Wall Street, Main Street, and Wages after the Bailouts

by Howard Wial | December 15, 2011

America’s financial sector is in the news almost every day, its role in the economy and relationship to government subjects of public debate. “Banks got bailed out, we got sold out!” is a common protest chant in the Occupy Wall Street movement, while Federal Reserve chairman Ben Bernanke defends the Fed’s assistance to banks during the financial crisis in 2008. Meanwhile, the nation as a whole remains stuck in a recovery that feels like a continuation of the Great Recession. Is Wall Street benefiting at the expense of Main Street?

The December edition of Brookings’ MetroMonitor takes a metropolitan perspective on this question. For each of the 100 largest metropolitan areas, it compares the growth of the average wage in three prominent financial industries—credit intermediation (a category that consists mainly of banking), securities and commodities (including, among others, stockbrokers, investment banks, and some hedge funds), and funds and trusts (including some hedge funds as well as other investment funds)—with wage growth in the overall economy since the beginning of the national recession (in the last quarter of 2007) and since the beginning of the national economic recovery (in the second quarter of 2009). Although the average wage includes all workers, the wages of the highest-paid workers—those who have been most in the public spotlight—heavily influence the average.

There is no single answer to the question whether the financial sector wage gains exceeded those in the economy as a whole. The answer varies by industry, time period, and above all, by metro area. What’s true of New York isn’t necessarily true of Des Moines (the large metro area with the biggest concentration of credit intermediation jobs), Bridgeport (the large metro with the biggest concentration of jobs in securities and commodities), or Hartford (the large metro with the biggest concentration of jobs in funds and trusts).

In most large metro areas, though, the average wage rose more rapidly in each financial industry than in the economy as a whole since the economic recovery began. In New York, for example, the average wage in each of the three financial industries rose more rapidly than the overall average wage between the second quarter of 2009 and the last quarter of 2010: 6.3 percent inflation-adjusted wage growth in credit intermediation, 17.4 percent in securities and commodities, and 23.6 percent in funds and trusts, compared to just 0.2 percent in the entire metro economy. In Des Moines, the average wage in credit intermediation increased by an inflation-adjusted 5.2 percent, while the overall average wage increased by only 2.6 percent. Bridgeport’s average wage in securities and commodities rose by 18.4 percent during this period but its overall average wage rose by 4.2 percent. In contrast, Hartford’s average wage in funds and trusts fell by 2.9 percent, while its overall average wage fell by 0.4 percent.

The story is more complicated if you consider the period from the last quarter of 2007 (the beginning of the recession) through the last quarter of 2010. In most large metro areas, wage growth in credit intermediation and securities and commodities fell short of overall wage growth, but the opposite was true for funds and trusts. In Des Moines, the average wage in credit intermediation fell by 1.9 percent during this period, while the overall average wage rose by 1.9 percent. Bridgeport’s average wage in securities and commodities fell by 8.8 percent, compared to a 0.8 percent drop in the overall metro economy. Hartford was, once again, an exception to the general pattern, at least for funds and trusts, where its concentration of jobs exceeds that of any other large metro area. The average funds and trusts wage in Hartford fell by 24.7 percent since the start of the recession, while the overall average wage fell by 4.6 percent. New York was a mixed case, with a 3.0 percent wage drop in credit intermediation, a 10.8 percent drop in securities and commodities, and a 9.1 percent gain in funds and trusts, compared to a 4.1 percent decline overall.

In most metro areas, then, people working in the funds and trusts industry have received bigger wage increases than workers as a whole both since the beginning of the recession and since the beginning of the recovery. In most metros, those employed in credit intermediation and securities and commodities got bigger raises than workers overall since the start of the recovery but got smaller raises than their counterparts in other industries since the start of the recession. This means that workers in credit intermediation and securities and commodities had smaller wage gains than other workers during the recession itself, but had bigger wage gains than other workers during the recovery. 

Perhaps surprisingly, the 2008 bank bailouts didn’t seem to prop up wages in banking, at least not immediately. But since the start of the recovery in 2009, bank employees have had bigger wage gains than other workers in most large metro areas. Maybe that’s one reason why the relative well-being of Wall Street and Main Street has received more public attention in recent months than it did when the bailouts occurred.

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