New York City’s unemployment rate shot up to 9.7 percent through May 2012, despite adding thousands of jobs to the economy. The near one percent increase from May 2011 made the Big Apple the only major U.S. city to see joblessness increase over the year and gave it the second highest unemployment rate among big cities, according to the U.S. Bureau of Labor Statistics.
The unemployment increase alarmed political leaders in the city.
“Over-regulation and over-taxation have driven our small and mid-size businesses out—the net effect of these types of policies is not job creation, but job loss and the unemployment numbers speak to that,” said Councilman Dan Halloran (R., Queens). “The mayor is stuck working with a Council with 47 Democrats and only three Republicans and that has led to soaring taxes and fees on property [owners], commuters, and small business owners.”
The city had managed to avoid much of the pain caused by the recession since 2008, averaging lower unemployment rates than the rest of the country through 2011 and creating jobs at a nation-leading pace.
“Private sector payroll jobs grew by 78,900 [in 2012]—or 2.4 percent; that’s faster than the rate of the nation,” said Patrick Muncie of the city’s Economic Development Corporation. “That’s the most apt analysis to use … unemployment rates are not the best measure; they come from a much smaller sample.”
Job creation in NYC continues to outpace the 1.8 percent annual growth of the rest of the nation. The city has recovered 205 percent of the jobs lost during the recession, with sharp gains in the profitable technology, professional, and tourism sectors, according to Muncie. In May, the private sector added more than 15,000 jobs—about 25 percent of all jobs created nationally during the month.
But that was not enough to stem an uptick in unemployment.
“The job growth did not keep up with the expansion of the city workforce,” Muncie said.
May could mark the start of an economic slowdown in New York, according to several fiscal experts. The city had been able to sustain its economy better than most U.S. cities thanks in large part to the $700 billion bailout of the finance industry. The financial boost kicked the can further down the road for city lawmakers, who now face a $3 billion deficit for next year.
“New York got too dependent on Wall Street and financial sector jobs, and it shrank more slowly than it should have thanks to these bailouts,” Manhattan Institute scholar Nicole Gelinas said. “We never had to make any hard budgetary choices before because of Wall Street growth; now we’ll have to start.”
Even with the bailout, banks shed nearly 19,000 jobs since its 2007 peak, leaving average wages down nearly 5 percent since 2008, according to Gelinas. That could pose major problems for a city that has increased spending by about 8 percent during a time when tax revenues are down and banks continue to curb hiring and cut back on the bonuses that feed city coffers.
“Bloomberg programmed a lot of the city’s capital projects and big-ticket budget items on the Wall Street boom baseline,” financial risk analyst Chris Whalen said. “We’re downsizing the financial sector and I don’t know if the city is ready in a fiscal sense for a financial sector half of what it was.”
“The mayor has expended a great deal of political capital focusing on his personal agenda with sodas, cigarettes, and salt, rather than focusing on the basic needs of New Yorkers to find jobs,” he said. “He should have seen this coming and tried to make New York a welcoming place for business; New York is the financial capital of the world, which makes it especially sensitive to global issues.”
The pension and health-care benefits of city workers are high on the list of things to reform. The city spent $8 billion on benefits for retired workers last year—double the 2005 costs. Those costs are expected to explode as more Baby Boomers retire.
“When he first ran, the mayor promised that he was going to stand up to public sector unions, that he was going to tame them—we’re in year 11 of 12 years and he hasn’t done it,” Halloran said. “Pension reform is absolutely critical and we have not cut significantly enough.”
Bloomberg has stayed on the sidelines in the battle to control pension costs. Rather than tackle the city’s public employee pension problem head on, Bloomberg ceded the fight with labor unions to Democratic Gov. Andrew Cuomo. The end result was a watered down bill that cut benefits, and increased retirement ages for new public sector employees, but did nothing to address the city’s current crisis.
“I don’t think he ever paid very much attention to these benefits; it was never his focus,” Gelinas said. “The time to fix these things is when everything is going well.”
Bloomberg, whose term will come to an end in 2013, has left the city $84 billion short of fulfilling its obligation to retirees, according to the most recent estimates. That is about $15 billion higher than the city’s entire 2012 budget. The city will be forced to choose between service cuts and higher taxes in the future, as it pays increasing amounts to retired workers.
“If we’re spending $8 billion a year on pensions and $7 billion on employee healthcare, that’s $15 billion we can’t use for infrastructure or public safety or tax cuts or libraries and parks,” Gelinas said. “That will deteriorate the quality of life that attracts so many people to New York.”
Councilman Halloran, who backs pension reform, said Gelinas’s scenario is not far off.
“I’m not comfortable with the direction the city is headed; we’re going to have to cut vital services, in fact we already have: We haven’t hired a fire class in four years,” he said. “There’s not much you can do if you keep spending more than you’re taking in.”
Muncie said that the Bloomberg administration is proud of its job creation record and will continue to attract jobs to the city.
“The [job creation] numbers represent a positive sign for our economy, but we know that there are people unemployed who are hurting,” he said. “There is still a lot to do and we are continuing to work hard to put people back to work.”