What's motivating the move, and what are the implications for the U.S. economy?
Maybe U.S. investment bankers need to unionize. Reports today indicate that Wall Street titan Goldman Sachs will be laying off a sizable chunk of U.S. bankers and hiring in other countries, starting with 1,000 new employees in Singapore. We're used to hearing about jobs in industries like manufacturing moving overseas, but now Wall Street? Is no industry safe or is something different going on here in the case of Goldman?
First, let's look at the news, via Charlie Gasparino at Fox Business:
The jobs in Singapore are likely to be "high-paying, skilled positions in sales and investment banking," the same types that are likely to be cut in the firm's domestic operations, according to one person with knowledge of the matter. This person added that the firm has recently briefed people in Washington about the new overseas jobs because it "is afraid of the fallout" as it plans to slash $1 billion in costs over the next year -- a move that will mean a significant, though still undetermined number of layoffs across its operations, though people close to the firm expect the biggest hit to come from the US. Goldman also plans a much smaller expansion in its Brazil unit and in India.
Let's not focus on the amusing side question of why Goldman chose to alert Washington. Perhaps it was anticipating screaming politicans and populists who will argue that a firm that taxpayers just bailed out shouldn't be sending jobs overseas two years later. This incident could motivate a new anti-outsourcing stipulation in the terms for future bailouts. Oh wait, I forgot: there won't be future bailouts.
Instead, let's focus on the question of why -- why is Goldman moving jobs overseas? According to the excerpt above, the jobs will remain high-paying. So the bank might not be moving jobs overseas to save on labor costs -- like you see in some industries. This would make sense if the cost of living is much lower where the jobs are moving. After all, if pay is cut by the same proportion as the difference in cost-of-living, then even with worse pay the Goldman bankers in Singapore could still live like, well, Goldman bankers.
This doesn't appear to explain the jobs moving to Singapore, however. In Singapore the cost of living is higher than it is in New York City, according to Mercer's 2010 cost of living survey.
Instead, a couple of other factors could have led to this new strategy. One is regulation. Since last summer, Wall Street has been bracing for broad new rules to take effect. There are likely some trading and banking functions will be more expensive to engage in going forward in the U.S. and others that have been choked to death by red tape.
This reveals the problem with regulating without first ensuring global coordination. Other nations that might see some U.S. rules as excessive now have a competitive advantage and can successfully lure banks -- and their huge profits -- to their financial markets.
But the problem could also be motivated in part by economic expectations. The reality is that the U.S. will almost certainly have a very low rate of growth for the next decade. Even if the U.S. economy suddenly recovered dramatically, with unemployment dropping to 5% in a year, other factors will restrain growth. Austerity is coming. The Federal Reserve also must tighten money supply when the economy can better endure it. Both of those factors will create significant headwinds for growth. Developing nations, especially in Asia, which tend to grow at higher rates anyway, might not face as significant obstacles in the near term. Goldman may have noted this and is reorienting its workforce accordingly.
So this move may be best characterized as a bet against the U.S. economy and a way to escape some new U.S. regulation. Put simply: the U.S. is not the place to be anymore for big banking profits.
Seeing Goldman begin to take these steps isn't great news for the U.S. The bank tends to be out in front of the economic trends, as it was with its bet against mortgages in the final days of the housing bubble. If Goldman is right, then the U.S. is going to be in for a rough time over the next decade or so. And other Wall Street firms moving more workers overseas will make matters worse, as the U.S. will lose out on some of its highest paying jobs and the contribution to GDP growth that some lost banking profits would have provided.
Image Credit: REUTERS/Brendan McDermid
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