

When Bram and Orr released their results last summer, they carefully couched their findings to avoid partisan controversy, and their report was largely overlooked as the market broke new records. “Every time the stock market swoons, we say to each other, ‘Oh, now people will start dusting off our report,’ ” says Bram. “But as long as the market’s going up, people think, ‘Everything is great.’ ”