Core weakness
As new jobs in finance dry up, New York City’s fiscal model is wilting
High taxes irk the rich and high prices plague everyone else
Skyline of New York City on a gloomy day./ Photograph: Benedict EvansAT 270 PARK avenue in midtown Manhattan, employees have moved into the immense new headquarters of JPMorgan Chase.
The building boasts 2.5m square feet of office space and is almost 1,400 feet tall—more or less the same as the Empire State Building a mile to the south.
Measuring an entire city block across, and built by a bank whose market capitalisation is climbing towards $1trn, the building gives the impression of unshakable dominion.
For more than two centuries New York City has been a behemoth of trading, banking and money-management and an imposing gateway to capital markets for America and the world.
But below the towering spires, the city is losing its swagger.
Whereas many parts of the world that once hosted humming factories gripe about deindustrialisation, New York faces a different challenge: call it “definancialisation”.
Its grip on America’s finance industry, and its high-paying jobs, has weakened, and it is also losing its allure for the ultra-rich.
That poses a threat to New York City’s generous municipal welfare system, which is funded by milking the financiers using some of the highest local taxes in America.
The ultra-rich and the finance industry are on a collision course with the city’s likely next mayor, cheery left-winger Zohran Mamdani, who hopes to supercharge the city’s tax-and-spend model, soaking businesses and the rich to pay for new social programmes.
The share of New York City’s workers employed in finance and insurance has been in decline for years, falling from 11.5% in 1990 to 7.7% in August (see chart 1).
Of the 233,000 jobs in the industry created in America over the past five years, the state of New York secured only around 19,000, behind Texas, Florida, North Carolina and Georgia.
JPMorgan, its vast new skyscraper notwithstanding, employs more people in Texas than New York.
Start spreading the blues
Why is the city’s financial pre-eminence slipping?
Kathryn Wylde, head of the Partnership for New York City, an influential business group, blames a double-whammy of high costs and heavy taxes.
New York state’s corporate income tax, at 7.25%, is not especially burdensome.
But the city, unusually, piles its own corporate income tax on top, as well as a levy for the regional transport network, leaving some local businesses paying more than 18% in local taxes alone.
Another burden comes from exacting local regulations on hiring, such as rules that prevent firms using AI tools without an independent audit on their bias, or those that stop employers asking potential employees about their criminal or salary history.
The result is that financial firms can cut costs dramatically by shifting work to cheaper places.
Goldman Sachs has nudged managers to move to Dallas and Salt Lake City.
As of last year, Morgan Stanley is the largest employer in Alpharetta, Georgia, a distant suburb of Atlanta.
In July Citigroup announced that it will expand its operations in Charlotte, North Carolina, hiring 510 people with an average salary of around $132,000, almost twice the state’s median household income.
The shift at the corporate level is possible only because educated workers have been gravitating elsewhere, too.
Between 2010 and 2024 the number of people with at least a bachelor’s degree living in the New York metropolitan area rose by 32%, to 3.6m—by far the greatest concentration of skilled workers in America.
But the overall number of Americans with a degree rose by 44% over the same period, meaning that their ranks have been swelling much faster in other cities.
In Miami and Dallas the number of graduates has risen by more than 60%.
In Charlotte and Austin, Texas, the number has more than doubled.
Employers can find the workers they need in many more places.
Workers have good reason to shun New York, too.
They also face high taxes and other costs.
According to Bankrate, a price comparison website, the average cost of the most basic car insurance in New York is $1,729 a year, about $400 more than in the next-highest state.
The average annual cost of a spot at a nursery in the city rose to $26,000 in 2024, a figure that has leapt by 43% since 2019.
More than anything else, the sky-high cost of housing is a burden on both employers and employees alike.
The median monthly rent for an apartment in New York City is around $3,600 according to Realtor.com, a property-listings website, more than twice the average of around $1,700 in America’s 50 largest cities.
For the very richest, a change to federal tax laws in 2017 has been particularly important in driving people away from New York.
Until then, taxpayers could deduct state and local taxes (SALT) from their income when calculating their federal tax bill.
The Tax Cuts and Jobs Act passed during Donald Trump’s first term as president capped this deduction at $10,000.
That constituted a big increase in taxes for high-earners in places with high local taxes.
Longing to stray
Paul Singer and Carl Icahn, respectively the founders of Elliott Management and Icahn Enterprises, both big investment firms, are among the ultra-wealthy New Yorkers who have decamped to Florida.
Mr Trump himself relocated there in 2019.
According to the Citizens Budget Commission, a think-tank, New York state’s share of American taxpayers reporting more than $1m in income declined from 12.7% in 2010 to 8.7% in 2022.
Such people paid $34bn in income tax to the state and city in 2022, a figure that would have been $13bn higher if New York’s share of millionaires had held up.
Estimates from Goldman Sachs suggest that fully 10% of households in New York City with incomes of more than $10m established residency elsewhere between 2018 and 2023.
As the ultra-rich have headed for the exit, the city’s employment growth has become concentrated in much worse-paid industries than finance.
Since the end of 2019, New York has added more than 268,000 jobs in health care and social assistance, particularly home health care.
Employment as a whole rose by just 220,000 over the same period, meaning that, if it was not for that industry, overall employment would have shrunk.
The shift is visible in pay packets.
Wage growth accelerated in most of America in the aftermath of the covid-19 pandemic, as inflation surged and a tight labour market allowed workers to extract more from their employers.
Not so in the country’s biggest city.
Whereas hourly wages in the private sector have risen by around 3% across the country since January 2020, after accounting for inflation, they have dropped by around 9% in New York City (see chart 2).
No wonder Mr Mamdani’s campaign platform, which focuses on the cost of living, has resonated so widely.
Optimists see a ray of hope in jobs in tech.
Employment in the industry in New York City rose by 64% between 2014 and 2024, according to the Centre for an Urban Future, a local think-tank.
Alphabet, which owns Google, opened a campus on the Hudson river in 2022.
Last year OpenAI and Anthropic, two big artificial-intelligence firms, opened offices in the city, too.
It’s been waiting for you / Photograph: Pete Kiehart/Redux/EyevineEven after the city government’s efforts to persuade Amazon to move its headquarters to New York collapsed in 2019 under local opposition, the e-commerce giant has quietly expanded in the city.
In 2023 it opened an office for 2,000 employees in Manhattan.
In April it leased another 330,000 square feet nearby, taking over offices once occupied by HSBC—a symbolic handover from finance to tech.
But the tech industry cannot compensate entirely for the dearth of new jobs in finance.
As of August, New York City hosted 84,000 employees in computer-systems design and related services, the group which includes well-paid software developers.
That is less than a quarter of the 383,000 employed in finance and insurance.
What’s more, the industry and its employees face many of the same disincentives to expand in New York, including high taxes and a daunting cost of living.
For the city’s government, a leaner finance industry, a smaller slice of the ultra-rich and a growing share of the population in low-wage work are big problems.
No state spends more per person on welfare and education.
New York shelled out $9,761 a head on the two in 2022, 72% more than Texas and 130% more than Florida (see chart 3).
Daniel Wortel-London, a professor of history at Bard College and author of “The Menace of Prosperity”, a recent book about New York’s fiscal history, notes that the rise of the city’s welfare state has been bound up with “elite-driven growth”.
Politicians have promoted the expansion of the highest-paying businesses to benefit from the tax revenue the firms and their employees generate.
The most expensive part of Mr Mamdani’s platform is his plan to spend as much as $6bn a year to provide New Yorkers with free child care.
Even for some of the city’s well-paid finance workers, the idea sounds appealing.
Mr Mamdani hopes to pay for this by getting the state government to raise New York’s corporate tax rate to 11.5%, bringing it to the same level as neighbouring New Jersey, and by levying an additional 2% income tax on those with incomes of over $1m.
Although New York’s profligate legislature might embrace this idea, Kathy Hochul, the governor, would have to sign off on any tax rises, too, and she has repeatedly said she will not allow them.
For the very wealthy and for businesses, the additional tax would simply strengthen the case for decamping to Fort Lauderdale or Dallas.
The fewer well-paid jobs there are, the more painful the city’s housing costs will become.
Complaints about ruinous rents in New York City are hardly new.
But across the income distribution, housing is becoming a more pressing issue, both politically and economically.
Big town blues
For poorer New Yorkers, rent swallows up an ever-expanding proportion of their already constricted salaries.
Over the past 20 years the amount of rent paid by low-income New Yorkers has climbed steadily.
According to the city housing and vacancy survey, conducted every three years, households earning less than $70,000 (roughly the median for tenants) spent 54% of their incomes on rent.
Among households earning the equivalent of $70,000 in 1991, rent accounted for less than 40% of their income.
The cost of housing is a headache for better-paid workers, too.
According to The Economist’s Carrie Bradshaw index, named for the protagonist of “Sex and the City”, a television show set in the posh bars and expensive shoe stores of New York, locals would have had to earn $151,600 to be able to afford (ie, spend no more than 30% of their gross income on) the rent on a studio apartment in 2024.
That is 50% higher than pricey cities like Boston and San Francisco.
The Centre for an Urban Future, which published a bullish report on the prospects for the tech industry in the city, notes that the daunting cost of housing is the biggest constraint on its expansion.
NYC skyscraper against a dark red sky. / Photograph: Benedict EvansRecently, there has been some good news about New York’s housing squeeze.
In December the city council approved the “City of Yes” amendments to zoning laws, which make it easier to convert offices into housing, loosen parking requirements for some new developments and allow taller buildings in less dense areas near public transport.
The liberalisation may be the most positive outcome of the scandal-ridden tenure of Eric Adams, the current mayor.
Last year 34,000 new apartments were built in the city, the highest number in 60 years.
Developers were chasing an expiring tax relief when they rushed to complete projects, however.
The performance is unlikely to be repeated this year.
Mr Mamdani’s most notable policy on housing is to freeze rents for the roughly 1m “rent-stabilised” apartments across the city.
That would be a boon to the millions of New Yorkers fortunate enough to live in such homes, but it would not help the remainder of the city’s residents.
Landlords who own both rent-stabilised apartments and ones rented at market rates would probably raise bills where they could, driving up costs for those already paying higher rent on the open market.
With their incomes frozen, landlords would also drag their feet about maintaining rental properties.
Developers and investors gripe that a freeze would discourage construction, too, since new buildings must include some rent-stabilised apartments to receive property-tax exemptions.
Mr Mamdani supported the “City of Yes” amendments and says that he wants 200,000 rent-stabilised apartments to be built over the next ten years, triple the current rate of construction.
Some of the city’s YIMBYs (“yes, in my back yard”) are excited by promises to fast-track projects that include lots of rent-stabilised units.
In a recent debate among candidates, Mr Mamdani said he wanted to make it easier to build apartments with free-market rents, too, by cutting red tape for all developers.
Whether Mr Mamdani’s housing policy ends up including enough liberalisation to offset its socialist kludge remains to be seen.
But nothing would do more to improve the economic circumstances of most New Yorkers than a dramatic expansion of the supply of housing.
Without a resurgence in high-paying jobs and a big jump in the number of homes in which workers of all incomes can live, New York will become a more economically ordinary American city—albeit one with extraordinary housing costs and a generous welfare system that its politicians wish only to expand.
Worse still, the dimming of the city’s pre-eminence in finance comes at a time when markets are booming, banks are in rude health and unemployment is low.
What might happen if America’s economy were to slow and the banking industry fall on hard times?
As Ms Wylde says with resignation, “I’m afraid we’re going to find out.”
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