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Brexit brings up to 88 thousand new jobs in the Rhine-Main region

WHU study quantifies the Brexit impact on the employment market

New jobs in the banking sector – that’s the expected result of impending relocations from London to Frankfurt. As early as June 24th, 2016, one day after the referendum, Frankfurt Main Finance estimated the potential repercussion of a Brexit decision to be up to 10 thousand new jobs for Frankfurt within the financial sector and its directly related services. Today, some people already regard this figure as too conservative. A job motor can also be expected in other fields, according to the findings of a study by WHU – Otto Beisheim School of Management carried out on behalf of Frankfurt Main Finance. “It will be the multiplier effects on many areas of day-to-day life that will lead to a significant growth in employment above all in the Rhine-Main region,” explains Professor Lutz Johanning, who conducted the study together with Moritz C. Noll from the Chair of Empirical Capital Market Research. In this interview, both academics give us a deeper insight into the underlying calculations.

Prof. Johanning, what exactly is analysed in your study?

Lutz Johanning: We looked at the effects of the relocation of banking jobs in the wake of the Brexit decision on the employment market as a whole – for the City of Frankfurt, the towns and cities in its direct vicinity, and the Rhine-Main region. In the analysis, our focus was on the multiplier effects, i.e. what growth will result for other sectors and industries from an addition to the number of banking jobs. And the study shows that this effect is 2.1 to 8.8 times higher, depending on the area under consideration. Therefore, in the most optimistic case, if we assume ten thousand new bank jobs, up to 88 thousand new jobs can be created during the following four years in the Rhine-Main region.

Prof. Lutz Johanning: “The relocation of jobs doesn’t occur in isolation. People move their lives into a new city – with everything that involves.”

That’s a huge figure. How do you arrive at that result?

Moritz Noll: We extrapolated the existing statistical data on the employment market in Frankfurt and the region into the future with the help of an empirical model, taking the effects of the Brexit into account. To ascertain and arrive at meaningful figures for the purposes of further planning, we placed a high priority on two factors. Firstly, a valid data basis has been very important for us. Our study is therefore based on employment market data from the German Federal Employment Agency (BA) covering the past nine years. Secondly, we looked for statistical models that have already been effectively applied in the scientific community.

Moritz C. Noll: “Even though the Brexit is a unique occurrence, scientifically based models still exist that enable the repercussions for the employment market to be reliably assessed.”

Where did you find an appropriate solution? After all, the Brexit is an unprecedented event.

Noll: The Brexit is indeed unprecedented, but not the fact that jobs are moved to a new location as the result of changed basic conditions. There are, for instance, well-founded scientific analyses for the energy sector in the USA – bear in mind the topic of fracking. The resettlement of jobs to new locations is quite common in this context. The resulting repercussions, not only for the primary sector affected, but also in terms of the overall impact on a region have been frequently examined during the last few years. These models allow specific assumptions to be derived on which we have based our study.

Johanning: The indirect effects can be quantified with this approach. If a job at Bank X is moved from London to Frankfurt, this is not an isolated process. Rather, the person who occupies this position relocates his life into a new city – with everything that involves. He or she usually comes with a family, which means that all the corresponding needs have to be met. This begins with quite simple issues such as residential needs, schooling, training, and the requirements of daily consumption. But it also has wider structural implications – the keywords here are infrastructure, the educational system, the market for houses and flats.

Prof. Lutz Johanning: “The Rhine-Main region in particular will profit from the growth in jobs. Most of the additional jobs outside of the financial industry are more likely to occur in the areas around Frankfurt.”

Why are you so sure that the affected bankers will be transferring their primary place of residence to Frankfurt? After all, London isn’t all that far away.

Johanning: The same discussion took place a number of years ago in connection with the European Central Bank employees. The question then was also whether people will actually be moving to the Rhine-Main region or whether they will just be here to work. Experience shows that they come here to work and to live. That’s why this particular context has provided a best-practice example for many years, and this has served as an orientation for us in the study.

You have differentiated in your analysis – between Frankfurt, its immediate environs, and the region. What does this distinction reveal?

Johanning: Frankfurt will profit directly from the new jobs in the banking sector. That’s not a regional issue. The central office sites will be found in the city centre. Consequently, the effect here on other parts of the economy is also modest, around 2.1- to 3.4-fold. Bank-related services will also benefit during the course of development; but these services are often not located directly in the city, but in the immediate surroundings like Eschborn, Offenbach or other neighbouring cities. In addition, many people are looking for somewhere to live somewhat outside of Frankfurt. That, in turn, will benefit the neighbouring municipalities as well as the entire region. The larger the radius drawn, the more differentiated the effects and the greater the multiplier effect. Optimistically speaking, ten thousand new bank jobs in the city can generate up to 88 thousand new jobs in the Rhine-Main region.

The study mentions two models. What does that mean exactly?

Noll: We’ve made use of two models to assess the impact of the ten thousand new jobs in the financial sector on all the other industries. Model 1 takes a factor into account that dampens the growth effect to a greater degree. Model 2, on the other hand, does not include this factor, and the growth is estimated to be higher overall as a result. It was important for us to present the entire spectrum of possible results in the study.

You know the statistics in detail. In which industry will the effects have the greatest impact?

Johanning: It should be said to start with that Frankfurt is a region with a very high growth rate – even without the Brexit. The highest growth rates over the past few years have been recorded in the sectors of logistics, real estate and business services. These growth industries will be given an additional push through the Brexit effect. What cannot be deduced from our quantitative model, however, is which structural changes within the individual industries will lead to greater or less growth over the next few years.

Noll: In a further step, we examined with the help of our models how the long-term job growth rates differ with and without the Brexit. As a result, we were able to show that the long-term growth path is changed by an initial shock, i.e. the relatively sudden event of additional jobs flowing into the financial industry caused by the Brexit. This means that job expansion throughout the employment market as a whole can be significantly higher in the long term in the Brexit case than in a case without additional Brexit jobs. One can therefore see that the growth effects on the employment market can be markedly higher than the initial effect might lead us to expect. So there’s still room for growth and untapped potential.

Moritz C. Noll: “If we also take the long-term effects into account, even better figures are possible.”

So the upshot is even more growth for an already prospering region. Have you also been able to quantify in the study how local government tax revenues will change as a result?

Johanning: We’ve attempted to estimate this effect as well with the aid of a simple projection, at least for the Frankfurt city area. However, these results should be considered with caution since they are based on the previous results from the employment market forecasts, which inevitably results in additional inaccuracies. We looked at the local government share of the income tax, the value-added tax and the local business tax. In summary, we estimate that the City of Frankfurt will be able to earn between EUR 136.2 and EUR 191.9 million in revenue every year through the three above-mentioned tax forms as a result of the additionally created jobs.

Thank you for the interview.

Winning Frankfurt: Brexit Bankers’ Welfare Effect Beyond Bringing Their Jobs

Picture credits: fritzphilipp photography 

“Influx to Frankfurt – chances for the city as business location, financial centre and modern metropolis”

Frankfurt will profit when many bankers move from the Thames to the Main. Here is an interview about the chances and challenges with Dr. Rolf E. Stokburger, Managing Partner, Germany, at the international HR consultancy Boyden and a specialist in the search and placement of executive personnel.

People working in London’s financial sector seem increasingly willing to move to Frankfurt. What are the reasons for this?

Dr. Rolf E. Stokburger: The increasing relevance of the Brexit vote and the resulting decision of a number of banks to switch their location for financial services and products to Frankfurt are causing more and more London bankers to think about moving to Frankfurt. American and Japanese banks, in particular, such as Goldman Sachs, Morgan Stanley, Citi, Nomura, Daichi or the Swiss-based UBS, have already announced their intention to resettle. We can distinguish two groups of bankers at the moment. Firstly, there are those who see relocation as an opportunity for career advancement and therefore want to play a pioneering role as a “first mover”. Secondly, we have a lot of professionals whose move to Frankfurt is planned as a part of the resettlement of their business division – and who simply have no other choice but to “take it or leave it”.

When all these people live and work in Frankfurt in future, what are the opportunities that such an inflow presents? And what are the challenges?

Stokburger: When the first wave of London bankers comes to Frankfurt, our financial centre will grow further and the city will become more important internationally. But the expansion of existing foreign bank representations in Frankfurt and the foundation of new banks under German law will also create new jobs for German bankers, especially in the fields of risk management, compliance and administration. In addition, any enlargement of the Frankfurt financial centre will certainly help attract further players and operators in the market, such as business consultants, auditors, law firms and private equity funds. The banks resident in London at the moment, on the other hand, will inevitably have to draw up appropriate incentive plans for Frankfurt so as to induce and motivate their employees and executives to move to and remain in the Main metropolis. And for its part, the City of Frankfurt will have to face up to the challenge of providing enough living space for homes along with the sufficient international school places and day-care facilities.

How can the Rhine-Main region best prepare for this influx?

Stokburger: The relocation of capacities to Frankfurt announced up to now must be seen within a longer perspective. It can safely be assumed that the establishment and expansion of specific banking houses that has now been publicised will be followed by a number of others – a great opportunity for Frankfurt as a business location and financial centre, but also a great chance for Frankfurt as a major city. With a view to this imminent influx, as well as any further settlements that may come, the city and the region should act together with a more unified voice and with a greater resolve and should offensively advertise the merits of Frankfurt as a top location. Frankfurt, together with the many towns and municipalities in its environs, has a host of advantages over a mega-city like London – and these benefits should be proactively promoted. A glance at the various construction projects currently in progress in the City of Frankfurt already shows that at least the real estate sector is geared up for growth. To make sure that the integration of new bankers into the urban and social life of the city is as smooth and successful as possible, it is now up to the city marketing and development planning agencies to communicate the cultural strengths and advantages of Frankfurt and its vibrant diversity more effectively. This will help brush up, if not revamp the image of a city that is partially perceived as being too provincial.

You can read more about this topic here:

Picture credits: Boyden

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New Offer: Banking Business in Germany Seminar

“Banking Business in Germany – Relocating from London to Frankfurt” is the title of an information event that will provide financial services providers with valuable support in the relocation of business units (from London) to the Financial Centre Frankfurt. Well-known speakers, like Dr. Oliver Wagner (Association of Foreign Banks in Germany), Olaf Atja Lemmingson (Frankfurt Economic Development GmbH) and Eric Menges (FrankfurtRheinMain GmbH) will cover a wide range of topics: questions on supervision and regulation are to be addressed as well as employment aspects and general topics such as the housing market and schools. The organizer of the two-day event is Management Circle, whose flyer and website contain further details and dates.