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Copyright 1998 by the Wyoming Department of Employment, Research & Planning


Finance & Insurance: A Tale of Two Industries

by: David Bullard


The Finance and Insurance industries accounted for 6,135 jobs in 1996. While this is slightly less than three percent of Unemployment Insurance (UI) covered employment, these industries play an important role in Wyoming’s economy. The Steering Committee Report(1) noted that businesses need access to capital in order to grow, and that the health of Depository Institutions in the state affects the ability of Wyoming businesses to generate the capital they need. Unlike many other industries in the state, employment in Finance and Insurance is relatively stable month to month, showing almost no seasonality. However, both the Depository Institutions industry and the Insurance industry have seen dramatic changes in employment levels since 1989. Employment in Depository Institutions has fallen while Insurance employment has increased. The decreasing employment in Depository Institutions appears to be associated with changes in the regulatory environment and increasing use of technology rather than a decrease in the volume of business. The increasing employment in Insurance is partially due to new firms moving into Wyoming.

Table 1 compares the 1987 Standard Industrial Classification (SIC) Division H "Finance, Insurance, and Real Estate(2)" (FIRE) with the North American Industrial Classification System (NAICS) Finance and Insurance industry (NAICS code 52). This article will examine the industries included in NAICS code 52.

Figure 1 shows the employment distribution between these two-digit SIC’s in 1996. Depository Institutions (SIC 60) make up almost half of all employment in the Finance and Insurance industries. It is followed by Insurance Carriers (SIC 63) with 1,159 employees and Insurance Agents, Brokers and Service (SIC 64) with 1,046 employees. Together, these three SIC’s make up 85 percent of employment in the industry and will be the focus of this article.

Figure 2 shows the average weekly wages for Finance & Insurance. Each industry pays more than $440, the statewide average weekly wage in 1996. Holding and Other Investment Offices (SIC 67) and Security and Commodity Brokers (SIC 62), two of the smaller industries (in terms of employment) pay the highest wages, while the larger industries (SIC 60 and 64) pay the lowest wages in the group. Perhaps the high wages in Finance can be partially attributed to higher productivity from computer use. A 1993 survey done by the Census Bureau showed that more employees in Finance use a computer at work than in any other industry(3).

Depository Institutions

Depository Institutions (SIC 60) includes commercial banks, thrifts or savings & loans, and credit unions. Employment in this category lost 639 people from 1989 to 1996, falling from 3,646 to 3,007 (-17.5%). At the same time, deposits in banks grew by over $4.0 billion dollars (see Figure 3). In 1989, banks in Wyoming held $3.8 billion in deposits, but by 1996 they held $7.0 billion. What can explain the decreasing employment? At the end of 1989, Wyoming had 80 commercial banks and savings institutions, but this fell to 58 in 1994. It appears that many workers lost their jobs as Depository Institutions failed and consolidated. The number of Depository Institutions reached a peak in 1984 and then fell dramatically. Employment in SIC 60 shows a positive correlation with the number of Depository Institutions.

Figure 4 shows employment in Depository Institutions (SIC 60) and the number of FDIC insured commercial banks and savings institutions in Wyoming. Both the number of Depository Institutions and employees fell from 1989 to 1994 and then increased slightly from 1995 to 1996. Employment in this industry is expected to continue to grow slowly (see Projections). Trends in Depository Institutions at the national level show a similar pattern in Wyoming. During the period 1989-1996, the United States lost 254,800 jobs in Depository Institutions. While still a significant decrease in percentage terms (11.2%), it is a smaller loss than the Depository Institutions industry experienced in Wyoming.

There appear to be three main reasons for declining employment in Depository Institutions: failures, mergers and automation. While an in-depth discussion of these issues is beyond the scope of this article, a brief outline will help the reader better understand some of the changes taking place in this industry.

Between 1980 and 1994, 20 banks and seven FDIC insured savings and loans failed in Wyoming. Table 2 lists them in chronological order of failure. Glancing over Table 2 reveals that Depository Institutions failed in all of Wyoming’s major cities and several of its small towns. The banks had $375 million in assets(4). While no single factor can explain why 17 percent of Wyoming’s banks failed, the recession caused by the decrease in energy prices appears to be partially responsible. However, as noted in the FDIC Banking Review, it wasn’t just the severe recession, it was the rapid growth leading up to it that caused banks to overextend themselves. Thus, banks failed in Wyoming because of boom and bust cycles.

Consolidation in the banking industry is closely related with deregulation and the increase in interstate branching. Wyoming lost 26 banking organizations to mergers and breakups from 1980 to 1995(5). Mergers reduce employment as the combined organizations eliminate duplicate positions, often closing branches that serve the same area.

Computer automation has allowed Depository Institutions to save money by replacing tellers with automated teller machines (ATM’s). A Bureau of Labor Statistics economist, Teresa Morisi, noted that as employment in commercial banks has fallen, the volume of ATM transactions has increased year after year(6). Her article also identified telephone transactions, direct deposits and point-of-sale transactions as technologies that allow Depository Institutions to serve more customers with fewer employees.

Insurance

The Insurance industry contains two groups: Insurance Carriers (SIC 63) who underwrite insurance, and Insurance Agents and Brokers (SIC 64) who sell insurance, service insurance claims and offer other insurance-related services. In sharp contrast to Depository Institutions, employment in Insurance (the sum of SIC 63 and 64) grew rapidly between 1989 and 1996. It added 664 jobs, giving it a growth rate of 43 percent, more than twice the rate of increase in all UI covered jobs (15.5%). The increase is split between SIC 63 and SIC 64. Some of this growth came from new firms relocating to Wyoming, while other jobs have resulted from existing firms adding employees to better serve a growing population and an expanding economy.

Projections

Figure 5 shows employment projections by quarter for 1997 and 1998 for Depository Institutions (SIC 60) and Insurance (SIC 63 and 64). Employment in Depository Institutions is expected to grow 1.9 percent or 60 jobs over the two-year period. In other words, it will continue its pattern of slow growth that began in 1995. Insurance will grow faster over the same period adding 179 jobs for an 8.1 percent growth rate.

Conclusion

The Finance and Insurance industries only employ a small fraction of workers in Wyoming, but they pay high wages. Despite growth in deposits, an increase in failures, mergers and automation caused the number of Depository Institution employees to fall dramatically in the late 1980’s and early 1990’s. During the same period, Insurance enjoyed rapid employment growth. Current projections are for slight growth in Depository Institutions, and more moderate growth in the Insurance industry as Wyoming moves toward the 21st century.

David Bullard is an Economist, specializing in Local Area Unemployment Statistics (LAUS) with Research & Planning.

1 Steering Committee for Business Development, Vision for a New Economic Future, November 1997.

2 The Real Estate industry (SIC 65) was the subject of a previous article: Mike Evans, "Wyoming Construction and Real Estate Industries: Where Have We Been and Where Are We Going?," Wyoming Labor Force Trends, July 1997, pp. 7-9.

3 U.S. Census Bureau, Use of Computers at Home, School, and Work by Persons 18 Years and Older, October 1993.

4 "The Banking Crises of the 1980’s and Early 1990’s Summary and Implications," FDIC Banking Review, Volume 11, Number 1 (1998).

5 William R. Keeton, "Banking Consolidation in Tenth District States," Federal Reserve Bank of Kansas City Economic Review, Volume 81, Number 2 (Second Quarter 1996).

6 Teresa L. Morisi, "Commercial Banking Transformed by Computer Technology," Monthly Labor Review, Volume 119, Number 8 (August 96).


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