Posts filed under “Earnings”
Is NYC a Microcosm of the U.S.?
I would never had thought so. Manhattan is totally unlike the rest of the nation. I always loved paraphrasing a great line from Spaulding Gray’s Swimming to Cambodia, which pointed out Manhattan’s almost foreign nation status relative to the rest of the country:
Q: Do you live in the United States?
A: No, I live on a small island off the East Coast of America."
But in a surprising twist, a recent front page column in the NYT raises an interesting and unexpected parallel: It turns out the wealth dichotomy in the U.S. between the Haves and the Have Nots (or more accurately, the Have Less) is surprisingly similar to those of Manhattanites versus the outer boroughs:
New data compiled by the federal government suggests that New
Yorkers who work outside Manhattan are being increasingly squeezed by
inflation and slow wage growth – the bookends of economic struggle. And
while inflation may vary somewhat from borough to borough, economists
say that those variations do not affect the overall trend.
The Consumer Price Index rose 24 percent from 1996 to 2005
nationwide but grew 27.6 percent in every borough of New York. In the
last three years, New Yorkers saw fuel prices rise 27 percent, while
they grew 19 percent nationwide. And while the housing prices rose 8.4
percent nationwide, they went up 14.7 percent in New York. At the same
time, benefits have decreased in many professions.
While Manhattan workers were not impervious to inflation, their
wages helped shield its blow. Indeed, the number of families in
Manhattan earning more than $200,000 a year rose almost 20 percent from
2002 to 2004 alone, according to the Federal Bureau of Labor Statistics.
In other words, the borough of New York County is very much is like the rest of the nation — assuming you compare it only with the top 1% of earners nationally.
Consider: The real estate wealth, the limited access to exclusive events, museums, restaurants, shows. Manhattan turns out to be exactly like a cross section the country — just limit your gaze to the very most expensive parts.
Meanwhile, people in the outer boroughs are struggling to keep up. Here’s a phrase I never thought I would ever hear: "Priced out of Brooklyn." While we’ve heard similar phrases referring to other regions, where once sleepy bedroom communities see a big real estate price rise as higher paid urban professionals outbid the locals for homes in convenient commuter towns. In the NY area, its not just Great Neck and Manhasset and New Rochelle and Scarsdale — its been happening in Brooklyn, lower Harlem and Queens. The Bronx may very well be next.
Why? Personal Income gains for the rest of NYC — Queens, Bronx, Brooklyn and Staten Island — are actually failing to keep
up with inflation. This has also been happening nationally for the past 5 years.
Indeed, there’s no reason to assume the middle and blue collar classes in Queens and the Bronx should be any different than comparable workers in the rest of the nation. Energy prices have skyrocketed, as have housing costs, transportation, medical care, education costs, health insurance, and even food. Just because outer borough residents work for wealthy law firms, investment banks, brokerages, advertising agencies, publishers and media companies does not insulate them from the same inflationary forces that are affecting the rest of the country.
What was it exactly that the Times had to say about Manhattan versus the outer boroughs?
"As the pay and purchasing power of Manhattan residents have moved higher and higher, incomes in all four of the boroughs outside Manhattan have trailed inflation over the last few years, in a stark example of the increasing income disparity in New York City. In terms of wages, Manhattan families are doing better on average than those in the rest of the nation, while families in the four other boroughs are doing worse.
In Manhattan, real wages – earnings adjusted for inflation – rose 5.4 percent between the first quarters of 2002 and 2005, led by the finance and information industries, while the national average was flat.
Soaring year-end bonuses seemed to play a major role in the Manhattan increase. Economists generally look on first-quarter results as providing the best indicators of trends. But in the rest of the city, those wages fell at least 2.9 percent, according to the Bureau of Labor Statistics. The drop was biggest on Staten Island at 8.3 percent, although that figure may be more volatile because that borough has the smallest population in New York City.
Real wages are one of the best indicators of how people are doing financially. Driving the buying power of these wages down, it appears, is inflation. There is also an absence of serious upward pressure on wages in most industries, especially those that employ the lowest earners. The number of both high- and low-wage jobs has grown, but there is little mobility between the two."
The economics of this is no surprise — recall
we previously looked at the The Disconnect and Economic Classes several times last year. What is intriguing is the newfound interest in the declining middle class in the mainstream media. Over at Slate, Dan Gross has done a few pieces on The Cram Down Decade. Then this weeks NYT article. But the very last place I would have imagined this phenomena to be discussed is the Op/Ed pages of the WSJ. Yet the same day the Times piece was out, Robert Rubin, former U.S. Treasury Secretary (1995 – 99), and a present director of Citigroup, made a cogent analysis on why this is bad for the nation’s economic health:
"The seeming inertial tendency of our economy toward less and less broad-based participation is startling and too little discussed. Median real wages, household incomes and family incomes have increased relatively little over the last 30 years, except during the last five years of the ’90s. Thus, a study showed that in 1979 it took 44 people with average earnings in the bottom half of the population to equal each person in the top 0.1 of 1%, while in 2001, the last year in that study, that number was 160. Our economy is not working for too many of our people, and that is a problem for all of us."
Of course, the editors at the Journal editorial page managed to omit Rubin’s commentary from the public OpEd online page. But that omission only points the fact that 1) Rubin hit a nerve and B) Idealogues are rarely comfortable with contra-arguments. (Is it any surprise that many reporters at what is arguably the finest newspaper in America are actually embarrassed at the rhetorical excesses published at its Op Ed page?)
Expect to see this issue gaining more traction in the mainstrream media as wages stagnate and inflation remains an issue . . .
UPDATE January 27, 2006, 10:50 am
Two related articles in the NYT today:
Income Gap in New York Is Called Nation’s Highest
Even as Homes Soar in Value, Some Will See Tax Bill Slashed
As Manhattan Booms, Inflation Squeezes Rest of New York
NYT, January 25, 2006
‘We Must Change Policy Direction’
ROBERT E. RUBIN
WSJ, January 24, 2006; Page A20
As promised, today brings us to the 4th in our series of charts: P/E vs S&P500 click for larger chart courtesy of Mike Panzner, Rabo Securities > I’ll get into the significance of what this means to the markets later, but for now, note where the P/E is over the median, and its impact on…Read More