The New York Fed President recently said that Wall Street is unlikely to resume being the growth engine for the New York City labor market that it used to be due to increased government regulation and industry excesses.
Change in Wall Street Hiring
In prepared remarks on the regional economy made last week, William Dudley, the New York Federal Reserve President explained the current shift in Wall Street hiring, “In the past, the city has counted on job growth from Wall Street to fuel economic growth during recoveries and expansions. This time around, however, job gains in the securities industry have been meager.”
Dudley noted that this change could be due to a few factors. One is that various segments of Wall Street had overbuilt before the crisis, and that now hiring in these portions of the industry were unlikely to rebound to pre-crisis levels. This includes staffing in mortgage underwriting and mortgage-backed securities trading groups.
The New York Fed President explained that increased government regulation could be another reason for this change on Wall Street hiring. “Another competing hypothesis would be there’s been an increase in regulation and supervision. Their [Wall Street banks’] capital is good. Their liquidity is good. They’re very healthy. They’re solid, but the return on equity is considerably lower now than it was prior to the financial crisis. So that probably also has some implications for job creation.”
The recent remarks made by the New York Fed President is consistent with the employment data we have been following over the past few years as Wall Street firms have been extremely reticent to aggressively hire new staff as they had in past employment cycles.
Traditionally, Wall Street has followed periods of sharp layoffs with periods of robust hiring in order to meet the banks’ growing business needs. Unfortunately, many banks are currently continuing to lay off staff as they struggle to grow their profits in a period of weak commission growth, low interest rates, and poor IPO volume. In addition, increased government regulation has increased the cost of doing business for the banking industry forcing banks to rationalize other expenses – most notably their labor costs. Consequently, we would agree with NY Fed President Dudley’s dour assessment that the new normal on Wall Street going forward could be much weaker employment growth.