In 1992 I traveled to Europe with a delegation of New York City officials trying to attract foreign companies to Gotham, and we all got a startling geography lesson. In meetings, European executives would tell me they already did business in New York and loved it, but when I asked them where their offices were, they were just as likely to tell me Stamford or Fort Lee or Jersey City as Manhattan. When I replied that those werent exactly New York locations, theyd typically answer, But its all the same to us. It really doesnt matter exactly where we are, as long as were close.
I was thinking of those meetings when I read a recent report from the Federal Reserve Bank of New York that celebrates the strength of the citys economy despite New Yorks worrisomely slow job growth. Issued in part in response to pieces by me and others about the sluggish pace of recovery in New York Citywhich isnt likely to regain all the jobs it lost in the recent recession until mid-2007, nearly three years after the national economys recoverythe report contended that if you look beyond employment, Gothams economic picture appears much brighter.
In particular, the report noted, New York City residents have been finding jobs at a much faster pace than the city has been creating them, because more New Yorkers are now going into the suburbs to work. That has led to higher levels of resident employment, which, combined with the fact that total wages earned by those who work in the city (whether they live there or not) have been growing rapidly, makes Gothams economy stronger than we think. In a mature marketplace like New Yorkthat is, one whose population isnt growing nearly as quickly as other newer citiesits time to stop obsessing about job growth and focus on other parameters, like the number of New Yorkers with jobs, even if they happen to be working someplace else.
The Feds startling attitude, Im sure, would win applause from public officials in Nassau, Westchester, and New Jersey, but I doubt that New Yorkers can sign onto this new economic reality. New York City government, after all, relies on businesses and jobs located in Gotham and on commerce transacted in the city for a big chunk of the taxes that support the citys oversized budget. Indeed, as a 2000 report by the citys independent budget office made clear, no city in America depends on business taxes more than New York does, and the notion that Gotham may slowly be losing its focus as the center of the regional economy, as jobs and opportunity expand in the suburbs, should be distressing to budget watchers and the citys business leaders, among others.
But that erosion shouldnt be surprising. Whats happening now is part of a 50-year-long cycle in which city governmentand its partner in crime, Albanyhave made the suburbs increasingly attractive to businesses by raising taxes, increasing regulation, and often failing to deliver basic services well. As a result, the march of businesses out of Gotham has been striking. A city that once housed the headquarters of 128 Fortune 500 companies is now down to 44. Harder to measure is the growth that never took place here, because businesses avoid the city, like those European executives who locate in the suburbs and call it New York.
But to get a glimpse of what New York has been missing, consider this: the engine of New Yorks economy, Wall Street, added nearly as many jobs in New Jersey (+143,000) as it did in New York (+154,000) from 1970 through 2000. And things are only likely to get worse: As Nicole Gelinas pointed out (Gotham Needs Wall Street; Does Wall Street Need Gotham?, Winter 2006), New Yorks grip on the financial services industry is becoming more precarious every day.
This continual long-term expansion outside the city has stranded New York in a 50 year boom-and-bust jobs cycle. As a result, today New York City has about 175,000 fewer jobs than it did in 1969, when John Lindsay was mayor and Nelson Rockefeller was governor, though its population is larger today by some 200,000 residents.
But recent history should tell us that the city neednt be perpetually stuck in this rut. As the Fed report notes, for one brief moment in the mid-to-late 1990s, the city resumed its rightful place as the engine of the regional economy, adding jobs at a record pace425,000 of them from 1995 through 2000, or nearly 85,000 new positions a year. Those were heady times, when the citys historic drop in crime brought tourists back and spurred economic development in neighborhoods that had been abandoned by businesses. Wall Street boomed, but so did new industries, like technology. The city even broke its 50 year pattern of nearly constant tax increases, as then-Mayor Giuliani strategically cut taxesnot enough to improve the citys competitive position dramatically but at least enough to send the message that New York was headed in the right direction.
The Federal Reserves report dismissed that period of dramatic growth as an anomaly and says that todays economy shouldnt be measured against those expansive days but rather against the more normal growth of the previous 25 yearswhen the citys job base shrunk and New York consistently underperformed the rest of the region.
Certainly today the city seems to be conforming to this lower standard. At current growth rates, by the end of this year New York will have recovered only about 70 percent of the jobs lost in the most recent recession, while the national economy has not only recovered all of its previous jobs but has added nearly 2 million new ones.
I wonder, listening to New York City officials these days, whether they dont secretly acknowledge these lower standards, too, though they would never bluntly admit it. After all, when the city in 2003 raised real estate taxes by nearly $2 billion, the biggest tax increase in city history, and also increased fines and fees on businesses to raise even more revenue, Mayor Bloomberg responded to critics by noting that New York has always been a premium city and businesses are willing to pay extra to locate here.
Since then, New York has certainly been performing like a premium economy, that is, one where a small slice of big-time earners and a few businesses benefit the most. Virtually every economic study of the city these days notes that its strongest suit is the ever-higher surge in total wages, but most of these reports also quickly note that those gains are largely limited to people working in investment banking, where the average annual salary is now an astounding $275,000. Other industries arent so robust, and their workers arent seeing anything like the gains on Wall Street.
With salaries soaring for a few, the citys tax base is also becoming ever narrower: Today, less than 1 percent of New York families, those with household incomes above $1 million, pay more than 40 percent of all income taxes in the city. Needless to say, a narrow tax base is a fragile one, dependent on the good fortune of just a few workers working in just a handful of volatile industries, like Wall Street.
New Yorkers are a resilient lot, and its a tribute to city residents that Gothams economy didnt just collapse after 9/11. The city picked itself up and got back to work. And, as the employment data show, New Yorkers who couldnt find jobs here didnt just sit back and complain but went somewhere else to find work.
But the city shouldnt be satisfied just with having survived. For a brief but real moment before 9/11, New York was on the verge of recapturing its once stellar economic legacy. That, more than mere survival, should be the goal again.