NYU prof Thomas Philippon and U-VA Prof Ariell Reshef have written a paper tracing the trajectory of wages in the American financial sector over the last century. Not surprisingly, financial-industry wages broke away from the rest of the economy starting in the early 1980s and continued their stratospheric relative increase through 2006.

Toward the end of the period, financial-industry wages actually reached pre-Depression peaks relative to the rest of the economy, explaining New York’s huge and unprecedented jump-ups in tax collections.

If the history in the paper is any guide, New York (city and state) will have to get used to sharply lower wages in its key industry, and thus sharply lower tax collections.

They nut graf of the paper from New York’s point of view, first flagged in Floyd Norris’s Times column, is as follows:

From 1909 to 1933, the financial sector was a high skill, high wage industry. A dramatic shift occurred in the 1930s: the financial sector rapidly lost its high human capital and its wage premium relative to the rest of the private sector. The decline continued at a more moderate pace from 1950 to 1980. By that time, wages in the financial sector were similar … to wages in the rest of the economy. From 1980 onward, another dramatic shift occurred. The financial sector became once again a high skill, high wage industry. Strikingly, by [2006,] relative wages and relative education levels went back almost exactly to their pre-1930s levels.

I have written of how New York benefited immensely from the financial sector’s trajectory starting in the early 80s (and, indeed, talked to Prof. Philippon as part of my research for the article). E.J. has written (with amazing charts) of how New York came to depend on the financial sector’s wages.

The key lesson for New York policymakers to take away from the paper is that the region may not see the likes of these financial-sector wages — and the tax revenues they threw off — for a half-century or more.

You may also like

Budget Deal Slows Medicaid Growth But Plants Seeds for Future Spending

The growth of New York's Medicaid spending is projected to slow but not stop as Governor Hochul and the Legislature effectively split their differences over health care in the newly enacted state budget. Read More

Albany Lawmakers Push a $4 Billion Tax on Health Insurance

Legislative leaders are proposing an additional $4 billion tax on health insurance plans in the upcoming state budget – but withholding specifics of how it would work. Read More

As migrants flow to NY, so does red ink 

The influx of foreign migrants to New York could cost the state $4.5 billion more than expected next year, Governor Hochul today warned.  Read More

At mid-year, NY still far below most states in pandemic jobs recovery

New York has added private-sector jobs in all but three of the 38 months since the COVID-19 outbreak of March 2020—but the Empire State remains below its pre-pandemic employment level and continues to trail the national recovery. On a seasonally adju Read More

The Bill Arrives: NY Faces $9B Budget Gap Next Year 

New York’s outyear budget gaps, the shortfall between planned state expenses and state tax receipts over the next three years, has exploded to more than $36 billion, just-released documents show.  Read More

NY school spending again led US, hitting all-time high in 2020-21

Public elementary and secondary school spending in New York rose to $26,571 per pupil in 2020-21, according to the latest Census Bureau data Read More

A Tale of Two Levies

New York school districts are getting record levels of state aid. But how many are using it to cut taxes? Read More

Albany’s Belated Budget Binge 

State lawmakers have begun passing the bills necessary to implement the state budget for the fiscal year that began April 1. Read More