Unemployment Cloud Darkens Over New York

NEW YORK —  By all accounts, New York City’s economy is booming.

From the corner of 20th Street and 6th Avenue in Manhattan, for example, the signs of prosperity radiate in all directions: restaurants crowded with lunchtime diners, apartment buildings newly renovated in response to a soaring demand for upscale housing, trucks parked with deliveries for bustling stores.

Yet on the south side of 20th Street, a crowd of a different sort has lined up just inside a nondescript first-floor office. It is the state unemployment bureau, and the traffic is heavy.

Unemployment lines are increasingly difficult to find elsewhere in the country, but New York boasts a singular distinction: Only here has the unemployment rate--9.5% in the city and 8.5% in the broader metropolitan region--actually risen in the past year.

The comparison with Los Angeles is particularly striking. Through much of the early 1990s, the nation’s two largest economies served as deep wells of surplus labor, each exporting roughly a million and a half people to more prosperous regions of the country.

As recently as the spring of 1995, unemployment rates in Los Angeles were higher than in New York. But for the past two years, while jobless rates in Los Angeles have moved steadily downward, New York’s have stayed high, defying gravity during the boom times that have spread outward from Wall Street.

The New York experience is “unique,” said Mark Zandi of Regional Financial Associates, an economic analysis firm based in West Chester, Pa. New York “is the only large area with significant slack in its labor market.”

“New York is actually growing pretty well right now . . . by its own standard,” added David Hensley, an economist at Salomon Brothers here. “And that’s rather sad because you have to say, ‘If this is the best New York can do, what’s going to happen when Wall Street isn’t booming?’ ”

Most New Yorkers seem untroubled. Times are unusually good for the large majority who have jobs. Average incomes have grown sharply over the past year. Opinion surveys--and the near-certain reelection of the city’s Republican mayor, Rudolph W. Giuliani--indicate that city residents much prefer to focus on those happier facts than on unemployment rates.

At least some economists share that sunny view.

The reason for the current high rate of unemployment “is pretty straightforward,” said Stephen Kagann, chief economist to New York’s Republican Gov. George Pataki.

“We do have job growth, which is a serious turnaround compared with a few years ago,” he said. Since the beginning of 1996, when employment in the city finally began to grow steadily, the metropolitan economy has produced 126,000 jobs. That represents an annual growth rate of more than 2%, New York’s highest since before the stock market crash of 1987 and enough jobs to replace about half those that were lost in the recession of 1991-92.

Unemployment seems to be rising, Kagann contends, only because the good economic news has brought a large number of people into the work force who had previously given up looking for jobs and therefore were not part of the unemployment statistics. The jobless rate will fall back down, he predicts, because the labor force’s rapid growth cannot be sustained for long.

Others, however, aren’t so sure. New York has traditionally offered a large array of social-benefit programs, they argue, and so it has an exceptionally large number of people of working age who have dropped out of the work force.

In 1995, according to federal statistics, the New York area had a lower percentage of adults actually working or looking for work than any major metropolitan area in the country--even lower than Florida retirement havens, such as Tampa-St. Petersburg and Miami.

The percentage of New Yorkers who are in the work force has increased a bit in the past two years, but it is still far below the national average. That means New York still has tens of thousands of people who are not yet looking for work. If those people are either pushed or pulled into joining the job hunt, the unemployment rate could continue to rise.

One strong push could come from welfare reform. So far, New York has lagged behind many other states in forcing people off welfare rolls.

“We’re just starting in New York to push a huge number of women on welfare into the labor force,” said Bennett Harrison, professor of political economy at the New School for Social Research in New York. “It’s a sober and serious forecast if this is the best we can do in a growing economy.”

Rae Rosen, senior economist at the Federal Reserve Bank of New York, regards New York as “a mature, industrial economy” that has limited capacity for quick job growth. With welfare reform starting, “over the longer term, there’s going to be immense pressure on the city and the state” to find ways to give workers the skills they will need to find jobs.

The mismatch between the skills of those who are unemployed and those needed by employers may be worse in New York than elsewhere in the country.

“We keep creating jobs at the sophisticated end of the labor market, which is already tight, but not for less sophisticated jobs,” said John Tepper Marlin, economic advisor to New York City Comptroller Alan G. Hevesi.

In particular, the small manufacturing businesses, many using immigrant labor, that have provided large numbers of entry-level jobs in Los Angeles and have helped fuel the regional recovery remain notably less common in New York.

“Los Angeles is a more diversified economy, more a microcosm of the U.S.,” said Hensley, a former head of the UCLA-Anderson business forecasting project. By contrast, he said, New York “has a collection of old-time titan industries--financial services, law, advertising--that it used to have a monopoly on. But in every case, that monopoly is eroding.”

Zandi argues that businesses that are having trouble finding enough workers elsewhere in the country could now begin moving to New York. But, he notes, some major hurdles remain before that can happen--most notably cost. While the costs of doing business in Los Angeles are about 10% above the national average, his firm calculates, costs in New York run 29% above average.

The largest piece of the cost difference is taxes, which are 80% above the national average for businesses, Zandi said.

Although Pataki has pushed through some major state tax cuts in the past two years, city taxes, particularly on businesses, remain high. “We have 22 city taxes on business and 22 state taxes,” Marlin said.

In addition, said Marc M. Goloven, senior regional economist with Chase Manhattan Corp., even though New York is “the world’s financial capital,” start-up businesses in the city have had difficulty attracting venture capital.

New York also suffers from a history of heavy reliance on government jobs, Harrison said.

Government “is the aerospace of New York,” he said. Just as cutbacks in the defense business dealt a heavy blow to Southern California, reductions in the size of government have had a heavy effect in New York.

Government employment at all levels in New York has fallen by 68,000 jobs since the peak year of 1989, with the heaviest cuts coming in the city’s own vast bureaucracy. Although the cutbacks have slowed, government shed 3,000 more jobs in New York in the past year, most of them clerical, janitorial and other low-wage, low-skill slots.

Other economists, noting that New York has been shedding manufacturing jobs for decades, question whether the “skills gap” is really worse now than in the past.

But back at the unemployment office, at least one job seeker thinks he knows which way the wind is blowing. In his four years in the United States, Evarton Manning, a 39-year-old Jamaican immigrant, has worked as a stock clerk in a food store, a runner at a clothing store and a hauler for a waste removal company.

“I’ve worked for three firms--no real success,” he said. Having just lost his most recent job, he now wants to try a different tack.

“I want to go to college. I’m hoping to use my benefits to pay the bills until I get a loan. If you don’t have the skills, there’s no way of being assured of getting a job.”

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Job Trends

Job growth in New York has not been fast enough to keep pace with the number of people entering the labor force. Los Angeles, meanwhile, is producing more jobs.

Sources: Bureau of Labor Statistics