There are no prizes for guessing how much pressure, employment in the financial services sector is under these days. Scrutinizing some statistics coming in from the world’s leading financial cities may lead one to some more thought provoking conclusions. Keeping in mind that the amount of office space required is directly proportional to the volume of jobs thereby creating a knock-on effect in the commercial property industry.
London: the Confederation of British Industry and PricewaterhouseCoopers reported that UK financial institutions plan to slash investment and reduce jobs in coming months, responding to increased competition, a more imposing regulatory atmosphere and a decelerating world economy.
New York: American Banks have been most prominent in the news when it comes to layoffs last year. Bank of America, Citigroup and Goldman Sachs made approximately 60 000 jobs redundant in 2011. RBS is dropping 3500 more jobs over the next three years in addition to the 1100 slashed last year. It’s been reported that Morgan Stanley is to shed jobs this coming month.
Looking over the last decade there are some surprising trends. Some markets have experienced growth in the financial services industry.
Toronto: There was a marked increase in financial employment during the past decade, with the exception of a recession-related decline by 2010. But overall since 2000 where Toronto’s figures for the sector were at 223 100 the growth has been a steady 3.7%. Today, financial services jobs figures are at 319 500.
Zurich and Geneva: Financial sector job growth in Zurich has increased over the last ten years. From 70 000 to 92 400 Zurich has grown by 2.7% in financial services jobs. The lesser Swiss market of Geneva has experienced similar growth over the same period. Switzerland not being a member of the European Union is arguably better placed to weather the region’s turbulent economic situation.
The most optimistic figures are coming out of Asia. Although not entirely surprising given upward growth rates in that region over the past ten years.
Shanghai: This centre of financial service for the mighty Chinese boom has experienced the highest increase in financial services employment with the total number of people employed in the sector nearly tripling over the past decade moving from an estimated 85 000 jobs in the sector in 2000 to over 217 000 by 2010. That’s an increase of 11%!
Hong Kong: This city was recently rated the world’s top financial centre deposing previous number one New York City according to World Economic Forum. Like Shanghai, Hong Kong has also experienced a rapidly expanding financial job market. The economy and property markets of Hong Kong have climbed recently due to positive domestic and regional economic growth as well as increased investment into Asia Pacific, all of which has secured Hong Kong’s status as one of the top global financial centres with financial services jobs growing 2.1% from 171 000 in 2000 to over 210 000 in 2010.
Singapore: Jobs in the financial sector are greater here than Hong Kong. Growing by 4.6% over ten years from 100 500 jobs to 157 100. In fact the jump was 25% between 2007 and 2010 and doubled between 1996 and 2010. One could suggest that Singapore has escaped the global financial crisis given there has not been any annual decline in employment figures.
But New York City is the world’s largest market for financial services employees. Not having recovered fully from the 2001 recession, by 2008’s global financial crisis further job cuts were a certainty. The so called recovery beginning in 2009 has been decidedly feeble and has not been able to hold back the flow of cut backs. Measuring over the same ten period as above New York City’s financial services jobs shrank from 600 000 in 2000 to 531 000 in 2010.
Chicago: That other great bastion of the US financial industry dropped by 0.9% from 310 000 to 284 000 jobs over ten years. Boston figures have also declined.
London: Across the pond, London’s recovery has been stronger than any of the main U.S. financial centres, and there’s even been a little growth of 0.1% between 2000 and 2010. London employs 300 900 in the financial service industry as opposed to 297 300 eleven years ago. As the largest financial centre in Europe, London has been confronted head-first with the Eurozone crises, while the so-called Tobin tax on financial transactions, along with a number of other upcoming national and regional regulatory changes, loom on the horizon as well.
The European Commission, the executive body of the European Union (EU), has proposed implementing a tax, starting in 2014, on all transactions involving stocks, bonds and derivatives that are conducted between financial institutions. It would apply to banks, insurance companies, investment funds, stockbrokers and hedge funds, among other financial firms. In spite of all these obstacles, however, it’s worth noting that London is still in better shape than New York—at least when it comes to the recovery in financial services employment.
One may well enquire as to what the share of financial employment is, as a per cent of the total labour force? Are some financial centres more specialized in financial services employment, versus other industries?
It’s Asia again: Studies show that Singapore, Hong Kong, and Shanghai have not only created more financial jobs over the past decade, they are becoming more specialized. Also gaining market share are the Swiss markets of Zurich and Geneva, both financial centres have become relatively more concentrated in financial services employment, though this growth has stalled since the global financial crisis of 2008.
Similar research reports that, for the most part, the more established financial centres such as New York and London have actually become less specialized in financial services employment.
Politics and regulation are likely to be very influential on the future of global financial centres and consequently the financial services employment rate. The potential financial regulation, the global economic slowdown and the EU crisis are all creating great uncertainty for financial centres.
The UK for example is resisting the EU’s proposed Tobin Tax on financial transactions especially in the light of Ernst & Young, warning that the EU could face up to a €116 billion shortfall in EU finances as a result of the loss in economic activity associated with the imposition of the tax. London is also resisting the EU’s proposed Tobin Tax on financial transactions. On London’s upside: the offshore Yuan market is gaining increased interest, with British and Hong Kong government leaders announcing plans this week to enhance cooperation in establishing London as a new hub for the offshore Yuan market, as a complement to Hong Kong.
In Asia, financial centres like Hong Kong, are displaying a far more positive outlook and higher growth rates than their American and European counterparts. In Europe there is some variance across markets; Swiss banks for example are expected to continue outperforming their European Union equivalents, thanks to favourable tax treaties and a less arduous regulatory environment.
Gulf and Asian markets are also jockeying for the growing Islamic finance market. Cities such as Dubai, Seoul, and Moscow are all competing to emerge as more prominent players in the financial market.
Pressure on employment in the financial services is real and continues to be influenced by the great undercurrents of politics, regulation and growth. Could those in the financial services sector end up following the money, relocating from city to city as each financial centre prospers or declines? Or is it possible for growth to continue ad infinitum in each financial centre without shedding the ‘deadwood’ accumulated over a prolonged stretch of growth? Office space in global financial cities dries up or opens up in direct proportion to financial services jobs. It will pay landlords to pat the goose that lays the golden egg.