The influence of the superrich on job creation is similarly fuzzy. “Any hard number on that is surely premature and almost surely something like fiction,” says Edward Glaeser, an economist who runs the Taubman Center for State and Local Government at Harvard. But here’s a stab at it. One way is to look at service jobs. Rich people tend to spend tons of money on services—decorators, art dealers, accountants, personal trainers, etc., and New York is just a more highly concentrated version of the U.S. economy, a service economy on steroids.
Ken Goldstein, a labor economist at the Conference Board, notes that, crudely speaking, $200,000 in spending on services creates or sustains a job paying $50,000—the rest is eaten up in overhead, benefits, taxes, and profits. But industries also have what are known as multiplier effects. A law firm that takes in $200,000 in revenues may pay out $50,000 in wages, but will also spend money on other services—meals and couriers, accountants and entertainment. When employees spend their own wages, they also stimulate economic activity. Figures provided by Mark Zandi of Economy.com suggest that in New York, the multiplier for financial-service jobs is 4.1. In other words, $200,000 in spending can effectively create 5.1 jobs.
Let’s say that the number of New Yorkers with more than $500,000 in adjusted gross income has risen to about 30,000, which is surely conservative. If, on average, each of these folks spends $200,000 a year on services locally (remember, the $500,000 is a floor, not an average), then the top 1 percent of earners supports about 153,000 service jobs. One hedge-fund manager who spends $1 million annually on services—a driver and house staff, investment management and real-estate brokers, restaurants and psychotherapists—probably sustains 25 livelihoods.
Even the public sector owes a lot to the superrich. About 1 percent of New York City filers in 2000 paid enough city taxes ($2.338 billion) to support the wages of roughly 50,000 government employees.
Perhaps the most important job sector in Manhattan is financial services, which is both the city’s primary generator of wealth and the biggest beneficiary of the presence of wealth. Wall Street accounts for 9 percent of the jobs in the city and an outsize 25 percent of the wages (31 percent of Manhattan’s). In 2004, to take one example, Goldman Sachs paid $110 million in bonuses to its five most highly compensated executive officers. Below the boldface names are thousands of managing directors, executive vice-presidents, and partners at law firms and private-equity firms who are quietly making tons of money. When UBS recently bought newspaper advertisements listing the 309 new managing directors—mostly bankers in London and New York—it was the only time most of them will ever appear in the Wall Street Journal.
The top 1 percent of earners in New York support about 153,000 service jobs.
The dual concentration of wealthy people and financial institutions makes New York a center of money management, one of the few high-paying sectors in which the U.S. is a successful exporter. According to Mayer and Hoffman Capital Advisors, 20 percent of the $1 trillion invested in hedge funds worldwide is in New York City. That’s $200 billion divided up between 450 or so hedge funds, ranging from giant complexes like Leon Cooperman’s $3.5 billion Omega Advisors to smaller shops like Mayer and Hoffman, an eleven-person “fund of funds” that has raised about $100 million thus far from wealthy individuals. “This is the center of the financial world, so hedge-fund managers who operate out of London, Asia, and South America come to New York to meet with prospective investors,” says partner Sam Kirschner.
Before getting into money management, Kirschner was a clinical psychologist. Which highlights another feature unique to Manhattan’s economy. An entrepreneurial class has arisen to service small numbers of wealthy clients. An art dealer can prosper by holding the hands of a few free-spending clients, and an SAT tutor who has penetrated the high-end market can get away with charging $500 per hour. In the ashes of the dot-com crash, Manhattan has a new start-up craze—in microenterprises that cater to the picayune needs and whims of the super-wealthy, from a $26-an-hour cat-sitting concern to a $2,000-a-day concierge service.
More conventional service professions are prospering, too. A number of jobs that pay middle-class wages in virtually any other region are six figures here. Dick Grasso made headlines again recently when it was revealed that his secretary at the New York Stock Exchange earned $240,000 a year, while his two drivers took home $130,000 each. Those with incomes like Grasso’s were not surprised—they pay their professional and domestic help similar wages. At a big-name hedge fund, the directors recently sent their shoeshine man off to retirement with a $1 million bonus. What was it to them?
The traditional view is that jobs like waiting tables are transitional and therefore pay modest wages. But in that same four-star restaurant where the sommelier makes $90,000, the maître d’ easily cracks six figures, and the bartender and most of the wait staff are not far off. Even the busboy may clear $50,000. Wolfgang Zwiener, a German immigrant, spent 40 years as a waiter at Peter Luger, earning enough to put his sons through the University of Chicago, Columbia, and the Wharton School. And last year, Zwiener, along with his sons, opened Wolfgang’s Steakhouse, a high-end Luger knockoff on Park Avenue and 33rd Street. No doubt the waiters there, and possibly the busboys too, are saving up for places of their own.