In recent decades, financial services industries in the U.S. have been significantly restructured. Because technological and regulatory changes have accelerated in the 1990s, changes are likely to continue at a rapid pace. The restructuring of the financial services sector has important and direct consequences for the flow of capital, credit and basic banking services to older metropolitan neighborhoods, rural areas, and lower-income households. In addition to these consequences, changes in the sector affect the sustainability of metropolitan communities in another way - through their effects on the level, quality, and spatial distribution of employment.
Financial services industries have been important sources of jobs, income, and tax base in central cities, especially in central business districts. As of 1996, 8.5 percent of employment and 14.5 percent of payroll in 88 of the largest central cities in the U.S. were in financial services. Only 4.7 percent of jobs in corresponding suburbs were in financial services, with a similar figure for the country as a whole. Together, these 88 central cities accounted for approximately 58 percent of the financial services jobs in their metropolitan areas. In some cities, such as Hartford, Connecticut, Wilmington, Delaware, and Jersey City, New Jersey, as much as 20 to 30 percent of employment is in the sector. Even in many larger cities with more diverse economies - including New York City, Chicago, Boston and San Francisco -- over 10 percent of jobs and 20 to 30 percent of earnings are in financial services.
This paper reviews some key elements of the restructuring of financial services industries in recent decades and examines how the level and location of employment in these industries has changed. Particular emphasis has been given to effects or likely effects on central cities. Different financial services industries have seen quite different types of restructuring and consolidation, with banking undergoing the most consolidation and the securities group experiencing the most overall growth.
- All industries have made heavy investments in information technology, including that designed to reduce labor costs. In banking, technological developments with impacts on employment include the automated teller machine, telephone calling centers, and the in-store supermarket branch. This technology has affected not only overall employment growth but also the occupational mix of jobs in different sectors. In the long run, the increased use of information technology does not bode well for financial services workers. In the past, lower-skilled workers have borne the brunt of this capital-for-labor substitution, but the impact may be spreading to higher-income workers as well.
- Thanks to mergers and acquisitions over the last few decades, the control of banking assets is increasingly concentrated in a number of core banking metropolitan areas, with Charlotte and New York in clearly dominant positions. But their dominance appears tenuous at best, given the tumultuous nature of the sector and especially of banking. While a city is likely to share some of the gains as a locally based financial services firm increases its holdings and activities, the market is unpredictable. Today's acquirers are tomorrow's acquisition targets.
- Consolidation is not occurring in other industries as fast as it is in banking, and the geographic concentration of corporate control is not increasing in some other industries. Mutual fund assets, for example, have actually deconcentrated on an intranational basis with New York's share declining from 40 to 24 percent from 1986 to 1996.
- On average, decentralization within a metropolitan area is likely to have a greater overall impact on cities than moves from one metropolitan area to another. Except for the retail branch networks of banks and thrifts and some back-office operations, most financial services employment has been clustered in central business districts. The conventional wisdom is that central cities, especially central business districts, possess a unique comparative advantage as locations for financial services employment. Some, however, argue that the importance of the CBD to financial services firms may be exaggerated and oversimplified.
- There has been an increased suburbanization of financial services employment. The average central county (a county containing a central city) saw its share of finance, insurance and real estate (FIRE) employment decline significantly over the 1977 to 1992 period. Studies suggest that insurance and retail banking -- the other dominant sources of employment in the sector -- may be the drivers of the sector's suburbanization. There is less evidence that non-retail banking operations are suburbanizing.