Commuter Dividend

The economy of the New York-New Jersey-Connecticut metropolitan area is among the largest and most dynamic in the world. Its $2 trillion gross domestic product relies on the daily interactions of businesses, workers, and consumers in urban, suburban, and rural communities throughout a 31-county region stretching from northern New Jersey to Long Island, the Hudson Valley, and southwestern Connecticut.

As the region’s economy has grown and diversified, these interactions have become more complex. The wave of suburbanization that followed World War II spread out the region’s housing and labor markets, and eventually led to the growth of jobs in commercial centers, office parks, and retail corridors from the inner suburbs to exurban ​“edge cities.” Starting in the 1990s, new technologies, reductions in crime, and investments in housing, transit, and public spaces led to an urban revival that powered growth in jobs and industries, not only in New York City, but also throughout the region. Now, the great expansion in the amount of work done at home and other remote locations that was triggered by the COVID-19 pandemic is redefining these relationships once again.

Throughout these changes, two things have remained constant. The success of every part of the region is dependent on proximity and access to labor, customers, capital, and other resources from other parts of the region. And the Manhattan Central Business District (CBD) has remained the primary engine of the region’s economy.

The charts below illustrate that economic growth is not a zero sum game in which new jobs in one part of the region are at the expense of jobs elsewhere. Over the last 30 years, jobs in New York City and the rest of the region rose and fell in tandem through different economic cycles. Jobs grew at different rates in different parts of the region, but all parts of the region experienced their strongest growth from 2009 to 2019. Job growth was particularly strong in New York City, but jobs also grew rapidly in other parts of the region, in part because of the income and business opportunities generated by a robust city economy. Likewise, the city’s stellar job growth would not have been possible without the large pool of skilled workers living in suburban areas, in addition to those in the five boroughs.

One constant through these periods of change has been Manhattan’s large and remarkably consistent contribution to the region’s economy. From 1969 through 2021, even as population and jobs decentralized to both the other boroughs and the suburbs, about a third of all wages, salaries, and self-employment income was earned in Manhattan. While Manhattan’s share of the region’s jobs declined from 30% to 20% over this half century, its share of the region’s earnings varied from 31% to 36%. Even while still recovering from the COVID recession in 2021, 35% of the region’s earnings came from jobs located in Manhattan, more than any year since 2000 other than 2017. This amounted to $480 billion, of which $270 billion flowed to Manhattan workers living in the other boroughs and the suburbs.

The key to making this complex economy work is a robust transportation system that connects the region’s people, employers, hospitals, universities, parks, museums, entertainment, and other resources. In particular, the region’s transit network is essential to the daily flow of 11 million workers – as well as other travelers through the dense core of the region and out to the edges of the metropolitan area covering 13 thousand square miles.

The region’s passenger rail network, consisting of Amtrak’s Northeast Corridor and the commuter rail systems of New Jersey Transit, Metro-North Railroad and the Long Island Rail Road play an outsized role in this system. Without it, highways would be hopelessly congested. Interstate travel via rail also takes considerable pressure off the region’s overcrowded airports and airspace. It will also be nearly impossible to meet the region’s goals for carbon reduction without both maintaining and improving this system.

Even with the large increase in the amount of time people are now working from home, more rail capacity with better service is essential to the region’s economy and environment. This is especially true for the bottleneck between New York and New Jersey, where New Jersey Transit and Amtrak trains have to funnel into two tracks that are well over capacity and badly in need of repair. Prior to the pandemic, passengers had to endure near daily disruptions, service delays, and crushing rush hour crowds at Penn Station.

Amtrak’s Gateway Program is designed to not only repair and modernize this rail corridor, but to provide enough capacity to accommodate new riders over the next century. The program consists of 11 projects in the ten mile stretch between Newark and New York Penn Station that will modernize and refurbish the 112-year-old infrastructure, doubling capacity in this section of the Northeast Corridor, and adding resiliency and redundancy to the system. The linchpin of the Gateway Program is the Hudson Tunnel Project, which will build a new tunnel under the Hudson River and refurbish the existing North River Tunnel that was badly damaged in Superstorm Sandy.

Since the sharp decline in the number of daily passengers immediately following the start of COVID-19 pandemic, ridership numbers across the region’s transit services have continued to steadily rise. By June of this year, New Jersey Transit was back up to 70% of its pre-pandemic ridership. Amtrak’s ridership growth has been even more dramatic. By June 2023, Amtrak’s 1.5 million passenger ridership was 14% higher than it was in January 2020, immediately before the pandemic, and nearly as high as it was in June of 2019.

While Gateway is rightly considered to be the nation’s and region’s most important infrastructure project, other vital projects are needed to meet the multiple challenges of climate change and to build a more prosperous and equitable economy in the decades to come. These include the modernization of New York City’s subway system, the construction of the Penn Station Access project – which will upgrade service on Metro-North’s New Haven line, add four new stations in the East Bronx, and connect the railroad to Penn Station for the first time – and expanding service to transit deserts with projects like the Interborough Express and the next phase of the Second Avenue Subway. Paying for these improvements will require new sources of revenue, starting with congestion pricing in Manhattan that will also relieve congestion and improve air quality in the region’s core.

The remainder of this report demonstrates what’s at stake by showing how the flow of workers and earnings that is enabled by this system contributes to the economy of all parts of the New York-New Jersey-Connecticut region.

The transit network enables the flow of labor and earnings that is essential to the economies of all parts of the region. Over one million people were estimated to be living in the suburban parts of the region while working in New York City in 2022. Most of these workers physically commute into the city at least some days of the week. Since the start of the COVID-19 pandemic, an increasing number of these workers are ​“virtual commuters” who work primarily from home. Regardless of where these commuters work, their importance to the city’s workforce and to the economy of the rest of the region is largely the same.

Where New York City Workers are Commuting From, and Their Total Earnings

These commuters hold 21.6%, or more than one in five, of jobs in New York City. The largest number live in northern New Jersey, representing nearly 10% of New York City jobs. The smallest number live in southwestern Connecticut, although these commuters have by far the highest average wage. Combined, commuters from Long Island and the Mid-Hudson Valley represent 11% of all New York City jobs.

Commuters are most concentrated in high-wage industries such as finance, professional services, and information industries. The two industries with the highest share of workers living outside of New York City – Finance & Insurance and Management of Companies – have by far the highest average wage. The industries with the lowest share – Accommodation & Food Services and Other Services – are among the industries with the lowest average wage.

The wide wage disparities by industry contribute to income inequality both within New York City and across the region. It also results in commuters generating a disproportionate share of income earned by residents living in cities and suburban areas in other parts of the region. In total, commuters earned $141 billion, which represented 26.3% of all wages earned by people living outside of New York City. As a share of wages earned by residents of their home subregion, the Mid-Hudson Valley and Long Island were most reliant on commuters, with 34.3% and 33.9%, respectively, of wages in those areas.

New York City residents were also an important part of suburban economies. Over a quarter million city residents commuted from the five boroughs to jobs outside of the city. The largest number of these commuted to jobs on Long Island, but many also commuted to New Jersey and the Hudson Valley. Only about 8,000 commuted to southwestern Connecticut, but these earned the highest average salaries of all reverse commuters.

These ​“reverse commuters” also earned somewhat higher salaries than other city residents and generated $21.8 billion in earnings for New York City households. They represented 6.5% of the city’s working residents and earned 7% of city residents’ wages and salaries.

These wage and salary workers are only part of what links New York City and the rest of the region. The income of self-employed business owners is not represented in these data. There are also business-to-business linkages, with city businesses relying on suppliers and customers in the suburbs, and vice versa.

The wages and salaries earned by commuters and remote workers are critical pillars of local economies throughout the region. These workers spend a large share of their $141 billion in wages on housing, food, education, medical services, entertainment, and other goods and services close to home. This spending supports businesses and jobs in home construction, retail stores, banks, professional services, and a range of other industries, and it generates income, sales, and property taxes for their states, cities, towns, and school districts.

This is true whether someone is working from home or commuting to the office, although the more people work from home, the more they are likely to spend on housing, home furnishings, and local stores and restaurants. This is one impact of the pandemic that is still evolving and could change how the spillover benefits are divided between the place where a worker lives and the place where their employer is located. However, these changes are more likely to occur at the margins than to change the fundamental relationship. This is particularly true since people working more from home are more likely to be hybrid workers who commute on some days than they are to be fully remote workers.

To estimate these job and earnings impacts, the Bureau of Economic Analysis produces multipliers for individual industries by county and metropolitan area. The results from applying these multipliers for the different subregions in the tri-state metropolitan region are shown in the graph and table below.

An estimated 627,000 jobs and $59 billion in earnings resulted from the spending of non-New York City residents working for employers located in NYC. The combined effect of workers employed directly by New York City employers and those resulting from their purchasing power total 1.6 million jobs and $201 billion in earnings distributed among the four non-New York City subregions:

• A total of 757,000 jobs and $91.7 billion in northern New Jersey, including 310,000 jobs and $30 billion in earnings induced from worker spending

• 485,000 jobs and $52.9 billion on Long Island, including 179,000 jobs and $15 billion from induced impacts

• 321,000 jobs and $40.4 billion in the Mid-Hudson Valley, including 109,000 jobs and $10.2 billion from induced impacts

• 76,000 jobs and $15.6 billion in southwestern Connecticut, including 29,000 jobs and $4.3 billion from induced impacts

One of the most enduring effects of the COVID-19 pandemic is the way that it has disrupted patterns of work and commutation. While the number of people working from home has ebbed since the end of the 2020 lockdowns, there is general agreement that frequent work from home is a permanent fixture of the post-COVID economy. However, there are large differences in estimates of the extent and characteristics of people working from home depending on survey methods and samples. Most surveys indicate that the return to work has been sporadic and gradual after the initial return of many workers when business and travel restrictions were lifted in mid-2020. In the New York region, the amount of work performed remotely by workers of service firms has held steady at just over 20% since August 2022.

How trends in remote work will continue to evolve, and how this will change the symbiosis between New York City and other parts of the region, remains unclear. So far, the most visible effect has been the sharp decline in the number of people physically commuting to and from the office each day. This has had a profound effect on transit ridership and office occupancy, and serious implications for the financial health of transit agencies, the real estate industry, and state and local governments. A look at available data, however, suggests that the flow of earnings between the city and surrounding communities has increased even as the number of people traveling to jobs in New York City has declined.

Between 2019 and 2021, the number of people in the region who reported to the Census that they were working from home grew by 1.9 million, from just over half a million to nearly 2.5 million. Over the same two-year period, the number of people who said that they worked in New York City declined by 660,000. For residents living outside of New York City, the number who reported working from home surged from 370,000 to 1.5 million, while the number who reported working in New York City (i.e., commuters) declined from over a million to 650,000. These categories were mutually exclusive, meaning that anyone who was tabulated as working from home is automatically tallied as working in their place of residence, as opposed to the location of their employer.

As described in the Appendix, other data that are considered more reliable for tracking jobs by place of work showed a smaller decline in the number of New York City jobs. These data also showed a growth in industries that have a high share of commuters. Clearly, a large number of people who reported that they work from home are working for employers based in New York City, either remotely full time or as hybrid workers splitting their work time between their home and place of employment. While there is no way of knowing exactly how many people working from home were employed by New York City employers, it’s reasonable to assume that the share of people working for New York City employers and living in the suburbs is at least as high now as it was before the pandemic.

Using conservative assumptions, RPA estimated the number and wages of people who were working for New York City employers, whether they commuted physically to their worksite or worked from home. As shown in Figure 8, when physical commuters are combined with virtual commuters, there were small declines in the number working in New York City for each subregion, along with larger increases in their average and total wages. New York City residents experienced larger employment declines and smaller wage increases than residents in the rest of the region.

These results are largely due to two factors. The number of jobs in NYC in 2022 was still 113,000, or 2.4%, less than it was in 2019. But most of these continued job deficits were concentrated in industries like retail or accommodations that employed mostly New York City residents. By contrast, most industries with a high share of commuters had more than recovered their job losses by 2022. Average wages grew in most industries, but grew the most in high wage industries that also tended to have high shares of commuters. As noted in a recent study by the Center for New York City Affairs, the divergence in wage growth ​“magnifies already large wage inequalities among low-, middle- and high-wage industry workers in New York City.” The fact that New York City residents are also concentrated in the city’s lower wage industries likely exacerbates the impact of this divergence on city households.

While all parts of the region benefited from a 30-year increase in jobs and commuting from 1990 to 2022, the connection between New York City and New Jersey became increasingly important to both economies. The number of people commuting to New York City from northern New Jersey grew 62% from 276,000 in 1990 to 447,000 in 2022. This accounted for nearly two-thirds of the growth in all commuters from outside New York City during this period. The flow of workers from New Jersey to New York City increased each decade, but the largest growth occurred from 2010-2019 when the city experienced its most robust increase in jobs. This source of labor was an important ingredient to New York City’s resurgence, and to the growth of incomes in New Jersey.

Increase in Commuters to New York City,
1990-2022

The numbers are even more striking when looking at commutation to Manhattan. The 145,000 New Jersey commuters accounted for 24% of Manhattan’s job growth from 1990 to 2019, and 72% of all new commuters from outside the five boroughs.

The growth in commutation between New Jersey and New York can be attributed to some extent to improvements in transportation, such as the introduction of Midtown Direct service and other improvements between 1996 and 2003, which reduced commuting time to Manhattan by 20 minutes in each direction for many New Jersey Transit riders. The largest factor, however, was the growth in New Jersey’s population relative to other parts of the region. Most of the region’s population growth between 1990 and 2020 was either in New York City or northern New Jersey. In percentage terms, northern New Jersey’s population grew by 22%, compared to 12% on Long Island, 18% in the Mid-Hudson Valley (where the most rapid growth occurred in counties west of the Hudson River), and 11% in southwestern Connecticut. The population numbers reflect the degree to which the preponderance of new housing was built either in northern New Jersey or New York City.

The interconnections between New York City, New Jersey, Connecticut, and the New York suburbs will continue to evolve with changes in the economy, technology, and where people and businesses choose to locate. However, there is no indication that the pandemic and its aftermath have weakened these ties. In fact, as shown in this analysis, the flow of earnings appears to have increased. There are no signs that these trends have changed appreciably in 2023. In the last year, jobs have continued to grow both in New York City and in other parts of the region, although the rate of growth has slowed. Commuter rail ridership was up to 70-80% of pre-pandemic levels by June 2023, and there are signs that both office occupancy and transit ridership have risen considerably since Labor Day.

While much is in flux, it would be a mistake to assume that the mutually beneficial economic bonds between states or between city and suburbs will grow weaker or less important over time. The Manhattan CBD has remained the region’s primary economic engine through good times and bad, and it will remain the only place that has access to the entire regional labor and consumer markets. Even if less office space is needed, it is all but certain to remain one of the largest office markets in the world for the foreseeable future.

It is quite possible that the flow of workers and earnings could become more bidirectional over time. If New York City expands its housing supply and jobs grow in transit-accessible places outside of the city, more city residents are likely to commute to New Jersey, Long Island, Connecticut and the Hudson Valley. The recent completion of a third track on the LIRR’s mainline, as well as Grand Central Madison allowing greater access to Long Island from east Midtown, provides more reverse commute capacity to the east and strengthens the connection between New York City and Long Island. Capacity for reverse commuting to the west is far more limited.

Regardless of how the region’s economy evolves, a well-functioning transit network is critical to the success of every part of the region. Even if people spend more time working from home, most are likely to be hybrid workers who commute on some days of the week. And the majority of workers, particularly those who provide essential services in health care, child care, transportation, sanitation, and other work that requires a physical presence, will still need to commute daily. Non-work trips for school, doctor’s visits, shopping, entertainment and other purposes have also been growing faster than work trips, a trend that is expected to continue.

The Gateway Program is the single most important infrastructure investment for ensuring that the region’s economy remains vibrant and competitive with other global centers. Other priorities include completing projects that will improve the intraregional flow of people and economic activity in other parts of the region, including future phases of the Second Avenue Subway, the Penn Station Access Project that will connect Metro-North to Penn Station, and the Interborough Express that will connect the city’s outer boroughs.

Other implications include the need to adapt the CBD to the new realities of hybrid and remote work. Converting uncompetitive office space to residential use is part of the challenge. So is making the city’s streets less congested and more attractive to residents, workers and visitors alike. Successful implementation of congestion pricing, in addition to generating $15 billion to invest in MTA subway, bus and commuter rail service, will make it easier and faster to travel into and about the CBD. The addition of bus and bike lanes, pedestrian plazas, and green infrastructure to reduce heat and flooding will also make the CBD a more attractive place to live, work and play, and ensure that it continues to generate job opportunities and earnings that flow to other parts of the region.

A more affordable and balanced regional housing market is also essential to a healthy economy with symbiotic connections between all parts of the region. The severe shortage of affordable homes is widely recognized as one of the region’s greatest economic, social, and humanitarian challenges. It is also important to recognize that housing production is most anemic on the east side of the Hudson in the northern suburbs, Long Island and Connecticut. This exacerbates the region’s housing crisis, adds further strains to the transportation network, and fails to take advantage of major investments such the recent connection of Long Island Rail Road to Grand Central Terminal.

All of these problems require some level of agreement or collaboration among the region’s states and municipalities to be solved effectively, whether in the form of funding agreements, policy design or regulatory reform that balances the interests of individual jurisdictions with regional health, prosperity and equity. Too often, however, critical needs that serve the entire region, like a new Trans-Hudson passenger rail tunnel, congestion pricing in Manhattan or multifamily housing construction in the suburbs, are delayed for years, even decades, or die on the planning board due to parochial opposition. As important as it is to get the details right, it is most important to collaborate and compromise when necessary to implement solutions to the region’s most challenging problems.