Finance, insurance, and real estate: employment growth during 1982-87.
On October 19, 1987, the stock market had its largest 1day loss in history. The crash on "Black Monday" raised questions about the future strength of the finance, insurance, and real estate industries. Between late 1982 and 1987, rising real estate and financial markets made this group-often referred to as "financial services"-the source of 1.3 million new jobs.
Job growth among the principal components of the group has been uneven, however.' Increased competition brought on by deregulation in some industries affected both the extent and composition of employment growth. Indeed, in some areas there was little change in employment.
In December 1987, employment in the financial services was 6.6 million, up 24 percent from the end of 1982.2 Total nonfarm employment grew by 17 percent. Pronounced differences occurred within the major components of finance, insurance, and real estate, (See table 1.) Over the 5-year period, holding and investment companies, securities and commodities firms, nonbank credit agencies, insurance agencies, and real estate firms typically had much higher growth rates than insurance carriers and banks. (See table 2.) The last two industries, however, made up over half of the total employment in the finance, insurance, and real estate group in 1982.
The real estate and financial markets were the major forces behind the job gains in financial services. Falling interest rates and the start of the economic recovery in late 1982 led to sharp gains in housing sales and commercial real estate activity, directly boosting employment in real estate development and sales firms. Activity in real estate markets also raised employment in related industries, such as title insurance, savings and loan institutions, and mortgage banking. In addition, there was a massive refinancing of mortgages when interest rates fell in 1986. Reflecting these developments, employment in the relatively small mortgage banking industry more than doubled from late 1982 to 1987.
Over the 5-year period, the securities markets were buoyed by the economic recovery, lower interest rates, and a rash of corporate takeovers. Trading of stocks and bonds as well as of other financial instruments surged. Between September of 1982 and 1987, the value of stocks traded rose 221 percent. The development of worldwide financial markets, made possible by advances in telecommunications, also contributed to heightened financial activity and employment growth in the securities and investment industries.
While events in the real estate and financial markets accounted for the bulk of the employment growth in financial services, other factors shaped employment trends in some industries. The above-average job growth in medical and health insurance firms, for example, reflected the continuing rise in demand for health care and for new means of financing rapidly advancing health costs.
Increased competition also affected employment growth. Since the 1930's, many financial services had been tightly regulated. Regulations limited the interest rates that banks and savings and loans could pay, the types of loans they could make, and the geographic areas they could serve. At the same time, regulation provided institutions with profitable niches in the financial services market. Banks had been the sole source of demand deposits and the main source of commercial loans; savings and loans handied most mortgage financing; and securities firms and investment banks sold and underwrote stocks and bonds. Competition among the major financial service industries and even within industries was limited. Interest rate volatility altered this characteristic of the financial service market.
Rising interest rates during the mid-1970's increased the competition for funds among the components of the financial services industry. As there was an increase in the opportunity costs of money kept at banks and savings and loans, with their regulated below-market interest rates, individuals and businesses sought alternative places for their deposits. In response, the securities industry introduced money market mutual funds that offered checking service and market interest rates.' This development and the expansions into other financial services, such as commercial lending, contributed to the employment gains in the securities industry. Not all securities firms prospered in this climate of increased competition, however. There were signs, even before the "Black Monday" crash, that the increased competition was leading some firms to halt or reverse employment growth. The crash has halted, at least temporarily, the sharp employment growth in the securities industry.
Developments in computing and telecommunications equipment were also important catalysts to the expansion of competition in financial services. Many financial services traditionally provided by banks and insurance firms, such as cheeking and claims settlement, are costly tasks that require a large administrative work force. Advances in computers and telecommunications have enabled banks and insurance companies to keep up with the paperwork involved, while cutting their administrative support staff. However, the technology also allowed other financial institutions to economically offer services previously available only through banks and insurance companies. The technology even made feasible the opening of financial service centers in supermarkets and department stores.
Services like the money market fund placed securities firms in direct competition with banks, thrifts, and insurance companies. In response, banks and thrifts sought and received the right to offer competitive financial instruments and new financial services.' Savings and loans received the right to make consumer loans and offer checking accounts, in addition to their traditional mortgage lending. Many thrifts added branches and increased employment to expand their customer base. Banks and insurance companies also experimented with new services and products; however, market conditions forced them to restrict employment growth to hold down costs, Banks, for example, faced huge losses ftom their loans to developing countries. Banks limited branching and both they and insurance firms used technology to control the size of their administrative work forces.
Employment by occupation
What types of jobs has the growth in financial services created? Are they the low-skilled administrative positions popularly associated with these industries? Or are the new jobs concentrated in other occupations?
Employment in financial services has been concentrated in three occupational groups: the executive, administrative, and managerial category; the administrative support group; and the sales group. In 1987, these occupations accounted for about 9 of 10 jobs in the finance and insurance industries and for about 3 of 4 in real estate. In the period 1983 to 1987, the percent change in employment growth among these occupational groups was as follows:
Total Finance Insurance estate
Total.,........... 19.2 17.6 14.6 27.8
tive, and managerial . . 31.1 24.9 45.5 35.4
Sales... .. .. .. .. .. .. . .23.2 50.0 7.1 31.0
Administrative . . . . . . . .12.4 9.7 12.9 29.2
Other .................... 14.0 13.4 8.2 16.0
The proportion of administrative support workers declined in most financial service industries, while the proportion of managers rose. (See table 3.) An exception was the savings and loan industry, in which the proportion of managers declined and that of administrative support workers rose. This may have occurred as a result of the expansion by savings and loan associations into such services as cheeking that require a large administrative staff.
Employment gains among salesworkers in finance were concentrated in the securities industry, which was handling a growing volume of transactions as well as expanding product lines. The insurance industry, in contrast, limited the growth of its sales force to compete with the other institutions entering the field. Using their computer technology, banks and other firms marketed insurance through mass mailings. This method of selling offered significant savings over the large system of agents traditionally used by insurance companies. To compete, insurance firms had to limit the growth of their sales forces. The general shift in occupational employment away ftom administrative support to managerial and sales jobs is expected to continue through the year 2000.
Much of the change in employment in financial services occurred in a small number of specific occupations. (See table 4.) Administrative occupations such as secretaries and bank tellers contributed very little to the employment growth in financial services. In contrast, five occupations-real estate salesworkers, underwriters, securities and financial service sales workers, property and real estate managers, and investigators and adjusters, except insurance-accounted for half of the employment gains.
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|Publication:||Monthly Labor Review|
|Date:||Jul 1, 1988|
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