The great Loop job machine–financial markets and services–may need an overhaul.
One of the Chicago area’s top generators of economic growth has been sputtering and, according to a new study, faces threats from foreign competition, excessive regulation, an inadequately trained work force and fast-paced technological change.
Sponsored by the Civic Committee of the Commercial Club of Chicago, the 600-plus page report by the Risk Management Center of Chicago, is scheduled to be detailed at a City Hall press conference on Monday. The study, which took more than two years and several revisions to complete, updates and expands two Civic Committee reports in 1986 and 1987.
While the future of these related industries may not be secure, the report finds that the recent past has been good for them–and the city’s economy.
An advance copy of the report’s executive summary finds that “the trading community of commodities and securities businesses created jobs over the past decade at a 50 percent faster rate than did the Chicago area economy as a whole–13.9 percent growth versus 9 percent.”
Total direct industry employment–exchanges, traders, money managers, brokerage firms–was estimated at nearly 50,000, compared with 33,000 jobs a decade ago.
Driving the engine have been Chicago’s world-class exchanges. But in a troubling development, volume has slowed in the last couple of years as interest rates have stabilized. That has reduced uncertainty, volatility and customer orders for futures and options.
Through November, trading this year was down 3.4 percent at the Chicago Board Options Exchange and 3.1 percent at the Chicago Mercantile Exchange. While the Chicago Board of Trade reported a 5.6 percent advance, much of that came on a spurt in grain futures trading last spring and followed a decline of 4 percent in 1995 from a record 1994.
Still, gains in employment in Chicago’s trading and related industries “stand in stark contrast to the apparent contraction in employment, in step with nationwide trends, among the banking and insurance institutions in Chicago’s Loop business district,” the report said.
Regional employment in the banking sector grew about 10 percent, to 170,300 from 154,500 in 1986. The small gain masked steep reductions at money center banks because of mergers, however.
The gain “appears to result mainly from the growth in the number of back-office banking jobs outside the Loop area and of smaller banks in the surrounding suburbs,” the study said.
The added jobs in the financial sector support jobs in other industries, too.
Researchers at the Federal Reserve Bank of Chicago, using what was described as a unique database and econometric model, calculated total employment generated by the securities and commodities sector at 151,500, up 38 percent from estimates of 110,000 in the 1980s studies.
Those past reports generated controversy because they used a simple multiplier (3:1) of direct jobs to estimate total jobs.
In the new study, the Chicago Fed calculated an employment multiplier of 2.73 for the financial sector. That means that for every 100 jobs created by the expansion of trading in Chicago, 173 additional jobs outside the financial sector also were created.
Researchers listed engineering and management services, health services, retail trade and restaurants as the primary beneficiaries of a strong financial sector.
“The jobs created directly and indirectly by Chicago’s trading industry include jobs for thousands of graduates of the city’s high schools, a significant percentage of whom are minority students, as well as for college graduates and those with advanced degrees,” the report says.
According to the report, the proportion of minority employment in the Chicago-area financial-services industry is about 25 percent among men and 35 percent among women.
Similar to suggestions in the earlier reports, the new study recommends that programs be established to “work with area high schools and community colleges to enlarge the pool of potential employees who understand the financial industry.”
The financial community, the report says, needs workers qualified for “back-office and middle-office jobs in other areas that do not have the high-profile appeal of jobs in trading, management, sales research and financial engineering.”
The report also echoes previous complaints that Chicago’s exchanges are threatened by “unequal regulation of futures and options contracts traded on U.S. exchanges compared to similar products traded in major foreign capitals.”
The argument is that 95 percent of trading volume occurs between sophisticated financial institutions and market professionals who don’t require the regulatory protection of individual retail customers.
