Wall Street’s Exodus to the Regional Office

In recent years, companies have outsourced low-level jobs to back offices overseas in an attempt to cut costs. Today, a similar trend is taking place as financial jobs are being relocated to regional offices outside the traditional financial hubs.

Despite good years for America’s investment bankers, the number of mid-level financial positions on the Street is slowly dropping as banks escape the city’s regulations, high taxes, and high labor costs to open offices in friendlier states like Utah, North Carolina, and Florida.

Will finance still be NYC’s flagship industry 10, 20, 30 years from now? This flight from NYC could have some lasting implications for major cities and for the industry as a whole:

New York City’s position as a financial capital isn’t likely to end anytime soon. Today, about 24% of America’s securities jobs can be found in the city. But as Wall Street jobs relocate to regional offices, New York State’s tax base risks eroding. Last year alone the industry contributed 14% of the state’s tax revenue. From a monkey’s perspective, these regional jobs may also lack the glamour and salaries of similar positions on traditional Wall Street.

In addition, it appears this is a global trend:

The erosion of middle-tier jobs in the financial sector is not limited to New York. In a presentation to analysts in late May, the president of Goldman Sachs, Gary Cohn, described what he called the firm’s “high-value location strategy.” By looking outside hubs like New York, London, Tokyo and Hong Kong, he said, the firm could save 40 percent to 75 percent on job-related expenses.

So what’s the impetus behind this exodus from NYC? I found this argument interesting:

This is a textbook case of how the blue social model creates exactly those conditions that Americans deplore. New York’s complicated regulatory structure, high rents and high welfare costs make it almost impossible for even wealthy companies to maintain mass middle-class employment.

As you can see, job creation between NYC and the regional office appears to have an inverse relationship:

Since the end of 2009, Deutsche Bank’s workforce in the New York area has fallen to 6,900 from 7,400 even as its staff in Jacksonville rose to 1,000 from 600. Credit Suisse’s staff in the New York region has dropped by 500 in the past four years, but the firm has added 450 positions in North Carolina’s Research Triangle, in the area of Raleigh, Cary, Durham and Chapel Hill. And last year, Bank of New York Mellon cut 350 jobs in New York City while hiring 150 people in Lake Mary, Fla.”

Not staggering numbers, I know. But they represent a trend that doesn’t show any signs of reversing. Over the next few decades, we will see Wall Street jobs spread out across the country. What will fill the tax hole left by this shift?

The NYC vs. Regional Office debate has been started and ended a million times. But I wanted to look at this from a slightly different perspective: How will it affect major cities across the world?

This is a gradual shift, but how should NYC handle this exodus to regional offices? Should the city revise its regulations and tax code to make Wall Street more hospitable? What happens if it doesn’t?

Sources:
The New York Times
The American Interest