An article in this week’s Economist Magazine argues that New York is losing its share of financial workers—a sign, they argue, that the city has lost its way, becoming entangled in bureaucracy, high taxes, and overregulation, which has pushed businesses and the wealthy to other cities.
In our view, The Economist is only partially correct about what’s happening (New York losing finance jobs), and mostly incorrect about the cause.
First, it’s not just New York—the trend is much broader. Consider figure 1 below, where we compare the pace of labor force growth in major cities between two decade-long periods: 2005-15 and 2015-25.
In the latter period, New York grew more slowly, but so did many other historic—and historically expensive—cities: Chicago, Baltimore, Washington, and San Francisco all added workers at a slower pace. Meanwhile, Sunbelt cities like Phoenix, Dallas, and Orlando accelerated.
Change in worker growth
Second, as the map shows, it’s not just about finance. Across all industries, New York added workers at a much slower pace in the decade to 2025 than in the prior one.
Third, The Economist pins high costs in New York entirely in the policy realm: “its fealty to public unions, overregulation, a costly and expensive bureaucracy, and expensive litigation”—but none of these are the main cause of the city’s high costs.
In fact, the main cause isn’t nearly as sinister: it’s that the city is very productive. Agglomerations of highly productive firms and workers naturally raise costs. Dense cities full of human capital are a boon for firms, and historically, there was no alternative—the benefits outweighed the costs of moving elsewhere.
The big change recently isn’t that these drivers of high costs have worsened. Instead, it’s that there are alternatives.
Ten years ago, finance workers were concentrated on trading floors in midtown Manhattan, and at least some of their high pay was justified by the high costs of living in the city. But now, thanks to the rise of remote work, those workers (especially in middle and back office roles) can be elsewhere: offshore or in secondary cities like Charlotte.
This isn’t to say high housing costs aren’t a problem for many in expensive coastal cities, or that policy is irrelevant. But high costs in New York and other urban centers are primarily a function of agglomeration.
In response to the costs of agglomeration, economic activity in the U.S. is becoming more geographically diverse. That’s no bad thing.