By Angela Hallowell, Analyst and Tori McNiff, Project Manager, Camoin Associates
Introduction
Finance and Business Services are critical industries within all regional economies. They provide services which enable other industries to sustain and grow and provide well-paying careers with multiple pathways for advancement. In this article, we will discuss the Finance and Business Services sector, including recent and projected trends in employment, areas of industry growth, national hubs, and factors that affect the industry’s workforce needs. This information will help economic developers and industry professionals plan for the ever-changing landscape in an industry that is increasingly disrupted by technology.
The Finance and Business Services sector includes businesses related to the financial transactions of consumers and between businesses, along with key professional service industries that serve the finance industry and include:
- 521 – Monetary Authorities – Central Bank
- 522 – Credit Intermediation and Related Activities
- 523 – Securities, Commodity Contracts, and Other Financial Investments
- 525 – Funds, Trusts, and Other Financial Vehicles
- 5411 – Legal Services
- 5412 – Accounting, Tax Preparation, Bookkeeping, and Payroll Services
- 54143 – Graphic Design Services
- 5415 – Computer Systems Design and Related Services
- 5416 – Management, Scientific, and Technical Consulting Services
- 5418 – Advertising, Public Relations, and Related Services
Recent Industry Trends
In 2022, the Finance and Business Services Sector accounted for nearly 11.9 million jobs and nearly 1.5 million establishments in the United States.1 The Business Services Sector contributes nearly 8.0 million jobs and over 1.1 million establishments alone. Looking at subsectors, Credit Intermediation and Related Services and Computer Systems Design and Related Services are the largest by employment, with 2.7 million and 2.6 million jobs in 2022, respectively.
Finance establishments tend to be slightly larger than Business Services, with an average of 12 jobs per establishment in 2022, compared to seven jobs in Business Services. Within Finance, Monetary Authorities – the Central Bank has the most jobs per business location, at 28. Funds, Trusts, and Other Financial Vehicles has the fewest, with an average of only three. Economy-wide, the average is 15 workers per location.
Finance and Business Services are two highly productive sectors, with GDP per worker nearing $250,000 overall. For context, the average in the United States for all sectors is about $147,500, meaning that the Finance and Business Services sector was about 67 percent more productive than the economy’s average in 2022.
Altogether, the Finance and Business Services sector accounts for almost 12 percent of total GDP in the United States, 13 percent of business establishments, and seven percent of jobs. This indicates how important the sector is for supporting large portions of the national economy.
By employment, Credit Intermediation and Related Activities is the largest subsector, with over 2.7 million jobs in 2022. Computer Systems Design and Related Services as well as Management, Scientific, and Technical Consulting Services also account for over two million jobs in the United States, the latter growing by over 20 percent in the last five years. Overall, the sector has grown nine percent from 2017-2022, outperforming the overall economy’s two percent growth.
Geographically, the New York-Newark-Jersey City, NY-NJ-PA Metropolitan Statistical Area accounts for the largest share of the nation’s jobs in the sector. Over one million jobs in the Finance and Business Services sector are in this MSA alone, accounting for 9.2 percent of Finance and Business Service jobs in the United States. Other top MSAs are in Los Angeles-Long Beach-Anaheim, Washington-Arlington-Alexandria, Chicago-Naperville-Elgin, and Dallas-Fort Worth-Arlington.
In terms of concertation of jobs (location quotient), top MSAs are Washington-Arlington-Alexandria, DC-VA-MD-WV (1.94); Boulder, CO (1.84); and Austin-Round Rock-Georgetown, TX (1.68). 2
According to IBISWorld, growing Fintech (technology-based finance) will increase business participation in the sector but will disrupt the industry and displace older operators. These two dissonant forces are expected to lead to an annualized net employment increase of 0.8 percent from 2017-2027 within the Finance sector. Additionally, increased demand for these financial services will lead to rising wages, though in turn leading to stagnating sector profit.
Meanwhile, the Business Services sector is fueled by competing forces. Rising corporate profits have led to heightened need for more B2B services, driving demand from businesses. This is particularly the case for IT and advertising services. Additionally, demand for engineering, scientific and economic consulting services is positively impacted by increasing government contracts at the federal level. That said, rising interest rates will likely slow demand for business services through the end of 2028.
More recently, corporations across the nation have announced layoffs, many of which come on the heels of over-hiring in the months and years following the COVID-19 pandemic. In fact, both the Finance and Insurance and the Professional and Business Services sectors hit a ten-year peak hiring rate in the third quarter of 2021, which has gradually declined throughout 2022. In the tech sector, announcements of workforce reductions total over 100,000 in 2023 as of mid-February.3 However, the Finance and Business Service sector has so far been relatively insulated from these events and has continued to flourish in the second half of 2022. Moreover, the most recent JOLTS data shows that many businesses in the sector continue to be in hiring mode. On average from June-December 2022, the Finance and Insurance industry made 140,000 hires and had 393,000 job openings per month, while layoffs averaged only 35,000 – slightly elevated, though not dissimilar from normal levels for the second half.
At the time of writing, the traditional banking sector has had more significant layoffs than its fintech counterpart, with announcements from banks like Credit Suisse, Goldman Sachs, Morgan Stanley and others cutting jobs as a part of a cost-savings effort in light of declining investment profits.4 Still, these layoffs account for a small percentage of the sector’s workforce and are expected to be milder than the financial crisis. Meanwhile, an abundance of job openings provides opportunity for those laid off to quickly find new work arrangements.
Workforce Trends
A pressing challenge for the Financial & Business Services sector is whether there will be enough workforce to sustain the industry’s projected growth.
In 2022, the top occupation within the Finance and Business Services Sector was Software Developers, with over 670,000 working in the sector and accounting for 5.7 percent of the sector’s total jobs. Other top occupations include Lawyers, Accountants and Auditors, and Management Analysts; all together, these top ten occupations account for nearly 40 percent of total employment in the sector.
Occupations in the sector are comparatively well-paid, with most of the top ten having median hourly earnings over $30. All sectors except for Graphic Design Services have average annual earnings well above the national average for all sectors ($79,791), with Securities, commodity Contracts, and Other Financial Investments and Related Activities earning the most, at over $315,000 annually on average.
The future of all industries will rely heavily on demographics. For the Finance & Business Services sector, important demographic dynamics are at play. The Finance sector, specifically, has a high share of mid-career workers – those aged 25-54 – in part due to its high concentration of highly-skilled and highly-educated occupations, which are unlikely to be filled by those under 24 years old. However, the Business Services Sector has a disproportionately high share of workers aged 65+, who are likely on the verge of retirement. In this sector, 8.5 percent of workers are aged 65 or older, slightly higher than 7.1 percent on average in the nation. Retirements will be a particular challenge for industries like Legal Services and Accounting, Tax Prep, Bookkeeping, and Payroll Services, which have 13 percent and 12 percent of workforce aged 65+, respectively. Given the projected job growth in these sectors (discussed below), supporting the pipeline of new workers will be of utmost importance to these sectors as they grapple with their aging workforce.
The rise of technology, as well as the increasing use of big data technology, will continue to rapidly shift the landscape of the industry. For example, software developers account for the greatest projected job growth, as the sector is expected to add over 131,000 jobs in the five years between 2022-2027. Other occupations like management analysts top the list for projected growth. Meanwhile tellers, secretaries and assistants, and data entry keyers sit among the occupations expected to decline the most within the Financial and Business Services sector. Trends like the rise of mobile banking, increasingly common use of data mining, and others have reduced the demand for these occupations in the modern workplace. Additionally, the top-growing and top-declining jobs are split in their ability to work remotely, with occupations like software developers and analysts frequently working from home, while tellers, secretaries and assistants, and clerks are less able to do so.
Overall, the Finance and Business Services sector is projected to grow by more than 1.1 million jobs by 2027, reflecting 9.3 percent growth in addition to the 9.4 percent growth it experienced in the last five years. That said, one major question remains: will there be enough workforce to sustain this growth?
In 2022, the top occupations in the industry heavily skew towards higher educational requirements and training, with nearly all typically requiring at least a bachelor’s degree. In the next five years, the skill level of the sector’s workforce is only expected to increase. For example, the five occupations expected to grow the most all require college degrees, while all five of those expected to see the most decline require a high school diploma or GED. For the sector to grow, this divergence of educational requirements will need to be met with sufficient graduations from programs designed to support the sector.
Workforce Pipeline
Among the top ten occupations in the Finance and Business Services Sector, there have been nearly 4.5 million unique job postings in 2022.5 Common skills, like communications, customer service, and management rank high among employer’s needs, each showing up in over one million unique postings throughout 2022. That said, other skills that are specialized to the industry are in great demand. For example, Accounting was the top-listed still among the top 10 occupations in 2022, appearing in over 770,000 job postings. This is followed by skills like Computer Science (534,000 postings), Auditing (523,000 postings), and Finance (519,000 postings).
As older workers in these fields retire, new graduates are an increasingly critical part of the workforce pipeline – but are there enough? While there were about 72,000 graduates from specifically Accounting programs in 2021, degree completions in the field have dropped by 12 percent since 2017, according to Lightcast. Conversely, graduations from Computer Science programs increased by 43 percent from 2017-2021.
Over the next decade, distance learning programs will play an important role in producing the next generation of Finance & Business Services workers. In 2021, universities that offered predominantly online programs were by far the top producers of graduates of programs that feed the top five growing occupations.6 These institutions included University of Phoenix-Arizona, Western Governors University, Southern New Hampshire University, and University of Maryland Global Campus, highlighting the increasingly important role distance programs play in the occupation pipeline. In 2021, 30 percent of degrees that train Software Developers were completed online, while over half of degrees to train Management Analysts and General and Operations Managers degrees were completed via distance programs. Other programs that are difficult to offer from a distance, like Law degrees, have a relatively low shares of completions via distance programs.
Challenges are likely to persist for occupations like Accountants, which have projected job growth and high levels of job postings, but declining numbers of graduates from programs designed to feed the occupation. Other occupations, like Software Developers, may be better poised to meet demand in the coming years. Continued investment in these educational opportunities, as well as online-ready programs, will be critical in ensuring sufficient workforce for the skills-intense occupations that will be required in the coming years.
What Does This Mean for Economic Development?
New technology, an aging workforce, and diverse educational programs directly impact how the Finance and Business Services sector operates, expands, and grows. Rising demand for skilled and educated employees is leaving a workforce shortage due to a limited supply of college graduates in these industry sectors.
Without a strong workforce pipeline, businesses have limited opportunities to expand and may have to close operations due to workforce shortages. For example, since the Business Services sector has a high share of retirement eligible workers and the industry is projected to grow, there will be a larger hiring gap that needs to be filled long-term to keep the industry stable and thrive.
For economic developers, a growing sector with workforce shortages creates an opportunity to focus on building workforce pathways among middle schoolers, high schoolers, and university students. Local governments and economic development organizations can support workforce pipelines by:
- Connecting businesses to education institutions for internships, work study programs, and full-time jobs after graduating.
Building industry specific education programs, at all levels of schooling, to support current businesses in the region and target industries for future growth (e.g., STEM/Accounting certificates in High School). - Creating local industry networks that provide upskilling and training opportunities, fosters employer and job seeker relationships, and provides entrepreneur resources.
- Embracing partnerships with both traditional brick and mortar training and education entities but also and increasing on-line providers.
- By supporting workforce pipelines in a community, this helps retain current businesses and attracts additional businesses in the same industry, creating a cluster. Creating diverse industry clusters supports a strong network of industries that grow the economy with investment and job creation. The jobs that are created in the Finance and Business Services sector are high-paying careers that provide services across all industries and will need a strong workforce supply to maintain long term business growth in every community.
Bios:
Angela is new to Camoin Associates and brings knowledge of economics, public policy, and demographic analysis. She is excited to apply her background to a diverse range of clients and to help clients make their communities stronger.
Tori is passionate about finding solutions to complex problems by being creative, collaborative, and engaging diverse stakeholders. She has a background in public administration, economic development, and marketing. Prior to working for Camoin Associates, Tori managed and worked with three different economic development authorities and enjoys strategic and organizational planning.
