If you live in New York City, some economists suggest that you should be grateful for the great bank bailout of 2009. But although the bailout has led to record profits in the financial industry and $20.3 billion in bonus payments for investment bankers, it is far from certain that this flood of bonus payments will trickle down to everyday New Yorkers still struggling from the effects of the worst recession since World War II.
"The gathering consensus is that the recession is nearly over in the city and, largely because of the enormous amount of federal aid poured into the big banks, the toll on New York will be much less severe than most had feared."
The federal bailout of the country's major financial institutions, many of whom are based in the city's Financial District, resulted in fewer job losses in the financial sector which, in turn, has led to higher income tax revenue as big bonuses once again flooded the bank accounts of the city's investment bankers.
Analysts expected the city to lose 60,000-70,000 financial sector jobs. Actual job losses have been much lower: about 30,000 financial sector jobs have been lost since November of 2007.
A week ago, the Times reported that Wall Street bonuses were back in a big way, with an estimated $20.3 billion in annual bonuses awarded in New York City in 2009. These bonuses have a direct impact on the amount of tax revenue collected by the city and the state. Bonus payments increased 17 percent over the amount paid out in 2008, which resulted in an extra $600 million in tax revenue for the state and $75 million for the city.
A Wall Street compensation consultant, Alan Johnson had this to say about the bonus payments: "For the city of New York and the state, this is good news."
The city and the state really need any additional tax revenue they can get. The state is facing a $9 billion budget deficit while New York City must plug a $4.9 billion hole. Without this additional tax revenue the city and state would be looking at even deeper cuts to services.
But are the outrageous bonuses paid to financial sector employees really a good thing for the 95 percent of New York City workers that aren't employed by the big banks? Another story in today's New York Times can answer that question.
"About one in five working families [in New York City] failed to earn enough to escape poverty."
I think that the news of $20 billion in Wall Street bonuses would be of little consolation to the city's working families that don't earn enough to make ends meet despite working 40 hours a week. One in three workers in New York City make less than $24,000 a year. At the same time, the average taxable bonus on Wall Street rose to $124,000. Trickle, trickle.
Others claim that job creation on Wall Street is good for the rest of the city because of "the widely accepted idea that each job on Wall Street supports two others in and around the city."
This idea comes from the New York State Comptroller's office. But the majority of these jobs are low-paying service sector jobs, not the type of jobs that can support a family. For example, the city will add 22,000 cashier jobs and 32,000 retail salesperson jobs to the economy over the next seven years, but these jobs pay paltry wages, between $17,000 and $22,000 a year on average. Extraordinary Wall Street bonuses do not result in the type of job growth that is healthy for the city's economy.
There isn't much that New York City can do to change Wall Street's wage structure. However, those excusing extravagant bonuses on the grounds that they are good for the city aren't looking at the whole picture. Sure, the tax revenue is good. But the hourglass-shaped economy -- in which the city has a large number of high-paying jobs on one end, a large number of poverty-wage jobs on the other, and few jobs in between -- is ultimately unsustainable. For the working poor that cannot climb their way out of poverty, this lesson is brought home every day.