Outsourcing of jobs is a common concern among workers in high cost areas such as America and Europe. Interestingly, that concern has become a mainstay among workers across the globe, with, for example, workers in China worrying that their manufacturing jobs might end up in a lower cost place like Vietnam, Cambodia, or India.

With the debate unlikely to go away anytime soon, here’s a look at the issue for financial industry based on data recently published in the Job Search Digest Private Equity Hiring Trends Report.

Job Openings in the Financial Industry

Here’s a look at the financial industry.

Chart 4 v2 - by top 6 geographies

Fascinatingly, if one divides the United States into three components (New York, California, and All Other), the top spot goes to the UK. Financial job openings in the UK overtook the top spot in the third quarter of 2014 with a Job Search Digest Index (JSDI) of 27, well above the next closest location, U.S. – Other at 22.

What Other Interesting Trends Are There?

The loss of the top spot for the U.S. – Other is even more interesting when looking at which area is now in third – Asia.  The movement to third place for Asian job postings comes on the heel of weakness in New York.

New York was the third place holder for most of 2013 and 2014, losing its spot after job openings slowed consistently after peaking with a JSDI of almost 19 in the first quarter of 2014.  Over this same time frame, job openings in Asia expanded, rising from a JSDI of 12 to almost 16 by the end of 2014 .

Is There Outsourcing of U.S. Financial Jobs?

With the job opening figures as the background, can one say that what were once American jobs are showing up overseas? Here’s a different look at Job Search Digest’s data. The charts shows the percentage of job openings by broad location. The large green, light green section in the middle is North America.

Chart 5 v2 - by geographic area

Interestingly, in 2011, the percentage of job openings in N. America floated in the high 30s.  In 2012, that figure jumped into the low 40s; moving up into the low to mid 50s in 2013. In 2014, it continued to hover in the mid 50s, dropping to the high 40s by the end of the year. At the end of 2014, the share of financial industry job openings occurring in N. America dropped from 54 in the second quarter to 49 in the third and forth quarters.

The UK and Asia Picture

The US picture doesn’t look so bad when looking at total jobs on an index basis. The surprising strength in the U.S./N. America in the 2013/2014 time frame doesn’t appear to have come at the expense of the UK.  Job openings in the UK have consistently floated around with a JSDI in the 20s since early 2011, recently jumping to a high of 27 in the third quarter of 2014.

It looks like the strength in the U.S. in 2013/2014 and the weakness in 2011/2012 came at the expense of Asia.  Asia’s share of job openings reached at high of 29 near the end of 2011, only to drop to a low of 12 in the first two quarters of 2014. The weakness in Asia is starting to turn, however, with Asia’s share of job openings ending 2014 at 16.

What’s the Conclusion – Are American Financial Jobs Going Overseas?

So, with the previous two discussion points as background, can one say that American jobs are going overseas? Unsurprisingly, it is difficult to say. Certainly some jobs probably shifted to Asia in 2011/2012, and perhaps some shifted back in 2013/2014.  Coming quarters will provide perhaps a little bit clearer view.

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It’s a common presumption among economists – when the economy grows, or when individuals become wealthier, they demand more financial services. Is this true of the wealth created in China over the past five years? Here’s a look.

Job Openings in the Financial Sector by Country

This graphic looks at job openings in the financial sector by selected geographic locations, based upon proprietary data collected by Job Search Digest and recently published in the Private Equity Hiring Trends report. The chart represents the Job Search Digest Index (JSDI) for Q1 2011 to Q4 2014.

As a note of explanation, the JSDI captures the job openings across the globe on an index basis.  Why an index instead of the actual count?  Because an index allows for better presentation of the raw data, as well as the ability to normalize results relative to a baseline, in this case the first quarter of 2011, with a JSDI of 100. Thus, when the JSDI rises,say to 103, that indicates that the number of job openings were 3% higher than the baseline.

Interestingly, on top as of the period Q1 2011 through Q4 2014 (quarterly average), is the U.S., with a Job Search Digest Index of about 40.9. Rounding out the top 5 are the U.K. (JSDI: 22.0), Hong Kong (JSDI: 7.5), Singapore (JSDI: 3.9), and China (JSDI: 3.4).

 

JSDI 2011-2014 Average by Quarter by Country


Where is China?

With the incredible economic growth we’ve seen in China over the past 20 years, one might expect China to be at, or near, the top.  Interestingly, and perhaps the biggest surprise of the previous graphic is that China is a very distant fifth, with a JSDI of 3.4 compared to the U.S JSDI at 40.9 and the U.K. at 22.0.

Why Is China So Low?

Although the finance industry is certainly strong in Switzerland and growing relatively quickly in the United Arab Emirates, the job market seems low for China, the alpha gorilla of the world. Why would China not be close to the top?

One potential explanation is that finance industry professionals set up shop in Hong Kong as opposed to China.  Hong Kong is more free with its financial laws, while also allowing reasonable access to the Chinese markets.  This explanation is probably the main reason why Hong Kong shows up in 4th place on the results.

Another potential explanation is risk-averse behavior from China businesses and western finance companies.  China is a whole new world, and it takes time for individuals to become comfortable with the way business works in China.

A third possible explanation is that China has been relatively slow to open up its financial system.  It took a while for Chinese politicians to loosen restrictions on foreigners holding China-based companies.  Various other restrictions, particularly in the financial sector, are still in place or took a good deal of time to get changed.

Conclusion

Overall, given the amazing wealth creation that’s occurred in China over the past 20 years, one might expect to see parallel growth in the job market for the financial sector.  Interestingly, when looking at Job Search Digest’s hiring trends data, that doesn’t appear to be happening, at least not on the scale that one would expect given the strong growth in what is soon to be the world’s largest economy.

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Everyone knows that the private equity business is about making profits.  Common sense would indicate that when corporate profits are growing strong across the board, employment in the private equity industry would also be going strong, and vice versa. Is this the case?  Here’s a look at the connection between employment in the private equity industry and corporate profits.

Employment in the Private Equity Industry

First let’s take a look at employment in the private equity industry since 1990.  Following the actual employment graphic is a look at the year-over-year picture of employment in the private equity industry. Overall, since 1990, there have been 3 private equity slowdowns.  The three occurred in 1994, 2001 to 2003, and 2008 to 2009.

Of the 3 private equity downturns, the worst was followed by the technology bubble in 2001 to 2003.  During the 2001 to 2003 downturn, private equity employment declined by 2,500 employees. The next least positive private equity recession occurred in 2008 and 2009, when private equity employment declined by about 2,400 from peak to trough.

Private Equity Employment

Switching to the year-over-year picture, the largest decline occurred in August 2009, when private equity employment was down about 6% from the prior year.

YY Growth in Private Equity Employment

Corporate Profits

As background, here is a look at the corporate profits picture.

Corporate profits have been through 2 long periods of weakness. The first was a very slow downturn, from 1998 to 2002. The second came as a result of the recent global financial crisis, with corporate profits weakening from 2006 to 2009.

Corporate Profits Dashboard

Connecting the Two

So, does it look like private equity employment is connected with economy-wide corporate profits? Here is the connection.

Overall, conventional wisdom is probably right on this one.  Private equity employment is somewhat connected with economy-wide corporate profits. The interesting thing isn’t perhaps that there’s a general connection, but rather which indicator provides a leading indication.

One might think that corporate profits would be the leader.  After all, why would private equity employment decelerate or decline when corporate profits are strong.

Interestingly, this presumption would have been somewhat right in the slow 1990s corporate profit slowdown.  During the period when corporate profits were weakening, private equity employment for most of the period was growing strong.  At its peak, when corporate profits were weakening, the private equity industry was adding jobs by as much as 10% (year-over-year). It wasn’t until the end of the corporate profit slowdown that employment in the private equity industry finally got dragged down.

A similar picture emerges in 2006, when corporate profits peaked and provided an indication a few months before private equity employment growth peaked.

YY Growth in Private Equity Employment and YY Corporate Profits

Conclusion

Overall, private equity employment generally responds to changes in corporate profits with a lag, consistent with conventional wisdom that private equity employment responds to changing economic conditions.  Employment in the private equity industry does not provide a leading indication of where corporate profits are heading.

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A Look at Private Equity Employment Compared to Other Financial Sectors

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Perhaps Sam Brownback is Right – Tax Cuts Are Boosting Kansas Employment Growth

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Tax policy comes as second nature to investment bankers.  Earlier this month, the Census Bureau  its annual accounting of state government revenues.  It is a survey of all finances related to state government spending. The data allows researchers to address, in a broad way, various debates in the tax policy world. Among those debates, the most […]

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Looking at Demographics and What It Might Mean for Private Equity

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Is There a Growing Gap in Private Equity Pay?

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Pay in the private equity industry is on the rise. As is always the case in a highly competitive, human capital intensive industry, the question is: pay is on the rise for who? Looking at Some Broad Pay Issues Consider, for instance, the situation of Blackstone CEO Stephen Schwartzman.  His annual base pay is $350,000, and […]

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