The financial industry has long been an establishment in New York City, Los Angeles, Chicago, Philadelphia, and Silicon Valley. The question here is: are financial firms (starting to) moving away from the once-thought-of “big financial centers” to more competitive and cost effective places to do business?
As a start, here’s what financial industry employment looks like by state from 1990Q4 to 2013Q2. Not surprisingly, the financial industry is centered in big population areas, with California, New York, and Texas leading the pack. Interestingly, one can see from the graphs across time the run-up in job gains (and subsequent job losses) in Silicon Valley employment in California prior to the 2008 downturn, as well as the gains in New York prior to the Lehman Brothers collapse. If you look closely, the changes are rather large relative to the other states.
(Note: the bigger the circle, the more the current the year, or, the more red the year, the more current the year. Please see the legend at the bottom of the graph.)
In addition to a bar chart look, here’s a location-quotient look of financial industry employment by area. Again, not surprisingly, financial industry employment is heavily concentrated in the New York-Northern New Jersey-Long Island area, with Chicago, Illinois, and Los Angeles coming in far behind in second, third, and fourth places.
(As a note on explanation: the size of the dot represents the percentage of the industry’s total employment in the given geographic region, while the color of the dot represents the financial industry’s total importance to the geographic region’s total employment count.)
Now, with this general background in mind, which states have experienced a gain in financial industry employment over the past few years, presumably at the expense of competing geographic regions?
Here are the figures across time for financial industry employment divided by total employment across the states i.e. the percentage of financial industry employment in each state across time. (Note: the first chart shows the figures across all years, while the second and third figures show just 1990 and 2013.)
As is shown, the big financial industry centers, with New York at the head, are slowly losing ground to other geographic locations, at least when it comes to capturing financial industry employment.
One might ask: Is the result that New York is losing ground due to population growth? The following figures address this issue, with some explanation in the note section that follows.
(Note: the left column represents cumulative financial industry employment growth from 1990 to 2013. The middle column represents population growth from 1990 to 2013. The far right column represents the difference between the two, with the red states being states that have seen a financial industry decline relative to population growth, while a green state represents states that have seen financial industry growth greater than population growth.)
As is shown, the results stand even after adjusting for growing populations, with for instance, New York down by 12 percent over the past 23 years even though population is up by 9 percent. There’s a bit of a chicken-and-egg issue here in that individuals may move to a given state because a financial firm is moving there. This smaller effect would only make the financial industry movement results more pronounced.
Overall, businesses operating in the financial industry are becoming more mobile, with the big geographic financial centers such as New York City, Chicago, and Los Angeles losing some ground to other areas. The shift is not just population-induced either, but rather a shift towards perhaps less expensive places to find employees and to do financial business.
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