NEW YORK (MainStreet) —Wall Street and Silicon Valley have become nearly synonymous in recent decades with strong hiring and luring employment prospects for the ambitious. But a series of structural – not cyclical – changes in the U.S. economy are making it less likely that tomorrow’s go-getters will be flocking to either of these meccas.
Why GDP Isn’t Telling The Full Story
Why employment hasn’t grown as robustly as expected during this recovery remains something of a mystery to many. GDP numbers – though not stellar – seem to reflect a moderate expansion which should result in greater job growth.
A large part of the reason may be the very size and efficiency of our financial and technology sectors. Relative to their overall GDP contributions, they employ fewer people than other industries, and that process is accelerating with every new technological advance and online platform. John Challenger, CEO of employment giant Challenger, Gray, and Christmas, agrees, citing this as a major force affecting our unemployment levels.
“It’s an important reason that doesn’t get cited often…as to why unemployment has remained so high four years after the recession ended,” he said.
Wall Street’s Malaise
Of course, there are also the reasons most of us are already familiar with – such as Wall Street’s consolidation post-financial crisis and Dodd-Frank. The separation of riskier proprietary trading from commercial banking operations may have significant systemic benefits, but with lower risk also comes lower growth. Challenger says the industry’s employment prospects will suffer.
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“There has been a definitive decision to make banking more like a utility – well-regulated and a stable, fundamental underpinning element of the economy," he said. "With Dodd-Frank, you take out risk, but you also reduce job growth and probably compensation in coming years.”
In fact, the financial sector was one of the worst-performing industries for employment during the recession, responsible for thousands of job losses. Many of those jobs won’t be coming back, either; the collapse of Lehman and Bear Stearns and industry consolidation have simply demonstrated the industry can make do with fewer workers.
In areas of the financial industry where growth is likely – such as prop trading and hedge funds – operations tend to be leaner and require fewer workers, anyhow. Worse, the exodus of surplus workers from the more traditional banking sector means overall financial industry wages are likely to be lower across the board for some time.
Silicon Valley’s Growth Recession
Silicon Valley hasn’t experienced any decline in employment, per se – but the rate of new job creation may decline. Start-ups, ironically, may be partly to blame: A Labor Department study showed that a new company opening its doors in 2011 hired only 4.7 workers, versus 7.6 in the 1990’s. This would be less of a problem if larger, more established companies continued hiring aggressively, but although the Valley has been largely spared the merciless lay-offs Wall Street endured, the impact of slower hiring due to technological improvements has been felt strongly here.
“The real issue is that e-companies don’t need as much man power as brick and mortar companies,” says Challenger.
Silicon Valley has another reason to worry: geographic diversification. More tech companies and start-ups are opening operations everywhere from Austin to Bangalore, reducing the emphasis on local hiring. This impacts industry salaries more than simple outsourcing, since Valley talent has historically commanded higher salaries than local pools of talent now developing in cheaper areas. It also diminishes the value of being located in Silicon Valley, itself, says Challenger.
“Silicon Valley and technology will continue to grow, but the centers of excellence are no longer as focused there as they have been in the past 20 years.”
Boston and Houston?
So, where will you find the next job?
“The most obvious engine of growth will be healthcare, for all sorts of reasons, including the baby boomers…this industry just kept creating jobs during the recession, and will continue growing," Challenger said. "Energy, too, will be a big player for some time to come. Cities like Boston and Houston will benefit.”
If you’re not a doctor or oil trader, don’t worry. He also sees an overall uptick in the professional services sector (such as accountants and consultants), meaning major cities like New York, Chicago and Atlanta will gain net jobs.
And don’t take stories of Wall Street or Silicon Valley’s demise too seriously, either. While in the short to medium term they’re unlikely to generate as many jobs as during their peak, they nonetheless remain epicenters of their respective industries. When – not if – boom times return, expect their jobs to follow suit.