News Release

Employment and Wages in California's Financial Services Sector

SAN FRANCISCO, April 23, 1999--In the April 30 issue of the FRBSF Economic Letter (99-15), San Francisco Fed Economist Rob Valletta examines recent trends in employment and wages in California's financial services sector and finds that technological and structural changes have reduced employment at California banks, but the wages and salaries of the workers who remain have increased rapidly during the last several years.

"During the 1990s, the financial services industries, especially commercial banking, experienced pronounced shifts in the techniques by which their services are produced and distributed as new computer technology and related information-processing technologies were developed," Valletta explains. Some examples of technology include the widespread proliferation and use of ATMs, debit cards, and "credit scoring." These and other developments also created incentives for banks to merge.

According to Valletta, these technological and structural changes tend to reduce the need for traditional "brick and mortar" bank offices, and he notes that "the number of branches of commercial banks in California fell 15% between 1991 and 1997. In contrast, for the nation as a whole, the number of bank branches rose 15% between 1991 and 1997."

In examining the employment trends, Valletta notes a big difference between depository institutions and other subsectors of the finance industry. While employment gains have been rapid in other finance subsectors in recent years, "employment at California depository institutions [has] fallen 26% relative to the 1990 peak," he finds. Furthermore, "the decline in employment at California depository institutions during the 1990s was just over twice as large as the national decline."

In examining trends in wages and salaries, Valletta's analysis suggests that, after an initial period of adjustment to rapid consolidation, salaries in the financial services sector in California have recovered--possibly due to technological improvements, which require higher skill levels and increased productivity. Following limited growth in wages and salaries from 1989-1994, "wage and salary payments for workers at depository and nondepository institutions surged [between 1994 and 1997], rising 19% in California and 14% nationally." Despite this recovery, the author explains that "the salary gains among depository institutions have not been sufficiently large or rapid to offset declining employment and raise total salary payments in this sector."

Valletta acknowledges that "it is difficult to disentangle the effects of technological innovation from effects due to mergers per se." He concludes that while "it appears that extensive restructuring of branch networks and other adjustments in California substantially restrained employment growth at California banks," the employees who remained have fared well in terms of wage and salary payments.