Bloomberg’s Michael J. Moore reports that Goldman Sachs is raising salaries for junior bankers by about 20 percent, giving the typical associate a pay raise of about $15,000. Bank of America has followed suit, and JPMorgan Chase is considering doing the same.
These raises for low-level bankers make for an interesting data point in the long-running debate over inequality. It’s not a story about the rich getting richer than the poor. It’s about the not-quite-rich getting a bit richer so they don’t fall quite as far behind their truly rich colleagues.
A number of banks, especially in Europe, have changed the mix of bonus and salary to shift more away from bonuses (a word that sounds bad and arouses public ire) and more to salary. That is not exactly what is going on here, though it’s an element of it. The central issue is that New York is no longer too expensive for the non-banking classes to live in. It’s too expensive for low-level bankers.
Moore reports that investment banking associates earn a total of about $140,000 (pre-raise) in salary and bonus. Obviously, that’s a lot of money in much of the country. And the argument sometimes trotted out that the average junior banker represents the cream of America’s intellectual crop, swept from the froth of the world’s top universities is a convincing argument if … well, you’re an investment banker yourself.
Less debatable is that New York has become a stupendously expensive place to live. This post may be a little bit biased on the subject; home renovations have compelled The Market Now and his family to find a temporary place to live for the next two months. So this post has some sympathy for anyone, even bankers, who need to confront the New York real estate market. Here are some numbers to put that pay in perspective:
According to the surveys conducted by real estate firm Miller Samuel, the median price for a newly rented studio apartment in Manhattan is now $2,425 a month. For a one bedroom apartment, it’s $3,264. In Brooklyn, a one bedroom rents for a median of $2,650. Landlords in New York want an income of at least 40 times the rent, and more likely 50 if the income is heavily weighted toward bonus.
So basically for the newly arrived New Yorker pay of $140,000 can cover the rent on a one bedroom apartment. That’s great if you’re a new college grad, not so great if you have a family. An income that comfortably pays for a McMansion in many places just doesn’t go very far in New York, the native habitat of the ultra-rich.
That’s the basic issues here. It’s well known that the higher up the economic pyramid you go, the greater the gains in the last few years. That pattern is actually most striking at the very, very top. Last year, the top 25 hedge fund managers in Institutional Investor‘s rankings took home $21.15 billion. The total bonus pool for Wall Street employees in New York City for 2013 was $26.7 billion; the total salary for about 165,000 Wall Street employees was $59.3 billion.
Those are huge numbers, so here’s one way to put them in perspective:
Twenty-five top hedge fund managers took in about one-quarter as much as the total earnings of 165,000 securities industry professionals. One top hedge fund titan, in other words, makes as much as 1,600+ bankers, analysts, and salaried fund managers. If you want to understand why lower level bankers are demanding more money, that’s pretty much all you need to know. The 21st century economy has been crushing for those at the bottom. But it’s also been supremely irritating for those just near enough to the top to see the peak.