The New York State Department of Labor has released payroll employment and payroll data for New York City and each borough for 2009, along with the change from 2008. I’ve done a few calculations with it and put them in the attached spreadsheet. The data is based on the administrative records of unemployment insurance program, and thus excludes the self-employed, freelancers and contract workers, a growing share of the workforce. Because the City of New York and MTA do not comply with state requirements to report its employment by actual work location (known as the “Bell file”), moreover, the data on government employment is not accurate by borough. Nonetheless some conclusions can be drawn about private and public employment and wages in New York City during the recession.
Citywide, the data show that from 2008 to 2009, private employment fell 3.5% in New York City’s private sector despite increases of 1.7% in the substantially government-funded Health Care and Social Assistance sector, and 1.9% in the tax-exempt private Education sector. Government employment fell just 0.3%. Total private sector payroll plunged 12.3% despite increases of 3.5% in the Health Care and Social Assistance sector and 5.2% in the Education sector, while total Government payroll increased 2.0%. Average (mean) private sector pay per employee plunged 9.1% despite increases of 1.8% in the Health Care and Social Assistance sector and 3.2% in the Education sector, while pay per employee in Government increased 2.3%. The fall in private pay per employee was driven by a 17.7% decrease in the Finance and Insurance sector, due to lower bonuses, which will bring little sympathy given the 2009 average of $231,176 per worker for the sector. But excluding both Finance and Insurance and Health Care and Social Assistance, payroll per private sector worker fell 3.2% from 2008 to 2009 in New York City.
Let’s backtrack and discuss some aspects of the city’s economy. Most of its private sector employment is concentrated in Manhattan, which has the highest average pay per worker of any county in the United States. That is the result of extremely high pay in several office-based sectors with global customer bases: the aforementioned Finance and Insurance sector, the Management of Companies sector (corporate headquarters) which had a mean pay per worker of $163,883, the Professional, Technical and Scientific Services sector (law, advertising, accounting , consulting etc.) with a mean of $111,714, and the Information sector (publishing, motion pictures) at $110,050. These sectors recruit globally, so their effect on the local labor market is limited, and sell globally so higher wages for them doesn’t necessarily mean higher prices or diminished services for other New Yorkers. But they are a large part of the tax base.
Including these sectors, the mean private sector pay per employee in Manhattan was $100,752 in 2009, down 10.2% from a year earlier. Excluding them, the mean pay for everyone else working in Manhattan was $55,546, down 1.6%. But that is still higher than the mean private sector pay in the other boroughs, with their local-oriented economies, which ranged from a low of around $38,000 in Brooklyn to a high of $43,500 in Queens (thanks to what is left of the well-paid Air Transportation industry). In general the best-paid people working in the outer boroughs are either business owners or public employees. The overall year-to-year decreases in private sector pay per employee were modest, with an increase in the Bronx, because of the predominance of the Health Care and Social Assistance sector, for which average pay rose. In other private sectors – sectors in which the government does not take money and give it to them — average payroll per employee fell in the outer boroughs as well. After all times are tight, and lower prices must be charged to attract customers who have a choice. Lower wages are needed if businesses are to remain open with lower prices. Etc.
The overall average pay per public employee in New York City is $55,862, closer to the Manhattan average for those outside the high-paid sectors than the outer-borough average. And of course the pension, health insurance and time off benefits in the government are much, much richer.
When the high paid sectors are raking in the money, the tax base expands and so does the pay and benefits for government workers. In fact, the future pay and benefits of public sector workers, through pension enhancements, is increased in a way that could only be afforded, even given New York’s high tax rates, if those high-paid sectors continued to rake it in indefinitely. When the high-paid sectors contract, as they have since 2007, the public employees go after everyone else for the money they and the politicians have made deals for, in higher taxes and/or diminished public services. That is roughly where we are now. And out there in the rest of the world, there is a large consensus that New York’s high-paid sectors are a ripoff, and should be paid less in the future than they were in the past.
While it is not unusual for private sector payroll to fall in a recession, it is very unusual for private sector pay per employee to decrease. Generally companies lay people off rather than alienate the people they retain by cutting their pay, and usually there is some inflation. If there was 3.2% inflation, a typical amount in recent decades, then the real value of a worker’s pay could be cut 3.2% just by keeping their pay the same. But in this economy there is no inflation, and some believe we are threatened with a deflationary spiral as in the 1930s rather than an inflationary spiral as in the 1970s (I think we will get one or the other but I’m not sure which). Only the Construction sector showed the traditional pattern – employment and total payroll down, but average pay per worker up, as more experienced and higher paid workers were less likely to be laid off.
With no inflation, private employers couldn’t let the falling value of the dollar do their work for them. So they cut people’s pay and hours, over and above the cuts in the workforce. Or made them “freelancers,” calling them in to work on an as-needed basis, without benefits (not shown here). Or went with temps. Thus the 3.2% decrease in mean pay per employee. To avoid this painful process, esteemed economist Paul Krugman took the drastic step of recommending that central banks temporarily try to create some inflation, at 4 percent or so, to get us out of this. This would also serve to devalue the massive debts people have, if their interest rates were fixed. Remember the crushing tax burden and devastating cuts in New York City public services in the 1970s? They would have been worse if inflation had not devalued the debts and pension enrichments of the Lindsay/Beame years. Inflation, as much as the Municipal Assistance corporation and the 1982 to 2000 Wall Street boom, saved the city.
Because on the public sector side, wages and pensions do not go down if we have deflation and private sector wages and tax revenues are falling. They may stay the same, if the politicians drag out the contract process for years. Or they may rise, if arbitrators award raises. Pensions always rise ever since a 2000 pension deal awarded minimum a 1 percent cost of living increase even if the cost of living is not going up. Health insurance costs always rise, since contractual provisions guarantee whatever services the health care industry chooses to provide at whatever price they choose to charge, provided they all do it so it is “reasonable and customary.”
Under current rules, If the politicians choose to take on the unions on behalf of public service recipients, taxpayers or both, their only option is to not sign a new contract and allow cash wages to fall relative to inflation. The longer they hold out, the greater the decrease relative to the cost of living. But if there is no inflation, they can’t even do that. And according to a recent court decision, they can’t do furloughs. And as Governor Paterson seems to now understand, unions love layoffs, because with so much of the money going to retirees (and debts), and many of the employees in sinecures that can’t be touched, when you lay off in government you are laying off the people who are actually working. So a 10 percent layoff means a 20 percent decrease in work. You end up paying more for less, and the union members who lose their jobs are gone. Those who remain get de-motivated and do even less work each as a result of being short staffed, but they still get paid. The pensions still get paid. They have a contract, just like the traders at AIG, only their contract automatically renews indefinitely.
The decreases in the wel- being among those who are neither in the executive class nor the political class nor the senior citizens of Generation Greed have been ongoing, save for the peaks of booms, for decades. Even so, the recent decreases are unprecedented in nominal dollars, thanks to the absence of inflation to help disguise the blow. When arbitrators award 12 percent wage increases for government employees over three years, or unions object to 2 percent raises or no increases or furloughs, keep that in mind. If you charged them more where you work, they’d just go elsewhere for a better deal.