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Full text of "Racial and ethnic tensions in American communities : poverty, inequality, and discrimination-Los Angeles hearing : volume VI : the New York report : a report of the United States Commission on Civil Rights"

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Racial and Ethnic Tensions 

in American Communities: 

Poverty, Ineqyuality, and 

Discrimination 



UNIV OF MD MARSHALL LAW UBRARY 



3 1428 03477 



Volume VI: The New York Report 



u?-!r-.RS 1 > of:..apyland 

\JK\N SCHOOL LIBRARY 



MiVR 3 - 2000 



DEPOSIT 



December 1999 
A Report of the United States Commission on Civil Rights 



U.S. Commission on Civil Rights 

The U.S. Commission on Civil Rights is an independent, bipartisan agency first estabhshed 
by Congress in 1957 and reestabhshed in 1983. It is directed to: 

• Investigate complaints alleging that citizens are being deprived of their right to vote by 
reason of their race, color, rehgion, sex, age, disability, or national origin, or by reason 
of fraudulent practices; 

• Study and collect information relating to discrimination or a denial of equal protection 
of the laws under the Constitution because of race, color, rehgion, sex, age, disabihty, 
or national origin, or in the administration of justice; 

• Appraise Federal laws and pohcies with respect to discrimination or denial of equal 
protection of the laws because of race, color, rehgion, sex, age, disabihty, or national 
origin, or in the administration of justice; 

• Serve as a national clearinghouse for information in respect to discrimination or denial 
of equal protection of the laws because of race, color, religion, sex, age, disabihty, or 
national origin; 

• Submit reports, findings, and recommendations to the President and Congress; 

• Issue pubhc service announcements to discourage discrimination or denial of equal 
protection of the laws. 



Members of tiie Commission 

Mary Frances Berry, Chairperson 
Cruz Reynoso, Vice Chairperson 
Carl A. Anderson 
Christopher F. Edley, Jr. 
Yvonne Y. Lee 
Elsie M. Meeks 
Russell D. Redenbaugh 

Ruby G. Moy, Staff Director 



This report is available on diskette in ASCII and WordPerfect 5.1 for persons with visual 
impau-ments. Please call (202) 376-8110. 



Racial and Ethnic Tensions 

in American Communities: 

Poverty, Inequality, and 

Discrimination 

Volume VI: The New York Report 



December 1999 
A Report of the United States Commission on Civil Riglits 



Letter of Transmittal 



The President 

The President of the Senate 

The Speaker of the House of Representatives 

Sirs: 

The United States Commission on Civil Rights transmits this report to you pursuant to 
P.L 103-419. The New York Report is the sixth volume of a series of Commission reports on 
Racial and Ethnic Tensions in American Communities: Poverty, Inequality, and Discrimina- 
tion. The report is based on hearings held in New York City in 1994 and 1995 and significant 
updates from research and media accounts. This report examines, among other topical areas, 
immigrants in New York City ana low-skill labor markets; the representation of people of 
color and women in the finance industry; the impact of securities industry rules on people of 
color and women securities professionals; and the role of community reinvestment in the 
overall economic development and revitalization of low-income areas. This report is based 
upon the sworn testimony of numerous hearing witnesses, large volumes of documents sub- 
mitted to the Commission in compliance with subpoenas duces tecum, an expert's breakdown 
of the statistical data in those documents, and substantial staff research conducted before 
and after the hearings. The staff research efforts were facilitated, in part, by the cooperative 
assistance of several Federal agencies and representatives of the securities industry who 
provided additional information to the staff to update and clarify portions of this report. 

The report presents a significant number of findings and recommendations addressing is- 
sues of racial tensions, discrimination, and inequality in New York City. The report finds, for 
example, that workplace exploitation of low- and unskilled immigrants, particularly among 
undocumented immigrants, is commonly manifested in the form of subminimum wages, over- 
time work without appropriate pay, unsanitary working conditions, and abuse or harass- 
ment. It further finds that there are no targeted actions by Federal and State labor depart- 
ments to address worker exploitation in the restaurant industry which, in effect, exacerbates 
the abuse of labor laws. 

In looking at the representation of people of color and women in the finance industry, the 
report finds some promising evidence since the Commission conducted its hearings in New 
York City, that firms have adopted measures or made commitments to increase the inclusion 
and advancement of women and people of color in prominent roles in the securities industry. 
Still, the report recommends that strong measures must continue to be enacted to counteract 
industry forces that may reduce opportunities for economic equality and diversity in the fi- 
nance industry which has long been a large, prominent, and well-paying industry. The report 
also points out that although the obligation to arbitrate is no longer coupled with the duty to 
register at the exchanges, the goal of providing the most fair and cost-efficient arbitration 
forum remains important to the resolution of employment discrimination disputes. 

The report also examines the important role of capital and lending to community devel- 
opment and considers the specific ways in which the enforcement of the Community Rein- 
vestment Act (CRA) affects the economic revitalization of underserved communities. The re- 
port notes that the CRA has played a crucial role in ensuring credit to residents of low- and 
moderate-income areas and in encouraging banks to open new branches and expand services 
in these communities. The report finds, however, what appears to be grade inflation by the 
four CRA regulatory agencies in the CRA composite performance evaluations. It is recom- 
mended that because of this possible grade inflation, the CRA regulatory agencies should 



111 



delay the awarding of overall "outstanding" ratings until they conduct enough evaluations 
throughout the industry to determine what a "normal" or "average" CRA evaluation reveals. 

The report is replete with significant other findings and recommendations that we urge 
the executive branch and the Congress to consider in the pursuit of racial and ethnic recon- 
ciliation and economic equahty in this land of opportunity. 



Respectfully, 

For the Commissioners, 




^^ 



Mary Frances Berry 
Chairperson 




iv 



Contents 



1. Introduction 1 

Section I: Background 1 

Section II: Overview of New York City 2 

Size and Geography 2 

Government Structure 2 

Demographics 3 

Socioeconomic Characteristics 6 

Overall Economy of the City 9 

Economic Opportunity for Minorities 10 

Political Structure 12 

Section III: Origins of Intergroup Conflict 13 

Perceptions of the Police 14 

City Politics 15 

The Media and Intergroup PoUtics 15 

Section IV: Recent Manifestations of Racial and Ethnic Tensions 16 

Section V: Resolutions of Racial and Ethnic Tensions 17 

Section VI: Preventing Intergroup Conflict 18 

Section VII: Topical Summary 20 

Immigrants in New York City and Low-skill Labor Markets 21 

Minorities and Women in New York City's Finance Industry 21 

Impact of Securities Industry Rules on Minority and Women Securities Professionals ....21 
The Role of Community Reinvestment ,21 

2. Immigrants in New York City and Low-skill Labor Markets 22 

Immigration in New York City 24 

Historical Demographics 24 

Present Demographics 24 

Section I: Working Conditions for Immigrants in Low-skill Industries ....26 

The Sweatshop Phenomenon 26 

The Restaurant Industry 28 

The Apparel Industry 29 

Government Responses to the Sweatshop Problem 31 

INS and Employer Sanctions 31 

U.S. Department of Labor and Federal Labor Laws 34 

New York State Department of Labor 36 

Interagency Cooperation 37 

Section II: Executive Order 124 and the Immigration and Welfare Reform 40 

Section III: Immigration's Effect on Wages, Jobs, and Racial and Ethnic Tensions 43 

Immigration Factors Affecting Jobs and Wages 44 

Supporters of Current Immigration Levels 44 

Opponents of Current Immigration Levels 46 

Geographic Distribution of Immigrants and Native Minorities 46 

Substitutability of Native Minorities 46 

Immigrant Entrepreneurialism and Ethnic Recruiting 48 

Immigration Pohcy: Family Reunification 50 

Community Responses to Ethnic Diversity 53 



3. Minorities and Women in New York City's Finance Industry 55 

Section I: Background of the Study 55 

The Prominence of New York City's Finance Industry 56 

Concerns about Minorities and Women in the Finance Industry 57 

Design of the Study 58 

EEOCData 59 

Subpoenaed Documents 59 

The Study 60 

Section II: Overview of New York City's Finance Industry 61 

The Finance Industry's 1994 Employment Profile 61 

Representation of Minorities and Women 61 

Employment by Job Classification 61 

Differences among Job Classifications 64 

Differences among Industry Segments 64 

Dynamism within the Finance Industry 64 

The 1987 Stock Market Readjustment and After 65 

A Major Downsizing in Banking 66 

Diversification of Bank Services 67 

The Revolution in Computer Technology 68 

Demographic Changes in New York City 69 

Section III: Recruiting and Hiring 69 

Race and Gender of Applicants and Persons Hired 69 

Job Qualifications 72 

Job Qualifications, Procedures, and Policies — Subpoenaed Depository Institutions 

and Securities Firms 76 

QuaUfications by Job Classifications 77 

Industry Testing and Certification 86 

General Test Development and Vahdation 87 

Test Development and Vahdation of Securities Industry Examinations 89 

Policies, Programs, and Activities Promoting Opportunities for Minorities 

and Women 92 

Recruiting, Hiring, and Promoting Staff 92 

Training Programs 93 

Recruiting Diversity 94 

Equal Employment Opportunity and Affirmative Action 96 

Diversity Training 97 

Career Development Strategies 97 

Mentoring Program 98 

Recruitment, Hiring, and Promotion Techniques 101 

Recruiting Personnel 101 

Hiring and Promoting Personnel 102 

Policy-related Documents 105 

Section IV: Dynamics within Banks and Firms 105 

Employment Patterns within Depository Institutions and Securities Firms 105 

The Employee Pool: How Does the Subpoenaed Sample Compare with Its Peers? 105 

Establishment Size: Does It Influence Gender or Race of the Employee Pool? 113 

Section V: Determining Representation 135 

Benchmarks for the Racial and Gender Composition of the Qualified Work Force 136 

The Civihan Labor Force 136 

Education 136 

Specialized Education, Certification, and Experience 140 



VI 



Comparing the Finance Industry's Employment Rates with Benchmarks of the 

Quahfied Work Force 153 

- Education as a Job Qualification 158 

Section VI: Changes in the Finance Industry's Employment over Time 160 

Overall Changes in Employment 160 

Changes in the Employment of Minorities and Women 161 

4. Impact of Securities Industry Rules on Minority and Women 

Securities Professionals 174 

Section I: The Mandatory Arbitration Requirement 175 

Predispute Mandatory Arbitration Requirement 177 

SRO Sponsored Arbitration Process 179 

Alleged Inadequacies of Discovery Procedures in SRO Sponsored Arbitration 181 

Composition of Arbitration Panels 182 

The Pool from which Arbitrators are Selected 182 

Racial and Gender Composition of the Pool 182 

Professional Background and Knowledge of Arbitrators in the Pool 183 

Composition of Individual Arbitration Panels 184 

Rules Governing the Selection of Arbitrators for Individual Cases 184 

Composition of Individual Panels 185 

Consideration of Arbitrators' Expertise 185 

Arbitration Awards in Employment Discrimination Cases 186 

Awards Finding Employers Liable 186 

Amounts Awarded to Victorious Claimants 187 

Institutional Responses to Concerns 188 

The Future of Mandatory Arbitration 190 

Section II: Rule G-37 191 

Origins of Rule G-37 191 

The Impact of Rule G-37: Minority- and Women-owned Firms 193 

The Impact of Rule G-37: Minority and Women Candidates , 194 

SEC Response to Complaints from Industry 195 

5. The Role of Community Reinvestment 196 

Section I: Federal and State Community Reinvestment Acts 196 

Federal Community Reinvestment Act 196 

(1) Lending Test 197 

(2) Investment Test 198 

(3) Service Test 198 

The New York State CRA 202 

Section II: CRA as Catalyst to Economic Development 204 

Economic Development as the Driving Engine 204 

Availability of Deposit Facihties and Services in Low-income Areas 206 

Community Development Financial Institutions 208 

Section III. CRA as Catalyst to Small Business Enterprise 210 

Small Business Lending 210 

Venture Capital Funds 211 

Microlending 211 

The Role of Immigrants 213 

Statistical Scoring and Small Business Loans 213 

Small Business Administration 214 

Section IV: CRA as Catalyst to Affordable Housing 215 

Home Mortgage Lending and Affordable Housing Initiatives 215 

vii 



Home Mortgage Disclosure Act 217 

Fair Lending Enforcement by the Department of Justice 218 

Low-income Housing Tax Credit 219 

Section V: Conclusion 220 

6. Findings and Recommendations 222 

Additional Statement of Chairperson Mary Frances Berry and 

Vice Chairperson Cruz Reynoso 232 

Dissenting Statement of Commissioner Russell G. Redenbaugh and 

Commissioner Carl A. Anderson 233 

Appendices 236 



vm 



Tables 

1.1 Population of New York City by Race/Ethnicity, 1980 and 1990 4 

1.2 New York City's Asian/Pacific Islander Population by Country of Origin, 

1980 and 1990 4 

1.3 Immigrants to New York City by Country of Origin, Legal and Undocumented 5 

1.4 Socioeconomic Characteristics of New York City Residents by Race/Ethnicity 7 

1.5 Socioeconomic Characteristics of Hispanics in New York City by Country of Origin 8 

1.6 Socioeconomic Characteristics of Asian Americans and Pacific Islanders in 

New York City by Country of Origin 9 

3.1 Summary of AppHcant and Hiring Data: 11 Subpoenaed Banks 71 

3.2 Gender-specific Hiring Data: 11 Subpoenaed Banks 71 

3.3 Gender-specific Hiring Data: Securities Firms 71 

3.4 Percentage of Total Applicants and Applicants Hired by Gender, Race, and 

Job Classification: Banking Peer Group Sample 71 

3.5 Percentage of Total Hires by Gender, Race, and Job Classification: 

Securities Firms 72 

3.6 Examples of More Qualitative Job Requirements for Selected Job Titles 74 

3.7 Array of Key Qualifications: Officials and Managers, Depository Institutions, 

Position Descriptions 80 

3.8 Array of Key Quahfications: Professionals, Depository Institutions, 

Position Descriptions 81 

3.9 Array of Key Qualifications: Sales Workers, Depository Institutions, 

Position Descriptions 82 

3.10 Array of Key Quahfications: Officials and Managers, Securities Firms, 

Position Descriptions 83 

3.11 Array of Key Qualifications: Professionals, Securities Firms, 

Position Descriptions 84 

3.12 Array of Key Quahfications: Sales Workers, Securities Firms, 

Position Descriptions 85 

3.13 Percentages Passing the Series 7 Examination by Race and Gender 91 

3.14 Example of a Written Procedure for Disseminating Equal Employment 

Opportunity and Affirmative Action Pohcies 99 

3.15 Summary of Techniques for Recruiting Employees by Job Classification, 

14 Depository Institutions with SIC 602 or 603 103 

3.16 Summary of Techniques for Recruiting Employees by Job Classification, 

15 Securities Firms with SIC 621 or 628 103 

3.17 Summary of Training Programs by Job Classification, 14 Depository Institutions 

with SIC 602 or 603 104 

3.18 Summary of Training Programs by Job Classification, 15 Securities Firms 

with SIC 621 or 628 104 

3.19 Summary of Internship and Scholarship Programs, 23 Firms with Programs 104 

3.20 Description of Banks and Securities Firms Included in Peer Group Sample 106 

3.21 Description of Banks and Securities Firms Included in Subpoena Sample 106 

3.22 Benchmarks of Racial and Gender Composition, Civihan Labor Force 141 

3.23 Benchmarks of Racial and Gender Composition, Levels of Education 141 

3.24 Benchmarks of Racial and Gender Composition, Levels of Education, 

Graduates in Four Recent School Years 143 

3.25 Benchmarks of Racial and Gender Composition, Specialized Education, 

Degrees Conferred by Selected Field of Study and Year 144 

3.26 Benchmarks of Racial and Gender Composition, Obtaining Certification in 

the Finance Industry 145 



IX 



3.27 Benchmarks of Racial and Gender Composition, Work Experience, 

Officials and Managers in the Finance Industry 145 

3.28 Benchmarks of Racial and Gender Composition, Work Experience, 

Professionals in the Finance Industry 149 

3.29 Benchmarks of Racial and Gender Composition, Work Experience, 

Sales Workers in the Finance Industry 149 

3.30 Benchmarks of Racial and Gender Composition, Work Experience, 

Office and Clerical Workers in the Finance Industry 150 

3.31 Benchmarks of Racial and Gender Composition, New York City and New York 

PMSA, Office and Clerical Workers (Summary of Tables 3.22-3.30) 155 

3.32 Benchmarks of Racial and Gender Composition, Sales Workers, United States 

(Summary of Tables 3.22-3.30) 156 

3.33 Benchmarks of Racial and Gender Composition, Professionals 156 

3.34 Benchmarks of Racial and Gender Composition, Officials and Managers 157 

3.35 Educational Levels of Persons in Selected Occupations, United States, 1990 159 

Figures 

3.1 Employment in New York City's Finance Industry, 1994 56 

3.2 Job Classifications in New York City's Finance Industry, 1994 61 

3.3 Employment of Minorities and Women in New York City's Finance Industry, 1994.... 62 

3.4 Percentage of Protected Groups Employed in the Finance Industry by 

Job Classification, 1994 63 

3.5 Peer Group Sample, Depository Institutions, Number of Employees by 

Job Classification 115 

3.6 Subpoena Sample, Depository Institutions, Number of Employees by 

Job Classification 115 

3.7 Peer Group Sample, Securities Firms, Number of Employees by 

Job Classification 116 

3.8 Subpoena Sample, Securities Firms, Number of Employees by 

Job Classification 116 

3.9 Peer Group Sample, Depository Institutions, Officials and Managers: 

Males by Race 117 

3.10 Subpoena Sample, Depository Institutions, Officials and Managers: 

Males by Race 117 

3.11 Peer Group Sample, Securities Firms, Officials and Managers: Males by Race 118 

3.12 Subpoena Sample, Securities Firms, Officials and Managers: Males by Race 118 

3.13 Peer Group Sample, Depository Institutions, Officials and Managers: 

Females by Race 119 

3.14 Subpoena Sample, Depository Institutions, Officials and Managers: 

Females by Race 119 

3.15 Peer Group Sample, Securities Firms, Officials and Managers: Females by Race 120 

3.16 Subpoena Sample, Securities Firms, Officials and Managers: Females by Race 120 

3.17 Peer Group Sample, Depository Institutions, Professionals: Males by Race 121 

3.18 Subpoena Sample, Depository Institutions, Professionals: Males by Race 121 

3.19 Peer Group Sample, Securities Firms, Professionals: Males by Race 122 

3.20 Subpoena Sample, Securities Firms, Professionals: Males by Race 122 

3.21 Peer Group Sample, Depository Institutions, Professionals: Females by Race 123 

3.22 Subpoena Sample, Depository Institutions, Professionals: Females by Race 123 

3.23 Peer Group Sample, Securities Firms, Professionals: Females by Race 124 

3.24 Subpoena Sample, Securities Firms, Professionals: Females by Race 124 

3.25 Peer Group Sample, Depository Institutions, Sales Workers: Males by Race 125 

3.26 Subpoena Sample, Depository Institutions, Sales Workers: Males by Race 125 



3.27 Peer Group Sample, Securities Firms, Sales Workers: Males by Race 126 

3.28 Subpoena Sample, Securities Firms, Sales Workers: Males by Race 126 

3.29 Peer Group Sample, Depository Institutions, Sales Workers: Females by Race 127 

3.30 Subpoena Sample, Depository Institutions, Sales Workers: Females by Race 127 

3.31 Peer Group Sample, Securities Firms, Sales Workers: Females by Race 128 

3.32 Subpoena Sample, Securities Firms, Sales Workers: Females by Race 128 

3.33 Peer Group Sample, Depository Institutions, Office and Clerical Workers: 

Males by Race 129 

3.34 Subpoena Sample, Depository Institutions, Office and Clerical Workers: 

Males by Race 129 

3.35 Peer Group Sample, Securities Firms, Office and Clerical Workers: Males by Race .. 130 

3.36 Subpoena Sample, Securities Firms, Office and Clerical Workers: Males by Race 130 

3.37 Peer Group Sample, Depository Institutions, Office and Clerical Workers: 

Females by Race 131 

3.38 Subpoena Sample, Depository Institutions, Office and Clerical Workers: 

Females by Race 131 

3.39 Peer Group Sample, Securities Firms, Office and Clerical Workers: 

Females by Race 132 

3.40 Subpoena Sample, Securities Firms, Office and Clerical Workers: 

Females by Race 132 

3.41 Peer Group Sample, Depository Establishments 133 

3.42 Subpoena Sample, Depository Establishments 133 

3.43 Peer Group Sample, Securities Establishments 134 

3.44 Subpoena Sample, Securities Establishments 134 

3.45 Employment in New York City's Finance Industry, 1987-96 165 

3.46 Changes over Time in the Employment of Minorities and Women in 

New York City's Finance Industry, 1987-96 166 

3.47 Changes over Time in the Employment of Minorities and Women in the 

Banking Segment of New York City's Finance Industry, 1987-96 167 

3.48 Changes over Time in the Employment of Minorities and Women in the 

Securities Segment of New York City's Finance Industry, 1987-96 168 

3.49 Changes over Time in the Classifications of Jobs in New York City's 

Banking and Securities Industry Segments, 1987—96 169 

3.50 Changes over Time in Employment of Protected Groups in the Finance Industry 

as Officials and Managers, 1987-96 170 

3.51 Changes over Time in Employment of Protected Groups in the Finance Industry 

as Professionals, 1987-96 171 

3.52 Changes over Time in Employment of Protected Groups in the Finance Industry 

as Sales Workers, 1987-94 172 

3.53 Changes over Time in Employment of Protected Groups in the Finance Industry 

as Office and Clerical Workers, 1987-94 173 



XI 



Chapter 1 

Introduction 



Section I. Background 

In Dual City: Restructuring New York, editors 
John Mollenkopf and Manual Castells comment 
on the "dual city" metaphor, often used to de- 
scribe New York in the context of current condi- 
tions:' 

Despite the economic slowdown since the stock mar- 
ket crash of October 1987, New York incontestably 
remains a capital for capital, resplendent with luxury 
consumption and high society. . . . but New York also 
symbolizes urban decay, the scourges of crack, AIDS, 
and homelessness, and the rise of a new underclass. 
Wall Street may make New York one of the nerve 
centers of the global capitalist system, but this domi- 
nant position has a dark side in the ghettos and bar- 
rios, where a growing population of poor people lives. ^ 

Not only do neighborhoods such as Washing- 
ton Heights (Manhattan), Bensonhurst, Crown 
Heights, and Wilhamsburg (Brooklyn), Howard 
Beach (Queens), and Staten Island — sites of ra- 
cial and ethnic violence and conflict — create an 
image of a city plagued by increasingly frequent 



' In New York Ascendant, the report of the city's Commis- 
sion on the Year 2000, the commission noted that "New 
York's poverty is not new," and "today's poor live in neigh- 
borhoods segregated by class with few connections to jobs or 
other opportunities ... A city that was accustomed to view- 
ing poverty as a phase in assimilation to the larger society 
now sees a seemingly rigid cycle of poverty and a permanent 
underclass divorced from the rest of society." New York, NY, 
Commission on the Year 2000, New York Ascendant: The 
Report of the Commission on the Year 2000 (New York: 
Harper & Row, 1988), pp. 51, 53. This theme is also traced 
in contemporary fiction set in New York. See William 
Sharpe and Leonard Wallock, "Tales of Two Cities; Gentrifi- 
cation and Displacement in Contemporary New York," in 
Begetting Images: Studies in the Art and Science of Symbol 
Production, ed. Mary B. Campbell and Mark Rollins (New 
York: Peter Lang, 1989), pp. 169-99. 

2 John H. Mollenkopf and Manuel Castells, "Introduction," 
in Dual City: Restructuring New York, ed. John H. Mollenk- 
opf and Manuel Castells (New York: Russell Sage Founda- 
tion, 1991), p. 3 (hereafter cited as Mollenkopf and Castells, 
"Dual City Introduction)." 



racial and ethnic conflict;^ but other areas that 
have not been recent sites of well-publicized in- 
terethnic violence, nevertheless, invoke the men- 
tal suggestion of race or ethnicity — Harlem 
(African Americans) and East Harlem (Latinos) 
in Northern Manhattan, the Bronx (African 
Americans), South Bronx (Latinos and African 
Americans), Bedford Stuyvesant in Brooklyn 
(African Americans), Forest Hills in Queens 
(whites), Midtown (whites), Flushing and Elm- 
hurst in Queens (Asian American and Pacific 
Islanders), ■* and Sunset Park, Brooklyn (Asian 
American and Pacific Islanders). 

This image should be contrasted, however, 
with the fact that New York has long been the 
most racially and ethnically diverse city in the 
United States. According to the New York City 
Department of City Planning, individuals repre- 
senting more than 178 countries and 115 pri- 
mary language backgrounds reside in the city. 
New York has long been a major port of entry for 
new immigrants, who have successfully made 
the transition to become U.S. citizens. The tran- 
sition has not always been completely smooth. 



3 The Howard Beach stampede of a black man to his death 
on a busy highway, the Central Park "wilding" attack by 
black youths on a white woman investment banker, and the 
Bensonhurst murder of a black man by a gang of Italian 
youth (and an assault on Latino youth in the same area a 
few days later) occurred almost simultaneously, and per- 
suaded most New Yorkers that race relations were on a 
downward curve. John H. Mollenkopf, "Political Inequality," 
in Dual City: Restructuring New York, ed. John H. Mollenk- 
opf and Manuel Castells (New York: Russell Sage Founda- 
tion, 1991), p. 350. For background on the Howard Beach 
and Bensonhurst attacks, see William Kornblum and James 
Beshers, "White Ethnicity: Ecological Dimensions," in Power 
Culture and Place: Essays on New York City, ed. John H. 
Mollenkopf (New York: Russell Sage Foundation, 1988), pp. 
201-21. 

■* The term "Asian American and Pacific Islander" is used 
throughout this report to refer to all persons having origins 
in any of the original peoples of Asia, Southeast Asia, the 
Indian Subcontinent, or the Pacific Islands who reside in the 
U.S. However, this term is not used where the source of the 
data uses other terms. 



but the city and its residents have nonetheless 
adapted. In short, most New Yorkers somehow 
manage to coexist peacefully in limited geo- 
graphic areas, under most circumstances. 

In New York, just as race intersects with in- 
come inequality in complex ways, so does eth- 
nicity. The terms "minority," "black," and 
"Latino" have become misleading abstractions — 
particularly in New York — given the number of 
groups inhabiting the city. The so-caUed "new 
immigration" has overwhelmed these categories, 
dividing them by ethnicity and nativity. ^ Roger 
Waldint er's work indicates that the foreign-born 
segments of the black population, some 15 per- 
cent of the total, seem to be doing better on av- 
erage than their native-born counterparts, a fact 
incompatible with the notion that class, race, 
and space intersect only in the form of white 
prosperity and underclass ghettos. 

The U.S. Commission on Civil Rights held a 
hearing in New York City on September 19-21, 
1994, to receive testimony and a documents 
hearing in the city on July 26, 1995, as part of a 
miiltiyear project on "Racial and Ethnic Ten- 
sions in American Communities: Poverty, Ine- 
quahty, and Discrimination." The Commission 
held these hearing to examine issues relating to 
immigration and economic opportunity in the 
context of racial and ethnic tensions in the Na- 
tion's largest city. In particular, the purpose of 
the hearings was to spotUght the impact of im- 
migration on labor markets, the representation 
of women and people of color in the finance and 
securities industry, and concerns related to capi- 
tal investment in low-income communities. 

Section II. Overview of New York City 

Size and Geography 

With a small portion of its land mass in the 
mainland. New York is a city of islands, covering 
a total area of 305.5 square miles. The city con- 
sists of Manhattan and Staten Island, a part of 
Long Island, and the southernmost tip of the 
mainland of New York State. It is situated at the 
junction of the Hudson and East Rivers with 
New York Bay, an arm of the Atlantic Ocean. 

New York City is composed of five boroughs, 
each of which constitutes a county of New York 



State: the Bronx (Bronx County), Brooklyn 
(Kings County), Manhattan (New York County), 
Queens (Queens County), and Staten Island 
(Richmond County). 

Government Structure 

The city of New York is an incorporated mu- 
nicipality with specific governmental powers 
granted to it by the State of New York under the 
home-rule pro\asions of the State constitution 
and the New York State Municipal Home Rule 
Law.6 New York City's governmental organiza- 
tion is set forth in the city charter^ and in the 
city's administrative code, and exists on two lev- 
els, municipal and borough, as discussed below. 

New York City has a strong mayor-council 
form of government, with the mayor serving as 
the chief executive officer in the city. The cur- 
rent mayor, Rudolph Giuliani, took office in 
1994, and is empowered to appoint heads of city 
departments, members of commissions, judges of 
the criminal court, and other officers not elected 
by the people. The mayor has the power to veto 
local laws passed by the City Council. The coun- 
cil consists of a president, known as the New 
York City ombudsman, elected on a citywide ba- 
sis; one council member from each of the council 
districts lying wholly within the city; and addi- 
tional council members elected at large, on a 
boroughwide basis. The president of the City 
Council chairs councU meetings and votes only 
to break ties. Like the mayor, council members 
are elected for 4-year terms.* 

Under the city charter, the 51 -member City 
Council is "vested with the legislative power of 



5 Roger Waldinger, "Race and Ethnicity," in Setting Munici- 
pal Priorities, 1990, ed. Charles Brecher and Raymond D. 
Horton (New York: New York University Press, 1989), pp. 
50-79. 



6 NY. Mun. Home Rule Law § 1 et seq. (McKinney 1994). 

' The current charter was most recently revised in 1989, and 
represents the most sweeping change in New York City 
government since the five boroughs were consolidated in 
1898. The revisions came on the heels of a unanimous 
United States Supreme Court decision holding that the old 
Board of Estimate — composed of the mayor, the president of 
the City Council, and the comptroller (each having four 
votes), and the five borough presidents (each with two votes, 
despite disparities in the size of each borough) — and charged 
with playing a role with the council in adopting the expense 
and capital budgets, controlling city property, and planning 
and zoning, violated the constitutional principle of "one per- 
son, one vote." Board of Estimate of New York v. Morris, 489 
U.S. 688, 689-703 (1989). The Board of Estimate was abol- 
ished in 1989, and its fiscal and planning authority trans- 
ferred to the mayor, City Council, and other city officials. 
See New York City Charter, ch. 3 (Lenz & Riecker 1997) 
(hereafter cited as NYC Charter). 

8 NYC Charter § 25a. 



the city."3 As such, the council enacts the city 
budge*^ and all local laws.'° It also sets its own 
rules of procedure, establishes committees, and 
passes its own budget. The council reviews all 
city programs and agencies," and possesses ad- 
vice and consent power over the selection of cer- 
tain agency heads appointed by the mayor. 12 Its 
members are elected every 4 years and represent 
districts of approximately 144,000 people. ^^ As a 
result of changes to the city charter, the mem- 
bers as of December 31, 1991 — 1 from Manhat- 
tan, 8 from the Bronx, and 14 from Queens, 16 
from Brooklyn, and 3 from Staten Island — 
served 2-year terms from January 1, 1992, to 
December 31, 1993, and those elected to the 
council in November 1993 began their regular 4- 
year terms. ^'' 

Each borough elects a president as its execu- 
tive officer to a 4-year term.^^ "phe main function 
of the borough president is to represent his or 
her borough in fiscal matters, and to advise on 
boroughwide planning. '^ Since the county and 
borough boundaries are coterminous, the same 
government serves both. Under the city charter, 
they are authorized to: (1) work with the mayor 
in preparing the annual executive budget sub- 
mitted to the City Council, and to propose bor- 
ough budget priorities directly to the council; (2) 
review and comment on major land use decisions 
and propose sites for city facilities within their 
respective boroughs; (3) monitor and modify the 
dehvery of city services within their boroughs; 
and (4) engage in strategic planning for their 
boroughs.i'' 

Each borough president appoints a member 
of the New York City Board of Education and a 
member of the City Planning Commission. Each 
borough president sits on the New York City Off- 
track Betting (0TB) Site Selection Board when 
the board is considering matters pertinent to 



s/d. §21. 

10 /d. §§ 28-31. 

"/d. §§28, 29a.2. 

'2 Id. § 31. 

'3 New York, NY, Department of General Services, The 
1993-94 Green Book, the Official Directory of the City of New 
York, p. 35. 

14 Ibid. 

•5 NYC Charter § 81b. 

'6 Id. § 82. 

17 /d. 



0TB locations within that borough; each also is 
a trustee of the New York City Employees Re- 
tirement System. The borough presidents ap- 
point members to community boards who serve 
without compensation, and each chairs a bor- 
ough board.'* 

Demographics 

As of 1990, New York City was home to ap- 
proximately 7.3 million persons, an increase of 
3.5 percent since 1980. '^ This growth occurred 
because the positive natural increase of the 
population (number of births minus the number 
of deaths) outweighed the negative net migra- 
tion (the number of persons who migrated to the 
city minus the number of persons who migrated 
out of the city). 20 

During the 1980s, a decline in the city's white 
population, 21 contemporaneous with an increase 
in its minority populations, resulted in minori- 
ties, as a whole, becoming the majority of the 
population. Fifty-seven percent of New York City 
residents are minorities, with non-Hispanic 
whites comprising the remaining 43 percent of 
the population. African Americans and Hispan- 
ics each constitute roughly one-quarter of the 
population, and Asian American and Pacific Is- 
landers comprise approximately 7 percent of the 
total population. The Hispanic and Asian Ameri- 
can and Pacific Islanders populations each expe- 
rienced high rates of growth during the 1980s, 
with the Hispanic population growing by one- 
quarter, and the Asian American and Pacific Is- 
lander population more than doubhng.22 



'»/d. 

'^ This section rests heavily on data from the 1990 census of 
population. It should be noted that, like all cities with large 
minority and undocumented populations, New York proba- 
bly suffered a serious population undercount in the 1990 
census. The city's minority and undocumented residents 
were the most likely to be undercounted. Therefore, what 
follows should be read with the awareness that the data 
most likely do not reflect the entirety of these populations. 
See table 1.1. 

2" New York City, Department of City Planning, Population 
Division. "Components of Population Change by Race and 
Hispanic Origin or Descent, 1980-1990: Population Change, 
Natural Increase, Net Migration, New York City by Bor- 
ough," DCP 1990 #13 (May 10, 1991), table 1. 

2' See table 1.1. 

22 See table 1.1. 



Table 1.1 

Population of New York City by Race/Ethnicity, 1980 and 1990 



1980 
Number 

White 
Black 
Hispanic 

Asian/Pacific Islander 
Native American 
Other 
Total 

Note: In this table, "White," "Black," "Asian/Pacific Islander," Native American," and "Other" all refer to persons who are not of Hispanic 

origin. 

Source: 1 990: Bureau of the Census. 1 990 Census of Population. Social and Economic Characteristics: New York, 1 990 CP-2-34. sec. 1 , 
table 7; 1980: Bureau of the Census, 1980 Census of Population, General Social and Economic Ctiaracteristics: New York PC80-1-C34 
N.Y., sec. 1. table 59 



Number 


Percent 


3,703,203 


52.3 


1,694,505 


24.0 


1,406,389 


19.9 


239,338 


3.4 


9,907 


0.1 


18,297 


0.3 


7,071,639 


100.0 



19! 


90 


Percent 


change 


Number 


Percent 


1980-1990 


3,178,712 


43.2 




-14.2 


1,874,892 


25.6 




10.6 


1,737,927 


23.6 




23.6 


494,287 


6.8 




107.4 


15,149 


0.2 




52.9 


19,597 


0.3 




7.1 


7,322,564 


100.0 




3.5 



Table 1.2 

New York City's Asian/Pacific Islander Population by Country of Origin, 1980 and 1990 



Chinese 
Asian Indian 
Korean 
Filipino 
Japanese 
Vietnamese 
Cambodian 
Thai 

Pacific Islanders 
Other 
Total 



1980 



Number 


Percent 


124,372 


50.6 


46,708 


19.0 


22,073 


9.0 


25,391 


10.3 


13,685 


5.6 


2,879 


1.2 


N/A 


N/A 


N/A 


N/A 


N/A 


N/A 


10,651 


4.3 


245,759 


100.0 



19! 


90 


Percent change 


Number 


Percent 


1980-90 


240,014 


50.0 


93.0 


88,247 


18.4 


88.9 


71,225 


14.8 


222.7 


45,645 


9.5 


79.8 


17,700 


3.7 


29.3 


8.728 


1.8 


N/A 


2,473 


0.5 


N/A 


4,217 


0.9 


N/A 


2,141 


0.4 


N/A 


N/A 


N/A 


N/A 


480,390 


100.0 


107.7 



Note: In this table, the Asian/Pacific Islander population includes persons of Hispanic origin. 

Source: 1990: Bureau of the Census, 1990 Census of Population. Social and Economic Characteristics: New York, 1990 CP-2-34, sec. 2, 
table 189; 1980: Bureau of the Census, 1980 Census of Population. General Social and Economic Characteristics: New York, PC80-1-C34 
NY, sec. 1, table 58 



With the exception of the Japanese, each of 
New York's Asian American and Pacific Islander 
groups grew considerably during the 1980s. ^3 
The city's Chinese and Asian Indian populations 
almost doubled, and the Korean population in- 
creased more than threefold.24 



23 See table 1.2. 
2^ Ibid. 



A sahent feature of New York City's demog- 
raphy is its large number of immigrants. ^^ Of aU 



25 A distinction should be drawn between New York's "new" 
immigrants and its "old" immigrants. New immigrants are 
usually considered to be those who have arrived since 1965, 
in contrast to "old" immigrants, who came in record num- 
bers at the turn of the century. Moreover, old immigrants 
were overwhelmingly European, whereas today's new arri- 
vals come mainly from the Third World, especially the West 
Indies, Latin America, and Asia. Nancy Foner, "New Immi- 
grants and Changing Patterns," in New Immigrants in New 
York, ed. Nancy Foner (New York: Columbia University 
Press, 1987), p. 2 (hereafter cited as Foner, "New Immi- 
grants"). 



Table 1.3 

Immigrants to New York City by Country of Origin, Legal and Undocumented 





Lee 


lal 


Undocumented 








Percent 


Percent 




Number 


distribution 


Number 


distribution 


Dominican Republic 


151,712 


16.9 


25,600 




5.2 


Jamaica 


87,112 


9.7 


21,200 




4.3 


China 


79,841 


8.9 


12,700 




2.6 


Guyana 


67,729 


7.5 


10,900 




2.2 


Haiti 


48,518 


5.4 


21,400 




4.4 


Soviet Union 


36,593 


4.1 


3,900 




0.8 


Colombia 


26,834 


3.0 


24,500 




5.0 


India 


24,938 


2.8 


9,900 




2.0 


Korea 


24,361 


2.7 


1,200 




0.2 


Ecuador 


22,857 


2.5 


27,100 




5.5 


Philippines 


19,791 


2.2 


8,100 




1.7 


Trinidad and Tobago 


19,342 


2.2 


20,500 




4.2 


Hong Kong 


13,727 


1.5 


2,600 




0.5 


Poland 


12,712 


1.4 


25,800 




5.3 


Honduras 


11,381 


1.3 


9,500 




1.9 


United Kingdom 


11,054 


1.2 


1,700 




0.3 


Israel 


10,073 


1.1 


13,500 




2.8 


Peru 


9,920 


1.1 


5,300 




1.1 


Pakistan 


9,803 


1.1 


14,600 




3.0 


El Salvador 


9,689 


1.1 


15,300 




3.1 


All immigrants 


898,213 


100.0 


490,100 




100.0 



Note: "Legal" immigrants are legal immigrants wtio came to New Yorl< City between 1982 and 1991. "Undocumented" immigrants esti- 
mated to be residing in New York State in October 1992. Most undocumented immigrants in the State reside in New York City. 



Source: New York City Department of City Planning, Population Division, 
on data from the U.S. and Naturalization Service, Sept. 2, 1993. table 2 



'Estimates of Undocumented Aliens as of October 1992," based 



New York City residents, 28 percent were born 
outside the United States. ^^ Many are recent 
immigrants: between 1982 and 1991, almost 
900,000 legal immigrants, or roughly 12 percent 
of the city's entire population, came to New York 
City.2' In addition, a vast majority of the esti- 
mated 500,000 undocumented immigrants esti- 
mated by the Immigration and Naturalization 
Service to be residing in New York State hve in 
New York City.^s Currently, few cities in the 
country have a comparable percentage of immi- 
grants, and only one, Miami, markedly sur- 
passes New York in its share of foreign born.29 



26 Bureau of the Census, 1990 Census of Population and 
Housing, Summary Social, Economic, and Housing Charac- 
teristics: New York, table 2, p. 51. 

2' See table 1.3. 

2« New York, NY, Department of Planning, Population Divi- 
sion, "Estimates of Undocumented Aliens as of October 
1992," Sept. 2, 1993. 

2» Ibid. 



New York's immigrant population is not only 
notable for its size but also for its extreme het- 
erogeneity. ■''' New York is more ethnically di- 
verse than any other immigrant city in the 
United States. Moreover, most of the various 
immigrant groups are represented in quite large 
numbers. New York draws immigrants from aU 
regions of the world, although a significant share 
of the city's foreign born come from the Carib- 
bean. Six countries account for one-half of all 
recent legal immigrants to New York City: the 
Dominican Republic, Jamaica, China, Guyana, 
Haiti, and the Soviet Union. In fact, more than 
one-quarter of all recent immigrants come from 
the Dominican Republic and Jamaica alone.^' 
Conversely, Los Angeles' foreign-born population 
is overwhelmingly Mexican (41 percent) and 
Asian American and Pacific Islander (20 per- 



™ Foner, "New Immigrants," p. 6. 
" See table 1.3. 



cent), with a relatively small proportion of Euro- 
peans (14 percent total for all Europeans), West 
Indians (2 percent), and South Americans (3 
percent). 32 

New York City's population is distributed 
across the five boroughs as follows: the Bronx, 
16.4 percent; Brooklyn, 31.4 percent; Manhat- 
tan, 20.3 percent; Queens, 26.7 percent; and 
Staten Island, 5.2 percent. ^3 However, the city's 
minorities are not evenly distributed across the 
boroughs: African Americans are concentrated in 
Brooklyn, which is home to more than 40 per- 
cent of African Americans in the city but only 3 1 
percent of aU city residents. Hispanics are con- 
centrated in the Bronx, where they constitute 44 
percent of all residents, almost double their per- 
centage in the city as a whole. Almost one-half of 
all Asian American and Pacific Islanders live in 
Queens, in comparison to about one-quarter of 
all city residents. Whites are overrepresented in 
Staten Island, where they make up four-fifths of 
the population, and underrepresented in the 
Bronx. 34 

Similarly, immigrants are not distributed 
across New York's boroughs in proportion to the 
city's general population. Immigrants are one- 
third more likely than the average city resident 
to live in Queens, where immigrants make up 36 
percent of the population. Immigrants are also 
overrepresented in Manhattan, the Bronx, and 
Staten Island, while they are underrepresented 
in Brooklyn. 

Socioeconomic Characteristics 

In New York City, income varies considerably 
across boroughs. The poorest borough is the 
Bronx, with a median family income of just over 
$25,000. The wealthiest borough is Staten Is- 
land, with an average income of over $50,000. 
Brooklyn, Manhattan, and Queens have median 
family incomes of approximately $30,000, 
$35,000, and $40,000, respectively.^s 



32 Foner, "New Immigrants," p. 6; Ellen Percy Kraly, "US 
Immigration Policy and the Immigrant Populations of New 
York," in New Immigrants in New York, ed. Nancy Foner 
(New York: Columbia University Press, 1987), p. G2. 

33 Bureau of the Census, 1990 Census of Population and 
Housing, Summary Population and Housing Characteristics: 
New York, table 4, p. 107. 

34 Ibid. 

35 Foner, "New Immigrants," p. 24. 



Based on data obtained from the 1990 census 
of population, by most measures, white and 
Asian American and Pacific Islanders have at- 
tained, on average, higher levels of socioeco- 
nomic status than blacks and Hispanics. 36 Wliite 
and Asian American and Pacific Islanders also 
have the highest levels of educational attain- 
ment. About one-third of adults in each of these 
groups are college graduates, compared with 
roughly one-tenth of blacks and Hispanics. 
Younger white and Asian American and Pacific 
Islanders are also more likely to be enrolled in 
college than blacks and Hispanics. Similarly, 
white and Asian American and Pacific Islanders 
have higher rates of adult male and female em- 
ployment, lower rates of adult and teenage un- 
employment, and higher median family incomes 
than blacks or Hispanics. 3' Whites and Asian 
American and Pacific Islanders are very close to 
each other in all these measures except for me- 
dian family income, which is much higher for 
whites ($47,015) than for Asian American and 
Pacific Islanders ($33,445).38 

High average levels of socioeconomic status 
are not attained by all of the Asian American 
and Pacific Islander population. For instance, 
10.6 percent of Asian American and Pacific Is- 
lander adults have not completed a fifth- grade 
education. Similarly, one in five Asian American 
and Pacific Islander famihes has a family income 
below $15,000, and one in seven persons Uves 
below the poverty level. 3^ 

Although blacks and Hispanics both appear 
to occupy lower socioeconomic status generally 
than white and Asian American and Pacific Is- 
landers, there are several significant socioeco- 
nomic differences between the two groups. First, 
black New Yorkers have considerably higher 
educational attainment than Hispanics. Almost 
two-thirds of black adults have graduated from 
high school, in comparison to less than one-half 
of Hispanics. The percentage of black adults 
with less than a fifth-grade education is less 
than one-half the percentage for Hispanics. 



36 Since the numbers of Native Americans in New York City 
are relatively small, measures of their socioeconomic status 
will not be discussed in this section. For the interested 
reader, however, comparable numbers for Native Americans 
do appear in table 1.4. 

37 See table 1.4. 

38 Ibid. 

39 Ibid. 



Table 1.4 

Socioeconomic Characteristics of New Yorl< City Residents by Race/Ethnicity 



Educational attainment 

Percent 25+ less than 5th grade education 
Percent 25+ high school graduates 
Percent 25+ college graduates 
School enrollment 
Percent 18-24 enrolled in college 
Percent 16-19 not enrolled, 
not high school graduate 
Labor force status 
Males 25-54 
Employed 
Unemployed 
Out of labor force 
Females 25-54 
Employed 
Unemployed 
Out of labor force 
Unemployment rate 
Males 16-19 
Males 20-24 
Income 
Median family income 
Percent households with income 

below $15,000 
Percent households with income 
above $75,000 
Poverty 
Percent persons below poverty line 
English language ability 
Percent do not speak English very well 
Nativity and citizensliip status 
Percent foreign born 
Percent of foreign born not U.S. citizens 
Family status 
Percent married couple families 









Asian/ 










Pacific 


Native 


White 


Black 


Hispanic 


Islander 


American 


2.7 


4.3 


11.2 


10.6 


7.5 


77.8 


64.1 


47.9 


68.2 


63.6 


32.3 


12.4 


8.2 


33.4 


18.4 


41.7 


29.7 


25.3 


50.3 


32.4 


7.7 


15.1 


20.4 


5.6 


17.8 


86.2 


70.4 


74.2 


85.8 


77.4 


4.5 


10.4 


8.7 


4.8 


6.0 


8.7 


19.1 


16.8 


9.3 


16.3 


69.9 


65.8 


48.2 


68.5 


62.8 


3.6 


6.8 


7.2 


4.0 


6.4 


26.4 


27.2 


44.5 


27.8 


30.8 


7.7 


12.8 


12.8 


6.2 


7.9 


7.8 


16.2 


14.1 


5.9 


14.0 


$47,015 


$27,371 


$21,255 


$33,445 


$23,892 


11.8 


28.0 


38.3 


19.5 


30.8 


24.8 


7.6 


4.1 


12.8 


5.9 


9.6 


25.3 


33.2 


16.1 


24.6 


- 


- 


46.3 


53.1 


22.1 


19.3 


26.6 


35.4 


79.5 


35.6 


37.4 


64.5 


71.3 


64.6 


65.9 



80.5 



44.4 



50.0 



81.3 



49.0 



Note: In this table, "White" refers to non-Hispanic white: "Black," "Asian/Pacific Islander," and "Native American" include those of 
Hispanic origin. 

Source: 1990 Census of Population, Social and Economic Characteristics: New York, 1990 CP-2-34, sec. 2, tables 180, 181, 183, 
184, 186, 187 



Younger blacks are more likely to attempt to 
complete their high school education or enroll in 
college than their Hispanic counterparts. Sec- 
ond, blacks have higher average family incomes 
and a lower percentage of individuals living be- 
low the poverty level than Hispanics. Finally, 
while adult black males have only slightly lower 
employment rates than Hispanic males, adult 
black females are considerably more likely to be 
working than their Hispanic counterparts.''" 



For instance, Cubans and Central and South 
Americans have poverty rates below that of 
black New Yorkers, whereas Puerto Ricans and 
Dominicans each have poverty rates approach- 
ing 40 percent, far exceeding the 25 percent rate 
for black city residents.'" 

Table 1.6 shows a simOar degree of diversity 
among Asian American and Pacific Islander 
subgroups. As just one example, the percentage 
of adults who are college graduates varies from a 



Table 1.5 

Socioeconomic Characteristics of Hispanics in New York City by Country of Origin 



Educational attainment 

Percent 25+ less than 5th grade education 

Percent 25+ high school graduates 

Percent 25+ college graduates 
School enrollment 

Percent 18-24 enrolled in college 

Percent 16-19 not enrolled, 
not high school graduate 
Income 

Median family income 

Percent households with income 
below $15,000 

Percent households with income 
above $75,000 
Poverty 

Percent persons below poverty line 
English language ability 

Percent do not speak English very well 
Nativity and citizenship status 

Percent foreign born 

Percent of foreign born not U.S. citizens 
Family status 

Percent married couple families 



Puerto 






Central 


South 


Rican 


Dominican 


Cuban 


American 


American 


10.7 


16.4 


8.9 


9.9 


7.4 


45.9 


38.5 


55.4 


53.3 


59.0 


6.1 


6.2 


18.4 


8.8 


7.4 


22.3 


27.1 


40.3 


27.1 


33.3 


22.0 


17.4 


16.3 


17.4 


11.8 


;l 8,667 


$17,276 


$32,675 


$25,669 


$28,527 


46.1 


44.2 


32.7 


27.4 


24.8 


3.2 


2.6 


8.9 


5.3 


6.0 


38.6 


37.9 


19.4 


22.2 


17.5 


36.7 


63.2 


46.1 


50.3 


59.0 


1.5 


71.3 


69.2 


77.8 


78.8 


58.9 


74.3 


40.6 


68.2 


75.6 



45.1 



44.3 



67.3 



56.0 



64.7 



Source: 1990 Census of Population, Social and Economic Characteristics: New York, 1990 CP-2-34, sec. 2. tables 192, 194 



The Hispanic and Asian American and Pacific 
Islander populations are diverse groupings. Ta- 
bles 1.5 and 1.6 show the socioeconomic charac- 
teristics of selected Hispanic and Asian sub- 
groups, respectively. Table 1.5 reveals a consid- 
erable degree of variation across Hispanic sub- 
groups, with Puerto Ricans and Dominicans 
generally at the lower end of the socioeconomic 
spectrum and Central and South Americans — 
and especially Cubans — faring somewhat better. 



low of 15 percent of Vietnamese — which is close 
to the percentage for blacks — to a high of 63 per- 
cent for Fihpinos— which is almost twice the 
percentage for non-Hispanic whites. Japanese''^ 



-lo Ibid. 



^' See tables 1.4 and 1.5. 

"•^ The high percentage of Japanese who are foreign born (74 
percent) suggests that many of the Japanese living in New 
York are not Japanese Americans (persons of Japanese de- 
scent who were either born here or who came to America 
with the intention of remaining here permanently), since 
most Japanese Americans are born here in families that 
have been in the United States for several generations. 



and Asian Indians also show high degrees of 
educational attainment, while Chinese had the 
highest percentage (17 percent) of adults with 
less than a fifth-grade education. Poverty rates 
also varied considerably across subgroups, 
ranging from a low of 6.5 percent for Filipinos to 
a high of 39 percent for Vietnamese. ''^ 



county region contains another 8 million jobs, 
producing a gross city product of $150 billion 
and a gross regional product of $425 billion in 
1985.4'' The 1977-1987 boom in New York City 
generated substantial gains in real income and 
wealth for many of its residents. Despite the halt 
to the growth in employment after 1987, earn- 



Table 1.6 

Socioeconomic Characteristics of Asian Americans and Pacific Islanders in New York City 
by Country of Origin 

Asian/ 
Chinese 
Educational attainment 

Percent 25+ less than 
5th grade education 
Percent 25+ high school graduates 
Percent 25+ college graduates 
School enrollment 
Percent 18-24 enrolled in college 
Percent 16-19 not enrolled, 
not high school graduate 
Income 
Median family income 
Percent households with income 

below $15,000 
Percent households with income 
above $75,000 
Poverty 
Percent persons below poverty line 
English language ability 
Percent do not speak 
English very well 
Nativity and citizenship status 
Percent foreign born 
Percent of foreign born not 
U.S. citizens 
Family status 
Percent married couple families 

Source: 1990 Census of Population. Social and Economic Characteristics: New York. 1990 CP-2-34, sec. 2, tables 190. 191 



Chinese 


Indian 


Korean 


Filipino 


Vietnamese 


Japanese 


16.7 


5.3 


5.9 


2.0 


10.8 


1.5 


55.4 


75.0 


80.9 


90.6 


51.9 


93.8 


24.5 


38.2 


34.3 


62.9 


15.3 


53.7 


53.0 


44.9 


54.9 


50.5 


36.7 


62.0 


5.1 


5.8 


5.8 


3.7 


4.8 


1.1 


$30,479 


$37,819 


$29,453 


$52,227 


$19,799 


$48,393 


25.6 


15.9 


26.2 


9.5 


40.5 


22.5 


10.9 


13.4 


7.2 


19.8 


7.0 


19.2 


17.0 


13.2 


17.2 


6.5 


39.2 


15.3 


65.0 


25.9 


68.2 


25.0 


68.6 


47.0 


77.8 


82.4 


85.5 


80.1 


83.6 


73.5 


55.6 


71.2 


75.3 


61.1 


63.0 


90.3 


83.1 


83.2 


85.8 


71.2 


61.7 


86.9 



Overall Economy of the City 

At the core of the New York economic picture 
is the Manhattan central business district, 
where 2 million people work in 500 milhon 
square feet of office space. The surrounding 30- 

Rather, a large proportion of New York's residents reporting 
that they are Japanese are probably Japanese citizens tem- 
porarily residing in the United States. Thus it is difficult to 
interpret table 1.6's data on Japanese as reflecting the char- 
acteristics of Japanese Americans. 

■<■■' See table 1.6. 



ings continued to rise. Nevertheless, the distri- 
bution of these income gains was highly unequal 
across the different population deciles between 
1977 and 1986. 

For the bottom 20 percent of the city's house- 
holds, conditions worsened in absolute as well as 



'' Mollenkopf and Castells, "Dual City Introduction," p. 6 
(citing Regional Plan Association, "New York in the Global 
Economy: Studying the Facts and the Issues" (paper pre- 
sented to World Association of Major Metropolises meeting, 
Mexico City, April 1987), p. 1). 



relative terms, while the top 10 percent of the 
population experienced a real income gain of 
more than 20 percent. Although the national 
income distribution also became more unequal, 
New York City's trend was worse. The ratio of 
total income received by the top 10th to that re- 
ceived by the bottom 10th increased from 14.5 to 
ig.S.-'s Put differently, the top 10th of the popu- 
lation gained almost a third of all income gains, 
and the top 20 percent of the population gained 
half. At the same time, the bottom 20 percent 
lost, not only relative to better off people, but 
absolutely compared with what they had a dec- 
ade earUer. 

If prosperity for the upper fifth was one ma- 
jor reason for this growing inequality, the 
growth of poverty was the other. The total num- 
ber of persons officially classified as poor climbed 
from 1.1 million in 1975 to 1.7 million in 1984, 
and remained at this level in 1987. The number 
of persons with an income of less than 75 per- 
cent of the poverty level climbed even more 
steeply, from 560,000 to 1.1 million. To place 
these data in context, consider that in 1950, the 
poverty rate for New York City (16 percent) was 
below the national rate (22 percent).''^ Since 
1969, however, the poverty rate for New York 
City has consistently exceeded national rates, 
and in recent years the margin has widened."*' 
By 1989, 23.2 percent of New York City families 
were living below the poverty line, as opposed to 
a national rate of 13.5 percent."*^ 

The poverty rate for female-headed house- 
holds in New York City increased from 41 per- 
cent in 1969 and 55 percent in 1979, to 63 per- 
cent in 1987. In addition, while one out of five 
New York City children hved in poverty in 1969, 
by 1987 almost two out of five children were be- 



ing reared in poverty, a rate that exceeded the 
national average.''^ 

Since 1977 jobs have increased in white-collar 
occupations in the pubhc sector, financing, and 
insurance. However, the retail and manufac- 
turing jobs generally available to the poor have 
decreased. A 1988 New York Times survey re- 
ported that 45 percent of the adult population of 
New York City (aged 16 to 64) did not hold a 
job.5<* Since the unemployment rate at that time 
was 4.5 percent, one commentator suggests that 
approximately 40 percent of the adult population 
was not in the labor force. ^^ 

According to demographers Mollenkopf and 
Castells, the increase of poor female-headed 
households, low labor force participation rates 
for virtually aU subgroups of the population, and 
the decline in the real value of transfer pay- 
ments have contributed to the growth of poverty. 
Moreover, they argue, blacks and Latinos have 
been largely excluded from the most rapidly 
growing and remunerative occupations in the 
postindustrial economy, and as a result, New 
York has been transformed from a relatively 
well-off, blue-collar city, into a more economi- 
cally divided, multiracial, white-collar city.^^ 

Economic Opportunity for Minorities 

The extent to which economic opportunities 
are open to minorities in New York City can be 
determined on a macro level by examining 
changes in economic outcomes, in terms of the 
absolute or relative incomes of minorities, and 
by examining job opportunities for minorities 
within different industries. 

There is conflicting evidence as to the extent 
to which New York City's minority population 
has progressed economically. Research based on 
the Current Population Survey suggests that 
during the decade of the 1980s, economic condi- 



■•^ Ibid., p. 11 (citing Philip Weitzman, Worlds Apart (New 
York: Community Service Society, 1989), chap. 2, fig. 5). 

'"> Ida Susser, "Separation of Mothers and Children," in Dual 
City: Restructuring New York, ed. John H. Mollenkopf and 
Manuel Castells (New York: Russell Sage Foundation, 
1991), p. 209. 

■" Ibid. 

^^ Ibid., p. 221 n. 7 (citing Terry J. Rosenberg, Poverty in 
New York: The Crisis Continues (New York: Community 
Service Society, 1989), app. table 2). See also E. Tobier, The 
Changing Face of Poverty: Trends in New York City's Popu- 
lation in Poverty (New York: Community Service Society, 
1984). 



••9 Susser, "Separation of Mothers and Children," p. 209 
(citing Rosenberg, Poverty in New York, chap. 6; Tobier, The 
Changing Face of Poverty, p. 8). 

50 New York Times, Aug. 3, 1988, p. 1. 

5' Susser, "Separation of Mothers and Children," p. 209. 

52 Mollenkopf and Castells, "Dual City Introduction," p. 8. 
For a discussion of these trends, see John H. Mollenkopf, 
"The Post-industrial Transformation of the Political Order 
in New York City," in Power, Culture, and Place: Essays on 
New York City, ed. John H. Mollenkopf (New York: Russell 
Sage Foundation, 1988). 



10 



tions for New York City's minorities worsened. ^3 
However, recent analyses based on 1990 census 
data yield conflicting results. One study found 
that New York City and Boston were exceptions 
to the national trends of stagnant real incomes 
and growing income inequality along racial and 
ethnic lines. Whereas nationally real family in- 
come rose by only 5.6 percent between 1979 and 
1989, median family income in New York in- 
creased by 21.5 percent, making New York the 
city with the second highest family income 
growth (after Boston) of the 16 largest cities in 
the United States. During the same period, New 
York's black and Hispanic household incomes 
rose even faster, by 34 percent and 26 percent, 
respectively. S"* A similar result was obtained by 
New York's Department of City Planning, which 
found that Puerto Rican families made large in- 
come gains during the 1980s.55 

After a period of economic boom in the 1980s, 
New York, along with the rest of the country, 
entered a recession in 1990. The unemployment 
rate for all New Yorkers increased from under 6 
percent in May 1989 to 11.5 percent in June 
1992. As the Nation began to pull itself out of 
the recession. New York's unemployment rate 
fell to 9.4 percent in June 1993.^^ Since swings in 
the economy generally have larger effects on mi- 
norities, the recession and the recovery likely 
altered the relative circumstances of minorities 
after the 1990 census was taken. 

Nationwide, many have attributed dechning 
economic opportunities for minorities, especially 
those with low levels of education, to "industrial 
restructuring," or a dechne in the industrial sec- 
tor and a rise in the financial and services sec- 
tors. On average across the United States, in- 
dustrial-sector jobs provide greater pay to per- 
sons with low levels of education than jobs in the 
financial or service sectors. As the Nation's in- 
dustrial sector has dechned, these high-paying 
jobs have disappeared, forcing minorities and 



^■' See, e.g., Terry J. Rosenberg, Poverty in New York City, 
1991: A Research Bulletin (New York: Community Service 
Society of New York, 1992). 

^ Matthew P. Drennan, Emanuel Tobier, and Jonathan 
Lewis, "The Interruption of Income Convergence and In- 
come Growth in Large Cities in the 1980s," 1994, unpub- 
lished manuscript. 

55 New York, NY, Department of City Planning, Puerto Ri- 
can New Yorkers in 1990, Dec. 6, 1993, draft report. 

56 Bureau of Labor Statistics, Employment and Earnings, 
vol. 40, no. 8 (August 1993), p. 139. 



others with low levels of education to accept the 
lower paying, low-skilled jobs available in other 
sectors of the economy. 

According to research by the New York De- 
partment of City Planning, however. New York 
City's experience has not been consistent with 
the national trend. ^^ Because New York City's 
manufacturing jobs are concentrated in the non- 
durable manufacturing sector, such as the tex- 
tile industry, rather than in the higher paying 
durable manufacturing sector, the manufactur- 
ing industry in New York City has not histori- 
cally produced high-paying jobs for persons with 
low levels of education. In fact, as of 1980, the 
most recent year for which data are available, 
wages for non-high school graduates were only 3 
percent higher in New York's nondurable manu- 
facturing industry than in its retail sector. By 
contrast, workers with high levels of education 
received much larger wage premiums in New 
York's manufacturing sector relative to its retail 
industry. 58 

Other industrial-sector industries (construct- 
ion, transportation, communications, and pubhc 
utihties) did have high rates of pay for workers 
who were not high school graduates, but minori- 
ties were underrepresented in these industries. 
Although whites were only 27 percent of all 
workers with less than a high school degree, in 
construction whites were 50 percent of such 
workers, and in transportation, commutation, 
and public utihties, whites were 43 percent of 
such workers. 59 Thus, those industrial-sector 
jobs that did offer high-paying jobs to persons 
with low levels of education generally were not 
fiUed by minorities. 

By 1980 more than half of the jobs for less 
educated workers were in the nonindustrial 
services and financial sectors of the economy and 
in government. Because of its special promi- 
nence in New York City, it is instructive to look 
at job opportunities for minorities in the finan- 
cial industry.^" According to research by the New 
York Department of City Planning, within the 
city's nonindustrial sector, the financial industry 



57 New York, NY, Department of City Planning, Citywide 
Industry Study: Labor Force Technical Report, DCP-93-03 
(January 1993). 

58 Ibid., p. 25. 

59 Ibid., p. 30. 

8" Here the financial industry refers to the financial 
(including banking), insurance, and real estate industries. 



11 



offered some of the highest paying and most sta- 
ble jobs for workers with low levels of educa- 
tion.''' However, as in industrial-sector jobs that 
paid well at low levels of education, minorities 
with low levels of education were underrepre- 
sented in the financial industry relative to com- 
parable whites. Furthermore, the financial in- 
dustry had one of the highest gaps between the 
pay of minorities and whites without a high 
school degree, with minorities earning only 85 
percent as much as whites. ^^ Other research 
suggests that the black-white pay gap in the fi- 
nancial services industry extends to workers 
with higher levels of education as well.^^ 

Traditionally, public-sector jobs have been 
more open to minorities than jobs in the private 
sector, and they have allowed many minorities to 
achieve middle-class status. However, research 
suggests that minorities, despite increases in 
their representation in city jobs over time, con- 
tinue to be clustered in the lowest paying jobs 
and in the lowest paying city agencies.^^ 

Political Structure 

New York City has a varied political geogra- 
phy. The growing but relatively poor black and 
Latino populations are centered in and around 
Central and East Harlem, the Lower East Side, 
the South Bronx, and Bedford-Stuyvesant in 
Brooklyn. Whites, who tend to have more finan- 
cial resources, have held onto their East and 
West Side enclaves in Manhattan. During the 
1980s, they entered some minority areas, such 
as the Lower East Side, and transformed loft 
factory districts hke SoHo and Tribeca. Middle- 
class Italians and Jews have also formed en- 
claves on the city's periphery, from Riverdale in 
the Bronx to Bayside in Queens, around to Ca- 
narsie and Bensonhurst and Bay Ridge in 
Brooklyn. Areas of immigrant influx punctuate 
this pattern, most notably the Chinese settle- 
ments in Chinatown, Flushing, and Elmhurst in 



61 Ibid., pp. 25-27. 

62 Ibid., p. 30. 

63 Walter Stafford, professor of economics, Wagner Institute 
for Public Service, New York University, telephone inter- 
view, December 1994. 

6'' Walter Stafford, "Racial, Ethnic, and Gender Employment 
Segmentation in New York City Agencies," in Hispanics in 
the Labor Force: Issues and Policies, ed. Edwin Melendez, 
Rodriguez Clara, and Janis Berry Figueroa (New York: Ple- 
num Press, 1991), pp. 159-80. 



Queens, and Sunset Park, Brooklyn; the West 
Indian communities of Crown Heights and Flat- 
bush in Brooklyn, and Cambria Heights in 
Queens; the Dominicans in Washington Heights; 
and the Latin American zone of Jackson 
Heights, Queens. S5 

Of approximately 5.2 milUon voting-age resi- 
dents, about 3 milhon are currently registered. 
Democrats comprise about two-thirds of this 
number, while the next largest group, those de- 
chning to state a party, comprise 15 percent. Re- 
pubUcans enrolled 14 percent, with the Liberal 
and Conservative parties enrolling less than 1 
percent each. 

Changes in New York City's political compo- 
sition have occurred in correlation with patterns 
of immigration. Beginning in the 1850s, an Irish 
and German working class sought to displace the 
English-stock and native-born commercial elite, 
succeeding by the 1870s. As their numbers in- 
creased after the turn of the century, Italian and 
Jewish immigrants began to challenge Irish- 
dominated politics in the 1930s, and gained 
power by the 1950s. After World War II, blacks 
and Puerto Ricans began to challenge the domi- 
nant Italian and Jewish establishment in Har- 
lem, Brooklyn, and later, southeastern Queens. 

The process of poHtical succession in New 
York City has been noted for its torpidity. Al- 
though the Irish first arrived in substantial 
numbers in 1848, an Irish mayor was not elected 
until the 1880s — despite the fact that Tammany 
was in Irish hands earher. Jews and Itahans 
arrived between 1890 and 1920, but did not fully 
displace Irish leaders from the Democratic party 
until the 1950s.^6 And, although blacks and 
Puerto Ricans arrived during and after World 
War II, a black mayor was first elected only in 
1989.^'' To date, no Puerto Rican has held a city- 
wide elective office in New York City.^^ 

Despite that non-Hispanic whites are a mi- 
nority of the city's population, and despite the 
city's hberal tradition. New York City's political 
structiire has not changed rapidly in reflection of 
the city's demographic and social makeup. For 



65 Mollenkopf, "Political Inequality," p. 339. 

66 Fiorello LaGuardia (1934-45), elected to mayor in 1933, 
was a Republican. The first Jewish Democratic mayor, 
Abraham D. Beame (1974-77), was not elected until 1973. 
1993-94 Green Book, p. 4. 

67 David N. Dinkins, mayor of New York, NY, 1990-93. Ibid. 

68 Mollenkopf, "Political Inequality," pp. 334-35. 



12 



example, although a 1987 census study indicated 
that the city was approximately 46 percent non- 
Hispanic white, 24 percent non-Hispanic black, 
23 percent Hispanic, 4 percent non-Hispanic 
Asian, and 2 percent other,^^ all citywide office- 
holders wei'e white until David Dinkins' election 
in 1989.''o In addition, in 1989 blacks and Lati- 
nos held 26 percent, or 9 of the then 35 seats on 
the City Council. Finally, although Latinos were 
almost as numerous' as blacks at the beginning 
of the decade, and now almost outnumber 
blacks. Latinos have only a third as many 
elected officials. 

This is the political, economic and demo- 
graphic background for the Commission's ex- 
amination of the city's racial and ethnic tensions. 

Section III. Origins of Intergroup Conflict 

There is little if no disagreement that racial 
and ethnic tensions are a reality in New York 
City. The most infamous recent manifestations 
of such tensions — the alleged sodomizing of a 
Haitian immigrant by white Brooklyn police offi- 
cers, Howard Beach, the Central Park "wilding," 
and the Tawana Brawley incident — made head- 
lines not only in the city but throughout the Na- 
tion and the world. 

One significant contributing factor to the ten- 
sions and polarization is the struggle of mem- 
bers of diverse ethnic groups for economic oppor- 
tunities in a period of declining national and lo- 
cal resources. '• These economic pressures, com- 



*9 Michael Stegman, Housing and Vacancy Report, New 
York City 1987 (New York: Department of Housing Preser- 
vation and Development, April 1988), p. 4, table 2.3. The 
table is based on a sample of 22,000 households. A 1988 
CUNY survey with a sample of 2,000 households produced 
comparable results. The March 1988 Current Population 
Survey annual demographic supplement, also with a sample 
of 2,000 households, found the city population to be 47 per- 
cent non-Hispanic white, 22.4 percent non-Hispanic black, 
24.5 percent Hispanic, and 6 percent non-Hispanic other. 
Mollenkopf, "Political Inequality," pp. 354—55, n. 3. 

™ Mayor Dinkins had been Manhattan borough president 
since 1985, and a Latino, Fernando Ferrer, became Bronx 
borough president in 1986, thus giving blacks and Latinos 
each 1 vote out of 11 on the Board of Estimate. Thus, blacks 
and Latinos, who made up approximately 47 percent of the 
city's population, held no citywide influence and only 18 
percent of the votes on the Board of Estimate. Mollenkopf, 
"Political Inequality," pp. 334-35. The Board of Estimate 
was abolished in 1989. See note 6. 

" Grace Yun, director, Inter-Relations Collaborative, testi- 
mony (hereafter cited as Yun Testimony), Hearing Before the 
U.S. Commission on Civil Rights, New York, NY, Sept. 19-21, 
1994 (hereafter cited as New York Hearing), vol. I, p. 377. 



bined with "cultural misconnections,'"'^ were 
cited as causes of New York and other American 
cities' increased tensions. The continued eco- 
nomic decline of cities, resulting in deteriorated 
housing stock and loss of employment opportuni- 
ties, has been exacerbated by the loss of Federal 
dollars for vital services and programs. Deterio- 
rating conditions in New York City and other 
urban areas also result in a migration of more 
affluent minority residents from central cities to 
the suburbs, hastening the areas' already rapid 
decline. ''3 Those individuals who are unable to 
relocate to more economically stable areas are 
forced to seek jobs, housing, and schools in ur- 
ban areas which are less likely to contain the 
services and resources needed for quahty Hves.^* 
Members of increasingly diverse racial and eth- 
nic groups that remain in New York City are 
increasingly forced to seek lower paying jobs, 
inferior schools, and poorer quahty housing than 
are available in the suburbs. 

There is evidence that the downsizing of mu- 
nicipal jobs was begun during the administra- 
tion of Mayor Dinkins. ''^ However, testimony at 
the hearing indicated that in some quarters of 
minority communities, there is the belief that 
recent downsizing was initiated by Mayor Giul- 
iani and that it has had a disproportionately 
negative effect on the city's minority black and 
Hispanic employees.''^ According to testimony, 
city civil service jobs have provided one avenue 
for a better economic life for minority resi- 
dents. '''' However, as a result of the ever de- 
creasing number of jobs, that avenue to a better 
life may be a thing of the past. According to a 
report by the City Council, blacks constituted 43 
percent of the employees whose city jobs were 
ehminated, based on a sampling of 14,000 exit- 
ing workers.'^ Moreover, another study found 



72 Ibid. 

'■* Inter-Relations Collaborative, Intergroup Cooperation in 
Cities: African, Asian and Hispanic American Communities 
(New York: Inter-Relations Collaborative, 1993), p. U. 

T> Ibid. 

'5 Kirk Johnson, "Downsized Promise — ^A Special Report; 
Black Workers Bear Big Burden As Jobs in Government 
Dwindle," New York Times. Feb. 2, 1997, p. 1. 

^ Roscoe Brown, Jr., director, Center for Urban Education 
Policy, Graduate School and University Center, CUNY, tes- 
timony, New York Hearing, vol. I, p. 216 (hereafter cited as 
Brown Testimony). 

" Ibid. 

'8 Johnson, "Downsized Promise," p. 1. 



13 



that most of the employees who had left city em- 
ployment Uved in predominately black neigh- 
borhoods, based on a study of 11,000 former em- 
ployees. '^ Finally, there is evidence that the pro- 
portion of blacks in the city work force had de- 
clined from 38 to 36 percent during the past 2 
years.*" 

In addition to the tensions caused by in- 
creased competition among minority groups for 
fewer resources, including municipal jobs, in- 
creased tensions in the city also were attributed 
to discrimination against people of color by 
whites. Witnesses testified regarding the contin- 
ued discrimination that blacks and Hispanics 
face in the private-sector city job market.*' Even 
blacks with outstanding work histories and high 
levels of education and training find it difficult 
to move from public- to private-sector employ- 
ment. According to Bureau of Labor Statistics, as 
of 1993, blacks held only 11.7 percent and His- 
panics 8.8 percent of the city's professional 
jobs,*2 although they constituted roughly 26 per- 
cent and 24 percent, respectively, of the popula- 
tion. *3 

Another employment-related issue that is 
perceived as a factor contributing to rising racial 
and ethnic tensions is affirmative action in city 
jobs. Although the term "affirmative action" was 
not specifically used, Mayor Giuhani testified 
that, in his opinion, tensions are increased if se- 
lection decisions for the city's pohce or fire de- 
partments are based on factors other than test 
results and physical examinations of candi- 
dates.*'' Other witnesses failed to identify the 
use of nonquantitative selection criteria as re- 
lated to an increase in racial and ethnic tensions. 
It is unclear whether their failure to mention 
this connection is an indication that they do not 
consider this as a relevant, significant factor or if 
they omitted this as a factor because they were 
not specifically asked. 



79 Ibid. 

80 Ibid, 

" Luis Miranda, Jr., president, Hispanic Federation of New 
York City, testimony. New York Hearing, vol. I, pp. 329-30 
(hereafter cited as Miranda Testimony). 

*■* Elaine Rivera, "Affirmative Action — Why it Divides Us," 
Newsday, June 14, 1995, p. 8. 

«s See table 1.1. 

^'i Ruldolph Giuliani, mayor of New York, NY, testimony, 
New York Hearing, vol. I, pp. 82-83 (hereafter cited as Gi- 
uliani Testimony). 



Despite the lack of extensive testimony re- 
garding the effect of race-based employment se- 
lection criteria on the level of tensions, there was 
apparent agreement among the witnesses con- 
cerning the effect of immigration on racial and 
ethnic tensions in the city. Generally, immigra- 
tion is perceived as increasing the burden on the 
city's resources and services (e.g., sanitation, 
pohce, welfare, traffic, and employment).*^ Be- 
cause of this perception, immigrants often eUcit 
negative feehngs among native-born residents 
who are not members of the immigrants' par- 
ticular racial and/or ethnic group. However, ac- 
cording to one witness, problems related to city 
resources and services are not caused by immi- 
gration, but rather are problems of "distribution" 
and "displacement."*^ Finally, another aspect of 
immigration that is perceived as related to an 
increase in tensions is the overall immigration 
pohcy which, according to one witness, is viewed 
by some as discriminating against immigrants 
who are people of color.*' 

In addition to the aforementioned economic- 
related reasons for increased tensions, witnesses 
testified that political and social factors have 
contributed to heightened racial and ethnic ten- 
sions in the city. The factors cited included pohce 
conduct, city politics, the media, and the degree 
of meaningful dialogue between racial/ethnic 
groups. 

Perceptions of the Police 

Hispanic and black city residents, according 
to several witnesses, view members of law en- 
forcement as perpetrators of violence against 
people of color.** Moreover, oppressive actions by 
members of the pohce department are viewed as 
encouraging violent actions by whites against 
nonwhites.*^ According to one witness, 69 per- 
cent of the city's Latino population beheve that 



85 Giuliani Testimony, p. 52. 

8^ Lucas Guttenberg, director. Immigrants' Rights Project, 
American Civil Liberties Union, testimony. New York Hear- 
ing, vol. I, p. 119. 

87 Rev. Calvin Butts, III, Abyssinian Baptist Church, testi- 
mony. New York Hearing, vol. I, p. 107 (hereafter cited as 
Butts Testimony). 

88 Les Payne, columnist. New York Newsday-Nassau Divi- 
sion, testimony. New York Hearing, vol. I, pp. 386-87 
(hereafter cited as Payne Testimony); Butts Testimony, pp. 
125-27; Brown Testimony, p. 191. 

89 Butts Testimony, pp. 126-27. 



14 



the police discriminate against them. 3" As evi- 
dence of the discriminatory and violent acts 
against people of color by city law enforcement, 
witnesses recalled incidents where white police 
officers shot black officers.^' Also cited was the 
pohce investigation into the death of a black 
male, Gavin Cato, in the Crown Heights area of 
Brooklyn — an investigation that, according to 
the hearing testimony, was viewed by many 
black city residents as inadequate. ^^ 

City Politics 

The next major political and social factor 
identified as leading to increased tensions in- 
volved the actual or perceived pohtical power of 
various racial/ethnic groups. The racial and eth- 
nic conflicts that arose during the Koch and 
Dinkins administrations continued through the 
1993 mayoral campaign of David Dinkins and 
Rudolph Giuliani, according to hearing testi- 
mony. In that election, 95 percent of the city's 
black voters and 67 or 68 percent of its Latino 
voters cast ballots for Mayor Dinkins. ^3 Sixty- 
eight percent of the Jewish vote, however, went 
to Giuhani.9'' There also was testimony that one 
campaign emphasized the alleged special treat- 
ment minority groups received during the term 
of Mayor Dinkins. ^^ Whether the unnamed cam- 
paign actually made such a claim or not, at a 
minimum the testimony illustrates that some 
minority city residents perceived that a Dinkins 
opponent used a racially offensive appeal to at- 
tract votes. 

Notwithstanding such perceptions, some ac- 
tions by the Giuliani administration have con- 
tributed to the city's racial polarization, accord- 



so Miranda Testimony, p. 328. 

S' Payne Testimony, p. 387; Brown Testimony, p. 191. One 
witness testified specifically about the "Desmond Robinson" 
incident in which a black plain clothes police officer was shot 
in the city subway by a white police officer. The witness 
stated that fi'om 1970 to 1994, there had been something 
like 15 black plain clothes police officers shot by white offi- 
cers, and no shootings of white undercover officers by black 
officers. Brown Testimony, p. 191. 

9^ Butts Testimony, pp. 130-31. 

93 Payne Testimony, p. 414. 

9'> Mitchell Moss, "Why Even Ed Koch Will Vote for Giul- 
iani," Ethnic NewsWalch, Dec. 20, 1996. 

95 Brown Testimony, p. 190; John Mollenkopf, graduate 
professor of political science, City University of New York 
(CUNY) and director, CUNY Data Service, testimony, New 
York Hearing, vol. I, p. 218. 



ing to the evidence received. For example, under 
an Executive order issued by Mayor Koch, the 
city's judicial recommendation panel was re- 
quired to include minorities, gays, and represen- 
tatives of other historically underrepresented 
groups. However, Mayor Giuliani changed the 
procedures for the panel, eliminating the re- 
quirement for diversity.^® In addition, before the 
Giuhani administration, the city's municipal 
bond business was reported to have been han- 
dled by a black-owned Philadelphia, Pennsylva- 
nia, company. The Giuhani administration, how- 
ever, decided not to have this firm handle the 
city's bond business. According to one witness, 
Mayor Giuhani's decision not to visit Harlem, a 
predominately minority area of the city — after 
having visited other areas of the city — also con- 
tributed to the deteriorating racial climate. So 
too did the perception that this was at the behest 
of an advisor who had allegedly also recom- 
mended that the city's bond business no longer 
be handled by the black-owned Philadelphia 
fu-m.97 

The IVIedia and Intergroup Politics 

The media as a whole were criticized by sev- 
eral witnesses who, with rather limited explana- 
tions, testified that the volume of media cover- 
age and the nature of that coverage contributed 
to increased tensions. ^^ Specifically, the media's 
reporting of racial and ethnic issues was charac- 
terized as too extensive and, in other instances, 
as including reports that were substantively bi- 
ased in content.33 

The final major political and social cause of a 
perceived increase in racial/ethnic tensions is the 
degree to which various racial and ethnic groups 
establish a dialogue. A lack of dialogue, accord- 
ing to the witnesses, contributes to group polari- 
zation which results in a perpetuation of nega- 
tive racial and ethnic stereotypes. •°'' Segregated 
housing patterns also produce racial polariza- 
tion, which increases the Likelihood of racial and 



96 Payne Testimony, pp. 414-15. 
97Ibid., pp. 415-16. 

98 Arch Puddington, senior scholar. Freedom House, testi- 
mony, New York Hearing, vol. I, pp. 394—95; Laura Black- 
burne, counsel, New York State NAACP, testimony, New 
York Hearing, vol. I, pp. 321-25. 

99 Blackburne Testimony, pp. 321, 325. 

100 Payne Testimony, pp. 414—15. 



15 



ethnic tensions among the city's diverse 
groups. '01 

One of the most unique perspectives on the 
causes of racial and ethnic tensions in New York 
City came from a representative of the Anti- 
Defamation League who testified that the gap in 
economic resources between ethnic communities 
is not necessarily a cause of tensions between 
such groups. '"2 He attributed increased tensions 
to racial incidents on college campuses; the 
spread of Holocaust denial; propaganda by right 
wing extremists and others; fewer societal re- 
strictions on anti-Semitic, racist stereotyping; 
more violent imagery in society; and what he 
described as the "unabashed, deliberately pro- 
vocative bigotry of certain demagogues claiming 
leadership . . . ," referring to the Nation of Is- 
lam's Minister Louis Farrakhan and Kalid Abdul 
Muhammad, and Dr. Leonard Jeffries. 'o^ 

Section IV. Recent Manifestations of 
Racial and Ethnic Tensions 

As noted previously, recent New York City 
history is replete with examples of racial and 
ethnic conflict that has evolved into extremely 
violent confrontations between groups of citizens 
and/or law enforcement. These incidents include 
the January 1990 confrontation between a Ko- 
rean grocer and black customer which resulted 
in a boycott of a neighborhood grocery store in 
Brooklyn; the 4 days of violence that occurred in 
August 1991 following the death of a black child 
who was struck by a car driven by a Jewish man, 
the violence resulting in the death of an Hasidic 
scholar and subsequent trial of a black youth for 
the death; the December 1993 killing of 5 people 
and wounding of 19 others on the Long Island 
Railroad by CoHn Ferguson, a black man; the 
January 1994 clash between police and worship- 
pers at Mohammed's Mosque #7 in West Harlem; 
and the March 1994 attack on a van carrying 
Lubaritcher (Hasidic Jewish) students by a 
Lebanese gunman thought to be a Moslem fun- 
damentahst. One student later died. 



"" Francisco Rivera-Batiz, director, Institute for Urban and 
Minority Education, Teachers College, Columbia University, 
testimony, New York Hearing, vol. I, pp. 185-86. 

"^2 Robert Machleder, chairman of the Regional Board of the 
Anti-Defamation League, testimony, New York Hearing, p. 
109 (hereafter cited as Machleder Testimony). 

'™ Ibid., p. 95. This witness characterized these incidents as 
"causes" of tensions rather than "manifestations," which 
might, indeed, be as likely. 



Since the Commission's first New York City 
hearing in 1994, there have been additional 
manifestations of racial and ethnic tensions 
throughout the metropolitan area on an almost 
weekly basis, including the November 1996 inci- 
dent at a Queens elementary school where a 
white teacher was accused of using a racial slur 
to refer to a fifth-grade student; the subsequent 
allegations involving the same school and a 
white teacher's charge that she had been physi- 
cally threatened by a black parent and the 
school's black principal's claim that she had been 
the target of racist hate mail; and the infamous 
December 1995 burning down of a Jewish-owned 
clothing store in Harlem, following weeks of 
street demonstrations against the owner and 
which resulted in the deaths of eight people in- 
cluding the alleged arsonist, a black man. Fol- 
lowing the burning of the store, the city contin- 
ued to be engulfed in controversy and racial dis- 
cord involving, among others, Mayor GiuUani, 
black ministers, and area business people, who 
accused one another and others of racism and 
intolerance. 

Finally, residents of the metropolitan area, as 
well as people throughout the Nation, were 
stunned to learn in August 1997 that a Haitian 
immigrant had accused members of the New 
York City Police Department of beating and 
sodomizing him with a toilet plunger in a 
Brooklyn station house. The immigrant, Abner 
Louima, had been arrested following a scuffle 
outside a Flatbush nightclub. Tensions were 
aroused even further when shortly after his ar- 
rest, Mr. Louima was quoted in the press as 
having claimed that during the police assault, 
one or more officers had shouted: "It's Giuliani 
time." Subsequent street demonstrations fol- 
lowed which were led by residents of the city's 
Haitian community. Legal proceedings were in- 
stituted against the officers and the NYPD. As of 
the writing of this report, three poUce officers 
and a sergeant were on trial in Federal court for 
violating Mr. Louima's civil rights while in police 
custody. At trial, Mr. Louima testified that it 
was "my choice" to follow a supporter's advice to 
tell a grand jury falsely that one officer said, 
"[it's] Giuliani time" during the encounter.'"** On 
May 25, 1999, one officer, Justin Volpe — who for 
months after the incident had proclaimed his 



'"'' Joseph P. Fried, "Officers' Lawyers Interrogate Louima on 
False Statements," New York Times, May 11, 1999, p. B-1. 



16 



innocence — pled guilty to the charges. '"^ Hq gj. 
mitted that he violated Mr. Louima's civil rights 
and stated, "In the bathroom of the precinct, I 
sodomized Mr. Abner Louima with a stick, then 
threatened to kill him if he told anybody."'"^ 
Several weeks later, the jury found another offi- 
cer, Charles Schwarz, guilty of holding Mr. 
Louima down in the bathroom while Mr. Volpe 
sodomized Mr. Louima."" 

Many manifestations of racial and/or ethnic 
tensions, hke the Harlem clothing store incident, 
involved economic issues: the attempts by coali- 
tion groups of black and Hispanic construction 
workers to obtain jobs from contractors on con- 
struction sites sometimes resulting in the arrests 
of black workers, beginning in the early 1990s 
and continuing to the present; and several other 
incidents throughout the city involving non- 
black-owned neighborhood stores in predomi- 
nately black communities. 

Anti-Asian violence, according to one witness, 
for the most part has involved members of law 
enforcement who are insensitive to Asian Ameri- 
can and Pacific Islander crime victims or who 
fail to act when Asian American and Pacific Is- 
landers are victims of crime, lo^ in its 1994 report 
on anti-Asian violence, the Asian American and 
Pacific Islander Movement found an alarming 
number of incidents of police brutahty against 
Asian American and Pacific Islanders, which it 
attributed in part to the fact that although the 
population of New York City is more than 6 per- 
cent Asian American and Pacific Islander, the 
city's police department is less than 1 percent 
Asian American and Pacific Islander. Regarding 
anti-Semitic incidents, there was a 23 percent 
increase in acts of assault and threats and har- 
assment against Jews from 1992 to 1993, ac- 



'05 Josh Getlin, "Officer Pleads Guilty in N.Y. Brutality 
Case," New York Times, May 26, 1999, p. A-4. 

>o« Ibid. 

107 "The Louima Verdicts," New York Times. June 9, 1999, p. 
A-28. The jury acquitted three other officers on charges of 
beating Mr. Louima in a squad car and lying to the Federal 
Bureau of Investigation. However, the verdicts do not end 
the court action in the Louima case. Mr. Schwarz and two 
other defendants, Thomas Wiese and Thomas Bruder, still 
face court charges of obstructing justice and conspiring to 
cover up the attack, allegations that they deny. Id.; Josh 
Getlin, "Cop Convicted, 3 Cleared in N.Y. Brutahty Case," 
Los Angeles Times, June 9, 1999, p. A-1. 

108 Margaret Fung, executive director, Asian American Le- 
gal Defense & Education Fund, testimony, New York Hear- 
ing, p. 101 (hereafter cited as Fung Testimony). 



cording to the Anti-Defamation League of B'nai 
B'rith.109 

Finally, it is important to note the significant 
role that even allegations of racially motivated 
attacks and confrontations have on the level of 
tensions. One of the major incidents of this kind, 
which occurred just north of the city, was the 
allegation by Tawana Brawley, a black teenager, 
that she had been sexually assaulted by several 
white males, including a poUce officer, in No- 
vember 1987. Although the charges were never 
substantiated and no persons were arrested or 
tried, the allegations alone resulted in a torrent 
of media coverage, with charges and counter 
charges that have endured and are to some ex- 
tent still unresolved. The allegations in the 
Brawley incident served to aggravate sentiments 
in the black community that poHce officers pres- 
ent the greatest threat to black residents. '^o 

Section V. Resolutions of Racial and 
Ethnic Tensions 

Despite the seemingly endless number of con- 
frontations between New York City's various 
racial and ethnic groups, there have been many 
instances where potentially explosive situations 
have been resolved through the efforts of ordi- 
nary citizens, members of organized community 
groups and city administrators. 

Mayor Giuliani testified that in March 1994, 
in order to reduce the tensions in the community 
following the Hasidic bus shooting incident, he 
met with Arab and Jewish leaders. '^^ Also pres- 
ent were top New York City officials and the 
Brooklyn borough president. The mayor also tes- 
tified that his administration worked with the 
Caribbean and Jewish communities to resolve 
potential problems regarding the 1994 Labor 
Day parade in the Caribbean community in the 
Crown Heights section of Brooklyn. '^^ ^ conflict 
arose because the parade coincided with the cele- 
bration of the Jewish hohday of Rosh Hashanah. 

In addition to the efforts by members of the 
city administration, community groups and indi- 
viduals were mentioned as also working to re- 
solve potential conflicts. The city's Black-Korean 
Mediation Project trains mediators to resolve 



'™ Machleder Testimony, pp. 94-95. 
"0 Butts Testimony, p. 107. 
"I Giuliani Testimony, pp. 30-31. 
"2 Ibid. 



17 



potential conflicts between the two groups. "^ An 
organization known as Concerned Community 
Adults, which grew out of the efforts of two Le- 
frak City residents, works to diffuse tensions 
between blacks and Koreans and in 1991 helped 
prevent a boycott of a Korean-owned supermar- 
ket following an incident in the store involving a 
black youth. 1" 

Section VI. Preventing Intergroup Conflict 

As was the case with responses to conflicts, 
various groups in the city have initiated meas- 
ures that they beheve will prevent racial and 
ethnic conflict in the future. According to the 
mayor, his administration has taken a number of 
positive steps in this direction. For example, the 
administration created the position of deputy 
mayor of community relations, whose duties in- 
clude informing communities of the administra- 
tion's activities and advising the administration 
of the needs within the city's communities.''^ 
According to the mayor, his administration also 
has increased the penalties for bias crimes."^ In 
addition, the administration has asked that the 
New York State Legislature pass antidiscrimina- 
tion legislation based on sexual orientation; the 
city already has enacted such legislation."' 

Despite testimony that economic opportunity 
may not be related to the level of racial and eth- 
nic tensions. Mayor GiuUani's testimony ap- 
peared to indicate that he recognized a correla- 
tion between economic opportunity and ra- 
cial/ethnic tensions. He testified regarding eco- 
nomic measures that the city has undertaken in 
an effort to prevent tensions between ethnic and 
racial groups, including the Building Blocks Pro- 
gram, initiated in September 1994, and designed 
to increase the number of homeowners and small 
businesses. In the program, owners of vacant 
and sometimes dilapidated housing receive low- 
cost loans to renovate their buildings."* Mayor 



113 Fung Testimony, p. 112. 

ii-i Yun Testimony, p. 380. 

lis Giuliani Testimony, p. 33. 

1 16 Ibid. 

11' Ibid., pp. 33-34. New York City Administrative Code § 8- 
107 makes unlawful discrimination on the basis of sexual 
orientation in employment, apprentice training programs, 
public accommodations, housing, land, commercial space, 
and lending properties. NYC Adm. Code § 8-107 (Lenz & 
Riecker 1997). 

118 Giuliani Testimony, pp. 36-37. 



Giuhani also testified regarding his administra- 
tion's budgetary actions to reduce poverty, which 
he beheves will help reduce the level of racial 
and ethnic tensions. These include his admini- 
stration's decision not to increase taxes"^ and, in 
some instances, to reduce taxes, such as the ho- 
tel occupancy '20 and commercial rent taxes, '2' 
and his administration's creation of the Bid- 
Match system. '22 

Introduced in April 1994, the Bid-Match sys- 
tem is the Giuhani administration's alternative 
to the earher city contracting program that a 
New York court declared to be illegal. '23 Bid- 
Match was operated as a pilot program from 
April 1994 to September 1994 in 13 of the city's 
agencies. '2-* Initially, it required that partici- 
pating agencies forward all purchase requests 
for goods and services under $10,000 to a cen- 
trahzed office where certified businesses, which 
had previously registered with the city, would be 
crossed matched with the purchase request. '25 
Thereafter, the firm was free to respond with a 
bid. Awarding of contracts woiild be based solely 
on the lowest bid. Before Bid-Match, according to 
the city, individual city agencies were required 
only to obtain bids from five firms for small pur- 
chase orders and there was no mechanism for 
ensuring that small businesses, including mi- 
nority- and women-owned businesses, received 
information on all the goods and service needs of 
the city. '26 With the new program, these small 
businesses would receive information on aU such 
needs of the city and, accordingly, would be able 
to compete for many more city contracts than in 
previous years. According to the mayor, at the 
time of the Commission's first hearing in Sep- 
tember 1994, 40 percent of the contracts under 
Bid Match had been awarded to minority- or 



ii^Ibid., pp. 34-36. 

120 Ibid., p. 55. 

121 Ibid., p. 56. 

•22 Ibid., pp. 34-36. 

123 Ibid., p. 68. 

124 Rudolph Giuliani, mayor of New York, NY, "Bid-Match 
System," p. 1, Documents Hearing Before the United States 
Commission on Civil Rights, New York, NY, July 26, 1995 
(hereafter cited as New York Documents Hearing), subpoena 
duces tecum document. Exhibit 1(d). 

125 In June 1994, the threshold purchase amount was in- 
creased to $25,000. Ibid. 

126 New York, NY, Office of the Mayor, "Mayor Giuliani An- 
nounces New 'Bid-Match System,'" New York Documents 
Hearing, subpoena duces tecum document, Exhibit 1(a). 



18 



women-owned businesses. •^'' However, records 
reveal that during the pilot program period, 
April to September 1994, only 32.74 percent 
($489,254) of the contracts under the system 
($1,494,138) were actually awarded to small 
businesses, some of which were minority- and 
women-owned.128 Moreover, when Bid-Match 
was implemented for the entire city contracting 
process, the percentage of awards to small busi- 
nesses declined even further, according the city's 
own statistics. From October 1994 through the 
week ending July 7, 1995, small businesses re- 
ceived only 25.13 percent or $1,922,467 of the 
$7,649,439 in contracts under Bid-Match, a de- 
cline of approximately 7 percent from the pilot 
program period. '^s 

Mayor Giuhani also reported that his admini- 
stration and U.S. Representative Charles Rangel 
have worked to develop an empowerment zone 
application that covers Harlem and parts of the 
South Bronx and Northern Manhattan. In addi- 
tion, at the time of the Commission's first hear- 
ing, his administration was working on a similar 
program for Central Brooklyn. 

As for other administration initiatives to im- 
prove the economic conditions of city residents, 
an increasing number of whom are people of 
color, candidates for positions in the city's police 
and fire departments who are city residents now 
receive extra points in the hiring process. ^^o 
Moreover, the mayor reported that poHce and 
fire department recruiting measures have been 
improved so that there is a more diverse pool of 
candidates. 131 

Notwithstanding these assertions, based on 
the city's own statistics, racial and gender equity 
has not yet been obtained in employment within 
the pohce and fire departments. In the poHce 
department, the city's minorities are still woe- 
fvilly underrepresented in both the civilian and 
uniformed employment ranks. As of September 
30, 1995, in the combined NYPD civilian and 
uniformed work force, the racial breakdown was 
58.62 percent white; 19.10 percent black; 15.19 
percent Hispanic; and 1.40 percent Asian Ameri- 



can and Pacific Islander. '^2 The disparity be- 
tween the overall minority population percent- 
ages and minority employment within the NYPD 
is even more acute within the uniformed work 
force. As of September 30, 1995, the city's uni- 
formed force was 68.2 percent white; 13.9 per- 
cent black; 16.6 percent Hispanic; and 1.2 per- 
cent Asian American and Pacific Islander. ^^s 

The city's fire department is virtually a white 
organization. In a city where whites constitute 
less than half of the population, as of November 
15, 1994, the racial breakdown of the fire de- 
partment's uniformed forces was 93.87 percent 
white; 3.40 percent black; 2.53 percent Hispanic; 
0.12 percent Asian American and Pacific Is- 
lander; and 0.07 percent American Indian. '34 

Mayor Giuhani testified regarding a number 
of recommended national poHcy changes that he 
beheves would decrease racial and ethnic ten- 
sions by improving economic conditions. The 
Federal Government should redefine poverty so 
that regional economic differences are consid- 
ered, i.e., high-cost and low-cost areas.i^s The 
mayor also testified that medical reimburse- 
ments to States and local governments should be 
standardized and that the Federal Government 
should be fairer in its distribution of benefits to 
large cities. '^s 

Few witnesses testified regarding nongovern- 
ment initiated measiares to reduce poverty and 
improve economic conditions. There was testi- 
mony regarding Brooklyn's St. Paul's Community 
Baptist Church, a predominately black congrega- 
tion, and its building of 2200 single family, owner- 
occupied row houses over the past 10 years. '37 



127 Ibid. 

•28 New York Documents Hearing, Exhibit 1(d). 

129 Ibid. 

130 Ibid., p. 47. 

131 Ibid. 



'32 Anthony P. Coles, deputy counsel to the mayor, letter to 
Stephanie Y. Moore, general counsel, U.S. Commission on 
Civil Rights, table 5, New York City Department of Person- 
nel CEEDs System, attachment, Dec. 5, 1995. 

133 Anthony P. Coles, deputy counsel to the mayor, letter to 
Stephanie Y. Moore, general counsel, U.S. Commission on 
Civil Rights, attachment, Nov. 15, 1995. 

'3'' Sherry Ann Kavaler, director, Bureau of Personnel, New 
York City, letter to Stephanie Y. Moore, acting deputy gen- 
eral counsel, U.S. Commission on Civil Rights, Nov. 16, 
1994. The statistics are based solely on the male members of 
the uniformed forces. The Kavaler letter does not provide 
the racial/ethnic breakdown for the fire department's uni- 
formed female employees, which as of Nov. 15, 1994, num- 
bered 36. 

'35 Ibid., pp. 42^3. 

'36 Ibid. 

'37 Rev. Johnny Youngblood, pastor, St. Paul's Baptist 
Church, testimony. New York Hearing, vol. I, p. 341. 



19 



The church also opened two pubhc high schools 
with a unique parent-teacher focus, requiring, 
among other things, that teachers meet parents 
and that parents work with schools in specific 
ways. '3* 

Many of the community efforts to reduce ten- 
sions and promote racial and ethnic harmony, 
however, involve noneconomic, coalition-building 
activities. Often these efforts are initiated by 
rehgious groups. The Anti-Defamation League 
(ADL) has sponsored intergroup projects, par- 
ticularly in the Crown Heights section of Brook- 
lyn. It also has initiated steps to prevent and 
counter hate crimes and has helped to publicize 
and identify for the pubhc bigoted messages. '39 
The ADL's World of Difference Program has 
been introduced into New York City schools and 
has been offered to law enforcement agencies.''*" 
The League's World of Difference Institute de- 
velops programs designed to increase under- 
standing and tolerance among people of diverse 
racial and ethnic backgrounds. The institute has 
conducted such programs throughout the coun- 
try for a variety of pubhc and private entities, 
including schools, corporations, and pubhc agen- 
cies. It has been introduced into New York City 
schools and offered to law enforcement agen- 
cies.'*' In addition, the institute has conducted 
such programs for numerous city pubhc and pri- 
vate groups, including, the city's fire depart- 
ment, office of personnel, human resource ad- 
ministration and urban fellows; the Brooklyn 
District Attorneys Office; Columbia University 
and the Fashion Institute of Technology; and, as 
of December 1993, 8600 metropohtan area edu- 
cators. New York City's National Urban League 
has visited Jewish communities and non-Jewish 
communities. '''2 

There was testimony that in the 5 to 6 years 
preceding the Commission's 1994 hearing, there 
was an ongoing African American/Italian dia- 
logue that was supported by the National Com- 
mission for Social Justice. '''^ This commission 



•38 Ibid., p. 342. 

139 Machleder Testimony, pp. 98-99. 

'■to Ibid., p. 136. 

'■" Ibid. 

'■f^ Dr. Edward Yarney, Bronx borough director. New York 

Urban League, testimony. New York Hearing, pp. 170-72. 

'■'3 Vincent Romano, national vice president. Order Sons of 

Italy, and Commission for Social Justice, testimony. New 

York Hearing, p. 238. 



was responsible for the antidefamation work of 
the Order of the Sons of Italy. In addition, the 
Italian American group has met with Asian 
American and Pacific Islanders and Jewish 
groups as well as with the Latino Coalition.''''' 

The Jewish Community Relations Council is 
an umbrella organization for more than 60 New 
York area Jewish groups. '^^ Its Intergroup Rela- 
tions and Community Concerns section is de- 
signed to serve as an outreach group to uncover 
significant issues throughout the community at 
large and from all ethnic groups. '''^ 

Section VII. Topical Summary 

The myriad of interracial and interethnic con- 
fhcts and tensions described in the foregoing dis- 
cussion is related directly to the universal drive 
to gain and take advantage of economic opportu- 
nities abounding in New York City. However, in 
seeking these opportunities, inequahty and dis- 
crimination at all levels arise as unfortunate by- 
products and barriers. For example, sweatshops 
so prevalent in the early industrial period seem 
to have made a comeback. The finance industry 
remains dominated by white males despite that 
the majority of the population of New York City 
is nonwhite. Securities industry rules designed 
to avoid litigation may not adequately protect 
civil rights and may adversely affect communi- 
ties of color and women. Even the access to 
banking services, capital to start small busi- 
nesses, and loans for first-time home buyers may 
be tainted by discrimination. Race/ethnicity and 
bias still haunt access to the multitude of eco- 
nomic prospects for New York residents. 

In caUing for the hearings, the Commission 
sought to dehneate the extent of racial and eth- 
nic tensions and how they affect economic oppor- 
tunity. One of the major issues coming out of the 
Commission's hearings appears to be that all 
groups, regardless of racial or ethnic affiliation, 
seek to maximize their opportunities free from 
bias and discrimination. They want access to 
banking services, jobs for which they qualify, 
capital to build businesses, loans to purchase 
homes, and freedom to pursue wealth-building 
possibilities. Minorities and women are particu- 



'■''' Ibid., p. 242. 

'•fs Robert Kaplan, director of intergroup relations, Jewish 

Community Relations Center, testimony, New York Hearing, 

pp. 158-59. 

H6 Ibid. 



20 



larly eager to break down barriers preventing ac- 
cess to economic empowerment. Moreover, they 
hope to ehminate institutions that have histori- 
cally excluded them, such as major Wall Street 
banking and securities firms that have been gen- 
erally viewed as exclusively the province of 
white men. This report seeks to describe the dif- 
ferent levels and contexts of economic progress 
in New York City and, what inroads have been 
made to address the problem of racial and ethnic 
tension and what measures have been taken to 
provide for economic empowerment and equity. 

Immigrants in New York City and 
Low-skill Labor Markets 

Chapter 2 presents the immigration compo- 
nent of the hearing. It examines working condi- 
tions for low-skilled immigrant workers within 
New York City's Chinatown restaurant and ap- 
parel industries. The chapter presents an analysis 
of the exploitative working environment within 
these industries, along with factors that influence 
exploitation, including immigration policies, labor 
and immigration law enforcement, and market 
forces that fuel the demand for undocumented 
workers. Chapter 2 also examines the impact of 
low-skilled immigration on wages, jobs, and ra- 
cial and ethnic tensions, presenting views and 
studies that either support or reject the value of 
immigrants on these markets in New York City. 

Minorities and Women in New York City's 
Finance Industry 

Chapter 3 looks at the opportunities for eco- 
nomic equality of minorities and women in New 
York City's finance industry. Because of Wall 
Street, the Nation's largest exchange, finance 
has long been a large, prominent, and well- 
paying industry in the city. After a brief back- 
ground section, section two examines employ- 
ment of protected groups — minorities as a whole, 
blacks, Hispanics, Asian American and Pacific 
Islanders, and women — in this industry. It con- 
trasts the banking and securities segments and 
employment in various job classifications — 
officials and managers, professionals, sales 
workers, and office and clerical workers. Recent 
trends in the industry and their effects on the 
growth or decline of employment of minorities 
and women are also reviewed. The third section 
presents information on relevant job qualifica- 
tions — education, job skills, work experience, 



and testing and certification — that may be barri- 
ers for minorities and women hoping to obtain 
jobs in this industry. The fourth section reviews 
company practices and policies, including hiring 
and promotion, equal employment opportunity 
and affirmative action, and recruitment and 
training programs. 

Impact of Securities Industry Rules on 
Minority and Women Securities Professionals 

Chapter 4 studies the effect of two securities 
industry rules on minorities and women. The 
first rule is the arbitration requirement. Some 
securities industry employees who register to 
trade securities at the exchanges have agreed to 
submit any potential employment discrimination 
claims to an arbitration procedure sponsored by 
the exchanges' self-regulatory organizations. 
This section examines whether the securities 
arbitration forums afford employees adequate 
procedural protections and generate equitable 
results. The second rule. Rule G— 37, applies only 
to municipal finance professionals. Under the 
rule, a municipal finance professional may not 
perform municipal finance work for a munici- 
pahty if the professional has, within the past 2 
years, given a political contribution to an official 
of that municipality. This section examines the 
impact of Rule G-37 to determine whether it has 
had a disparate impact on minority and women 
securities professionals and political candidates. 

The Role of Community Reinvestment 

Chapter 5 examines the role that the Federal 
and State Community Reinvestment Acts play in 
the overall economic development and revitaUza- 
tion of low-income areas such as the South 
Bronx. The chapter looks at the impact of de- 
creasing availabihty of banking services in low- 
income areas, the role of community develop- 
ment financial institutions, and the role of the 
Small Business Administration and other lend- 
ers in meeting the capital needs of small busi- 
nesses in the New York metropolitan area. The 
chapter also examines the role the Community 
Reinvestment Act plays as a catalyst to home 
mortgage lending and affordable housing initia- 
tives, including how the Home Mortgage Disclo- 
sure Act and low-income housing tax credits can 
be used by community groups, private lenders, 
and housing advocates toward their respective 
goals. 



21 



Chapter 2 

Immigrants in New York City and Low-skill Labor Markets 



"New York is the quintessential city of immi- 
grants." • Written by former Mayor Edward 
Koch, this statement has epitomized New York 
City from its early days as a Dutch colony 
through its present role as an international port 
city on the edge of a new millennium. The city's 
lure to immigrants from around the world has 
meant that New York, from its inception, has 
always been home to a diverse mixture of color, 
ethnicity, culture, and language. In the 17th 
century, the Dutch governor of New York, then 
known as "Nieuw Amsterdam," noted that in- 
habitants of the colony spoke 18 different lan- 
guages. By 1980, 121 languages were sp'jken 
among the city's 1.7 million foreign-born resi- 
dents. The waves of immigration to New York 
City have helped shape the city's political sys- 
tem, its neighborhoods, and its social and eco- 
nomic institutions. It has also helped to ensure 
its diversity. According to Mayor Giuliani: 

New York is the most diverse city in America. For 
decades, the five boroughs have been the destination 
of choice for immigrants from around the world. An 
unending variation of human endeavor is found in our 
city, and our diversity is our greatest strength. . . . 
Our diversity contributes to our economic and cul- 
tural vitahty, and makes us home to the innovative 
and the unique. In New York, diversity has been a 
boon, not a burden, and that's worth noting. ^ 

The proliferation of low-skiU jobs, coupled 
with the city's ethnic diversity and its tolerance 
of immigrants, continues to draw newcomers to 



' Edward I. Koch, mayor of the City of New York. Preface to 
Elizabeth Bogen, Immigration in New York (New York; 
Praeger, 1987). 

2 Rudolph Giuliani, mayor of the City of New York, testi- 
mony (hereafter cited as Giuliani Testimony), Hearing Be- 
fore the U.S. Commission on Civil Rights, New York, NY, 
Sept. 19-21, 1994, vol. I, pp. 28-29 (hereafter cited as New 
York Hearing). 



New York City, much as these factors did in the 
earlier waves of immigration at the turn of the 
century. Yet while New York City owes its vi- 
brancy and international lure to the rich mixture 
of cultures, energy, and color of its immigrant 
population, there is also a darker side to the 
immigration story, characterized by the exploita- 
tion of a vulnerable immigrant work force that 
goes unseen and largely undetected by tourists, 
consumers, and most of the business world. 
Across the Nation, and particularly in New York 
City, there is growing concern over the impact of 
immigration on segments of the labor force, par- 
ticularly as stories of widespread exploitation of 
immigrants held in conditions of indentured ser- 
vitude continue to surface. This vulnerability of 
immigrants at the hands of low-wage, low-skill 
employers, coupled with attitudes about immi- 
grant versus native-born workers, also leads to 
tensions among native minorities, established 
immigrants, and newer arrivals for jobs and 
other resources. 3 

Immigrants arriving in New York at the turn 
of the century satisfied the need for hard- 
working, cheap workers to staff labor-intensive 
production industries. The public's demand for 
affordable goods and retailers' scramble to sat- 
isfy these demands led to the creation of sweat- 
shops in many production industries, especially 



•' Relationships between new immigrants and older immi- 
grants or native minorities are sometimes tinged with con- 
flict. In New York City, tensions between immigrants and 
native minorities erupt periodically. See section III of this 
chapter for discussion of tensions among groups. According 
to Nancy Foner, anthropology professor at the State Univer- 
sity of New York: "When ethnic conflicts in New York arise, 
ethnic group identity and belonging are rarely the major 
reasons. Rather, these conflicts are typically rooted in ine- 
qualities of status, power, and wealth among groups and 
competition for housing and economic, educational, and 
government resources." Nancy Foner, "New Immigrants and 
Changing Patterns," in New Imniigratits in New York, ed. 
Nancy Foner (New York: Columbia University Press, 1987), 
pp. 20-21. 



22 



apparel. According to one historian, "In the 
men's clothing industry in New York City, over- 
crowding and sanitary conditions wei'e probably 
at their worst in the 1880s. The workers, all im- 
migrants, lived and worked together in large 
numbers, in a few small, foul, ill-smelling rooms, 
without ventilation, water, or nearby toilets."^ 
Workers worked for Httle pay until they fell 
asleep from exhaustion, amidst fire and health 
hazards, disease, and abuse. ^ 

A century later, many unskilled and low- 
skilled immigrants continue to face abuse, ex- 
ploitation, and deplorable working conditions in 
the hands of unscrupulous employers and smug- 
glers, according to witnesses at the hearing and 
immigration scholars.^ Accounts of immigrants 
smuggled into the United States to work as un- 



^ Joel Seidman, Needle Trades (New York: Farrar and Rine- 
hart. Inc., 1942), pp. 56-58. 

5 U.S. General Accounting Office (GAO), "Sweatshops" in the 
U.S.: Opinions on Their Extent and Possible Enforcement 
Options (GAO/HRD-88-130BR, August 1988), pp. 8-9. 

^ Peter Kwong, "The Wages of Fear: Undocumented and 
Unwanted, Fuzhounese Immigrants are Changing the Face 
of Chinatown," The Village Voice, Apr. 26, 1994, p. 25. In the 
article, the author describes the life of a typical, undocu- 
mented Chinese immigrant working to pay ofi' his $30,000 
"passage fare" to his "snakehead" or smuggler: "Z (name 
deleted) lives a spartan existence. He left his wife and one 
daughter in China. Here he shares a one-room apartment 
with 19 other male bachelors. The small, 300-square-foot 
space is jammed with double bunk beds, like an army bar- 
racks. His 'bedspace' costs him $90 per month. Some of his 
roommates rent out their bedspace for a portion of the day 
to others, to cut down on costs. . . . Z, when not working in a 
restaurant, survives on eating mantou — northern Chinese- 
style steamed buns sold by vendors at street corners. They 
are cheap: only $1 for 10, which is enough for two days. Z 
swallows them down with small sugar cube-size pieces of . . . 
bean curd ($1 for a jar containing 50 cubes). . . . The debts 
must be paid, lest the snakeheads hire 'enforcers' to beat 
them out of the debtors." 

See also Wing Lam, executive director, Chinese Staff and 
Workers Association, interview in New York, Mar. 18, 1994 
(hereafter cited as Lam Interview) (In the restaurant indus- 
try, workers routinely work long hours for little pay and are 
forced to turn over a portion of the tips they receive to their 
managers, according to Mr. Lam. Workers who complain are 
"black-listed" and are not hired by other restaurants in Chi- 
natown); Pam Galpern, program development coordinator, 
Lower East Side Workers' Center, testimony, New York 
Hearing, vol. II, pp. 609, 636-37 (hereafter cited as Galpern 
Testimony) (Low-skill immigrant workers in New York City 
face nonpayment of wages and payment of subminimum 
wages because they fear being fired or being turned over to 
the INS. Calculating how much employers owe such immi- 
grants, "it often comes to thousands and thousands of dol- 
lars that the employers are making off of immigrant work- 
ers"). 



documented workers continue to surface regu- 
larly.'' Like their predecessors, today's sweatshop 
workers toil for long hours, amid unsafe and ex- 
ploitative surroundings, often for little pay, and 
sometimes, without even the ability or freedom 
to escape their plight. 

The economic attractiveness of such a des- 
perate, vulnerable immigrant work force, some 
have argued, leads to a preference for immigrant 
workers over the native born, keeps wages in 
these industries low, and fuels resentment by 
native-born residents against immigrants. Often, 
it is the lowest skilled, native-born minority 
worker searching for work in the city who is 
most susceptible to the impact of immigrant la- 
bor on job availability and wages. 

The immigration component of the hearing 
and this chapter address the impact of immigra- 
tion on jobs and working conditions in New York 
City's low-skill labor markets, especially the ap- 
parel and restaurant industries, and examines 
the role of the United States and New York labor 
departments and the U.S. Immigration and 
Naturalization Service in targeting sweatshops. 
Also examined in this chapter is the impact of 
low-skill immigrant labor on native-born work- 
ers and how these factors affect race relations 
between New York City's immigrants and its 
native-born population. 



' On June 6, 1993, the Golden Venture, a ship containing 
close to 300 undocumented Chinese immigrants, ran 
aground off the waters of New York City, killing at least 10 
of the passengers and leading to the detention of hundreds 
of others. The immigrants had each paid the equivalent of 
$30,000 to be smuggled into the U.S. Most of the immi- 
grants would have likely been forced to work as indentured 
servants for the smugglers and their network of employers 
until they had paid their debts to the smugglers. New York 
State Senate Committee on Cities, Our Teeming Shore, by 
Sen. Frank Padavan, January 1994, p. 1 (hereafter cited as 
N.Y. State Senate, Our Teeming Shore). 

In July 1995, a Thai woman escaped from an El Monte, CA, 
sweatshop through an air conditioning duct and turned to a 
Buddhist temple in Hollywood for help. Authorities found 
more than 70 women, all smuggled fi-om Thailand, working 
up to 19 hours daily, guarded by razor wire, spiked fences, 
and guards. The women had worked for 6 years under these 
conditions, earning $1.60 per hour, under compulsion to pay 
off their debts to their smugglers. Seven Thai nationals pled 
guilty to Federal charges, including involuntary servitude, 
harboring illegal aliens, and kidnapping. In 1997 the case of 
the deaf Mexican trinket vendors in New York City and that 
of a young Chinese woman enslaved as a prostitute to pay 
her $20,000 debt for her passage also made national news. 
Martha Moore and Martin Kasindorf, "Enslavement in 
America: Latest Arrests Highhght Growing National Prob- 
lem," USA Today, July 28, 1997, p. 1-A. 



23 



Immigration in New York City 

Historical Demographics 

New York City could well be the optimum fo- 
rum in which to address immigration issues, not 
only because of the number of immigrants cur- 
rently residing there, but also because of the di- 
versity of racial and ethnic groups represented 
throughout its history. From its days as a newly 
settled colony. New York has been home to the 
Dutch and British in the 17th and 18th centu- 
ries, the Irish, Germans, and Scandinavians be- 
ginning in the 1830s, ItaHans, Greeks, Czechs, 
Slovaks, Hungarians, and Russian and Polish 
Jews starting in the 1880s until the 1920s, and, 
after World War II, large-scale arrivals of immi- 
grants from Asia and nations of the Western 
Hemisphere.^ 

In the years during and after World War 11, 
native minorities also began to make their way 
to New York en masse, drawn by the labor 
shortage of the war years and by the expanding 
economy of the postwar era. Puerto Rican migra- 
tion accelerated during World War II. Between 
1950 and 1960, the number of island-born 
Puerto Ricans hving in New York more than 
doubled, from 190,000 to 430,000. A similar phe- 
nomenon occurred among African Americans 
moving north from the rural South, as they had 
done during and after World War I. In the years 
between 1940 and 1960, New York's African 
American population doubled, from 500,000 to 1 
milhon.3 



Present Demographics 

The 1990 census revealed that the number of 
foreign-born persons in New York City rose by 
almost 25 percent during the 1980s, to 2,082,000 
persons. This is the city's highest measured level 
of foreign-born residents since the 1940 census, 
when 2.1 milhon of the city's residents had been 
born in another country. ^° 

The 1990 census recorded New York City's 
population as being 28.2 percent foreign born." 
Almost 1 million of these foreign-born residents, 
935,000, entered the United States between the 
1980 and 1990 censuses, and are 46 percent of 
all foreign-born residents of New York City.^^ 
The New York City Department of Planning also 
reports that between 1990 and 1994, approxi- 
mately 563,000 immigrants arrived legally in 
New York City.'^ To date, the average annual 
immigration into the city has been 32 percent 
higher in the 1990s than in the 1980s, a decade 
that itself brought the largest levels of immigra- 
tion to the city since before the 1940s. i'' 

In contrast to national immigration trends, 
New York City's immigrants are primarily Car- 
ibbean and South American. Yet during the 
1990s, Europeans raised their representative 
share to 22 percent of the city's foreign-born 
population, up from 9 percent in the 1980s. '^ The 
top Caribbean source countries for New York 
City immigrants during the 1990s have been 
Hispanic, while entries from Jamaica and Haiti 
have fallen. '6 Dominicans represent the largest 
group of immigrants to the city, with one out of 
every five immigrants coming from the Domini- 



^ Bogen, Immigration in New York, pp. 5-16; New York, NY, 
Department of City Planning, The Newest New Yorkers, 
1990-1994: An Analysis of Immigration to New York City in 
the Early 1990s (1996), p.l55 (hereafter cited as NYDCP, 
The Newest New Yorkers, 1990-1994). 

' Bogen, Immigration in New York, p. 21. Between 1940 and 
1960, New York's African American population increased 
from 6 to 14 percent of the city's population. Relatively few 
African Americans lived in New York City until well into the 
20th century. In 1890, for example, African Americans con- 
stituted only 1.6 percent of the population. By 1920 New 
York City was home to 150,000 African Americans. Al- 
though they constituted only 3 percent of the city's popula- 
tion, their community constituted the largest urban concen- 
tration of African Americans in the Nation. Poor economic 
conditions in the South and reduced rates of immigration led 
to the tripling of New York City's African American popula- 
tion between the years of 1920 and 1940. See Roger Wald- 
inger, Still the Promised City? African Americans and New 
Immigrants in Postindustrial New York (Cambridge: Har- 
vard University Press, 1996), pp. 42-43. 



10 fjgw York, NY, Department of City Planning, The Newest 
New Yorkers: An Analysis of Immigration into New York 
City During the 19S0's (1992), p. 5 (hereafter cited as 
NYDCP, The Newest New Yorkers— During the 1980s). 

iilbid., p. 6. 

12 Ibid., p. 5. 

'3 NYDCP, The Newest New Yorkers 1990-1994, p. xi. 

'■' Ibid., p. xi. See also Celia Dugger, "City of Immigrants 
Becoming More So in the '90s," New York Times, Jan. 9, 
1997, p. A-1. During the 1980s, the number of foreign-born 
persons residing in New York City rose by almost 25 percent 
to 2,082,000 persons, the highest level since 1940. NYDCP, 
The Newest New Yorkers — During the 1980s, p. 5. 

15 NYDCP, The Newest New Yorkers 1990-1994, p. 9. The 
increase in European immigrants stems from the surge of 
refugees from the former Soviet Union and a special visa 
lottery that heavily benefited Irish and Polish immigrants. 
Dugger, "City of Immigrants." 

16 NYDCP, The Newest New Yorkers 1990-1994, pp. 7-9. 



24 



can Republic.''' After the Dominican Republic, 
the former Soviet Union and China represent 
the top sources of documented immigration to 
the city since 1990.'^ 

The median age of immigrants settling in 
New York City is younger than the general 
population by 7 years. '^ Of immigrants arriving 
in the 1990s, males share more similar occupa- 
tional distributions with nonimmigrant New 
Yorkers than do female immigrants with their 
nonimmigrant counterparts. The occupational 
distribution of immigrant males is similar to 
that of all males in the city in the areas of pro- 
fessional, technical, production and repair, and 
service occupations. Nevertheless, immigrant 
males had a higher representation in operator, 
fabricator, and laborer categories and a smaller 
representation in sales, administrative, and 
support jobs than native-born males. Immigrant 
women have a higher occupational distribution 
in professional, technical, and service occupa- 
tions than their native-born counterparts. At the 
same time, their repre;sentation as operators, 
fabricators, laborers, and service workers de- 
clined substantially between the 1980s and the 
1990S.20 

Immigrants are overrepresented in fields re- 
quiring high education and in fields requiring 
little or no education or training. They are least 
represented in fields requiring an intermediate 
level of education or training, such as public- 
sector occupations. 2' Among high education 
fields, male immigrants predominate over na- 
tive-born males as college professors and doc- 
tors.22 



''' Ibid., p. xi. 

•8 Ibid. 

" The median age of immigrants in New York City is 27 
years, compared with 34 years for the general population. 
Ibid. 

20 Ibid., p. xii. 

2' These include firefighters and law enforcement officers, 
for example. National Research Council, The New Ameri- 
cans: Economic, Demographic, and Fiscal Effects of Immi- 
gration (prepublication copy) (Washington, DC: National 
Academy Press, 1997), p. 5-21. 

22 The influx of immigrants with high skills is regulated, 
and therefore shaped, by our immigration laws. The Immi- 
gration Act of 1990 established an annual numerical limit of 
140,000 for immigrants entering under employment-based 
visas. Pub. L. No. 101-649, § 101, 104 Stat. 4978, 4982 
(codified as amended at 8 U.S.C. § 1151(d) (1994)). Employ- 
ment-based visas are allocated according to the following 
categories: 



The concentration of immigrants is more 
dramatic in low-education fields. In States with 
large immigrant populations, like New York, 
immigrants represent three out of every four 
tailors, cooks, and textile workers, and they are 
a majority of all taxicab drivers, domestic service 
workers, and waiters' assistants. ^3 In New York 
City, immigrants arriving between 1990 and 
1994 had greater representation in the fields of 
operator, fabricator, laborer, and service worker 
than did the population as a whole. ^^ 

The majority of immigrants arriving in the 
city during the 1990s settled in Brooklyn or 
Queens, although two of the three neighbor- 
hoods that attracted the most immigrants, 

40,000 — First Preference Visas. These visas are reserved for 
priority workers, including workers of extraordinary ability, 
outstanding professors or researchers, and certain execu- 
tives and managers of multinational corporations. No labor 
certification is required for workers in this category. 
40,000 — Second Preference Visas. These visas are awarded 
to aliens with advanced degrees in the professional fields or 
who have exceptional ability in the sciences, arts, or busi- 
ness. Labor certification is required for workers in this cate- 
gory. 

40,000 — Third Preference Visas. These visas are reserved for 
aliens with a bachelor degree or its equivalent, or otherwise 
skilled workers capable of performing a job requiring at 
least 2 years of experience or training. Labor certification is 
required for workers in this category. 

10,000 — Fourth Preference Visas. These visas are reserved 
for special immigrants, which includes ministers and relig- 
ious workers. 

10,000 — Fifth Preference Visas. These visas are reserved for 
foreign investors who agree to establish a new commercial 
enterprise, invest at least $1 million in the enterprise, and 
employ at least 10 U.S. citizens. 

See 8 U.S.C. § 1 153(b) (1994). 

23 National Research Council, The New Americans, pp. 5-19 
to 5-22. 

^'f NYDCP, The New Newest New Yorkers, 1990-1994, pp. 
24-31. Male immigrants in New York City had a higher 
representation in the lower skilled operator, fabricator, and 
laborer industries than the male population of the city as a 
whole (24 versus 16 percent). Male immigrants were under- 
represented in the less skilled white-collar occupations of 
sales (5 versus 11 percent for all male city residents) and 
administrative support (6 versus 12 percent for male city 
residents). Compared with the male city population as a 
whole, male immigrants had comparable occupational dis- 
tributions in the professional specialty and technical catego- 
ries (17.6 percent of immigrants, compared with 17.7 per- 
cent in the entire population). Citywide female immigrants 
had significantly higher concentrations in the professional 
specialty and technical (30 versus 23 percent) and service 
categories (24 versus 16 percent) than their counterparts as 
a whole. Female immigrants are underrepresented in the 
highly skilled executive, administrative, and managerial 
occupations, and in the lower skilled sales and administra- 
tive support fields. Ibid. 



25 



Washington Heights and Chinatown, are in 
Manhattan. 25 The influx of immigration has bol- 
stered New York City's decreasing population 
and revitalized neighborhoods that had previ- 
ously been dechning, according to the director of 
the New York City Department of Planning.'-*' 
The department's report, The Newest New York- 
ers, estimates that the city's population would 
have declined 9 percent without the 856,000 
immigrants who moved there in the 1980s. 2" As 
a result of the immigrant influx, the city's 
population instead rose by 3.5 percent. 

The immigration boom has also introduced a 
different racial dynamic to New York City. Ac- 
cording to John MoUenkopf, graduate professor 
of political science and director of data services 
at the City University of New York: 

Even though the city is getting less white, it's not 
becoming predominantly native-born black, but 
rather, more diverse, with Asian American and Pa- 
cific Islanders and Latinos being the most rapidly 
growing groups, and even within the broad racial 
categories that we usually rely on, black, white. La- 
tino, immigrants and the diversity of countries of ori- 
gin of the immigrants, are introducing new differ- 
ences, so that among blacks, the majority . . . are na- 
tive born of native-born heritage, but roughly a quar- 
ter are foreign born, and we have various kinds of 
tensions between native-born and West Indian black 
residents of New York City.^^ 

Section I. Working Conditions for 
Immigrants in Low-skill Industries 

For many immigrants, work in low-skill in- 
dustries is characterized by long hours, low 
wages, and unsafe working conditions. For im- 
migrants hving in large immigrant communities, 
competition for jobs with native-born residents 
and undocumented immigrants means that they 
must accept these conditions if they are to work 
at all. The Center for Immigrants Rights' former 
policy director, Frank Velasquez, explained to 
Commission staff that immigrants are more sus- 
ceptible to manipulation and exploitation due to 



^5 The third neighborhood is Brooklyn's Gravesend-Homecrest. 
NYDCP, The Newest New Yorkers 1990-1994, p. xiii. 

2(> Dugger, "City of Immigrants." 

27 Ibid. 

28 John MoUenkopf, graduate professor of political science 
and director of data services. City University of New York, 
testimony, New York Hearing, vol. I, p. 175 (hereafter cited 
as MoUenkopf Testimony). 



language barriers, lack of knowledge of the laws 
and their rights, and, most importantly, differ- 
ent work ethics, desperation, and fear of the 
government. 23 

The Sweatshop Phenomenon 

Despite labor standards laws and the efforts 
of the departments of labor, many employers 
continue to subject alien employees, particularly 
those who are undocumented, to substandard 
working conditions. These immigrants endure 
low wages, long hours, unsafe working condi- 
tions, and child labor. ^o The U.S. General Ac- 
counting Office (GAO) defines businesses that 
regularly violate one or more State or Federal 
labor laws governing minimum wage and over- 
time, child labor, industrial homework, occupa- 
tional safety and health, workers' compensation, 
or industry registration, as sweatshops.^' 

In its 1988 report, "Sweatshops" in the U.S.: 
Opinions on Their Extent and Possible Enforce- 
ment Options, the GAO identified the garment 
and restaurant industries as two of the three 
most likely industries to operate in sweatshop 
conditions. 32 Among the factors cited by GAO 
contributing to the existence of sweatshops are 
the presence of a vulnerable and exploitable 
immigrant work force; the labor intensiveness 
and low profit margins of these industries; and 
the rapid growth of subcontracting, particularly 
in garment-making and electronics. ^^ Certain 
enforcement-related factors, such as insufficient 
inspection staff, inadequate penalties for viola- 
tions, weak labor laws, and hmited coordination 
among enforcement agencies were cited as rea- 



29 Frank Velasquez, policy director. Center for Immigrants' 
Rights, interview in New York City, Jan. 6, 1994 (hereafter 
cited as Velasquez Interview). The Center for Immigrants' 
Rights is a New York organization advocating on behalf of 
immigrants. See also Lora Jo Foo, "The Vulnerable and Ex- 
ploitable Immigrant Workforce and the Need for Strength- 
ening Worker Protective Legislation," Yale Law Journal, 
vol. 103 (1994), pp. 2179, 2182. 

•'"' See Susan Headden, "Made in the USA," U.S. News and 
World Report, Nov. 22, 1993, p. 48. 

>" GAO, Garment Industry: Efforts to Address the Prevalence 
and Conditions of Sweatshops (GAO/HEHS-95-29, Nov. 2, 
1994), p. 1. 

■•2 The meat-processing industry is the third. The GAO's 
study specifically e.xcluded from its scope work done out- 
doors, such as agriculture and construction, and industrial 
homework (i.e., manufacturing in the home). GAO, Sweat- 
shops in the U.S., pp. 17, 19-21. 

^^ Ibid., pp. 32-35. 



26 



sons for the continuing existence of sweat- 
shop s.^-* 

Most susceptible to abuse are the undocu- 
mented, whose fear of deportation makes them 
an attractive work force for employers in these 
fiercely competitive, low-profit industries. As the 
recent case of the Mexican trinket vendors illus- 
trates,35 aliens smuggled into the country are 
frequently sent to work in New York City's gar- 
ment and restaurant businesses and other low- 
skill concerns to pay off their debts to smugglers. 
In Chinatown sweatshops, many undocumented 
Chinese immigrants toil in conditions reminis- 
cent of indentured servitude for low wages, no 
benefits, under frequent threats of abuse, and in 
deplorable working conditions until they have 
paid off their debts to smugglers, a process that 
usually takes several years. ^^ 

Immigrant advocates and scholars attribute 
the proliferation of sweatshops over the past 10 
years to the passage of the Immigration and Re- 
form Control Act (IRCA)^'' and weak enforce- 
ment of labor laws.^^ These advocates maintain 



■^^ Ibid., p. 32. See also Foo, The Vulnerable and Exploitable 
Immigrant Workforce, pp. 2179, 2182. 

35 In July 1997, Federal agents discovered groups of deaf 
Mexicans in New York City and North Carolina who peddled 
trinkets and turned over their earnings to bosses who alleg- 
edly smuggled them into the U.S., kept them in cramped 
quarters, and abused and threatened them. Moore and 
Kasindorf, "Enslavement in America." 

36 Kwong, "The Wages of Fear." 

^'^ Immigration Reform and Control Act of 1986, Pub. L. No. 
99-603, 100 Stat. 3359 (1986) (codified as amended at 8 
U.S.C. § 1324a et seq. (1994)). Prior to passage of IRCA, 
there was no bar against the employment of undocumented 
immigrants. IRCA was enacted to address that deficiency. 
See note 70. 

38 Foo, TVie Vulnerable and Exploitable Immigrant Work- 
force, pp. 2182-83 ("Since IRCA went into effect, a whole 
sub-class of workers ripe for e.\ploitation has developed. . . . 
Many employers readily hire immigrants with false docu- 
mentation, knowing that these workers will not risk losing a 
paycheck to report abuses to labor agencies. Employers are 
shielded fi'om legal penalties merely by claiming that they 
believed in good faith that the 'green card' appeared authen- 
tic. The immigrant worker has no protection. He or she is 
forced to accept slavery-like conditions under the constant 
threat of deportation"); Galpern Interview (IRCA's employer 
sanctions provision encourage violations by allowing em- 
ployers to coerce employees to work for lower wages, under 
the e.xcuse that they are taking a chance by hiring them); 
Muzaffar Chishti, director, Immigration Project, Interna- 
tional Ladies Garment Workers' Union, testimony. New 
York Hearing, vol. II, p. 478 (The pa.ssage of IRCA has had 
no effect in controlling the flow of undocumented immi- 
grants, and has caused an increase in the incidence of viola- 



that, as a result of IRCA's employer sanctions 
provision, 39 immigrants often work in trades in 
which detection is difficult, such as the restau- 
rant, garment, or construction industries, where 
they are paid as little as $1 an hour, work 80 or 
more hours per week, and often have their 
wages withheld for months and their tips stolen 
by managers. ""o IRCA critics charge that employ- 
ers are able to operate in violation of the law be- 
cause labor laws are not enforced effectively, and 
the ensuing penalties, if assessed, are not severe 
enough to have a deterrent effect."*' The combi- 
nation of IRCA and lax enforcement of labor 
laws fuels the operation of an underground 
economy that thrives off exploited workers who 
are forced to accept any conditions or face black- 
Hsting, deportation, or gang retaliation.''^ 



tions of labor laws in many parts of the industry) (hereafter 
cited as Chishti Testimony). 

39 The "employer sanctions" provision of the Immigration 
Reform and Control Act, an amendment to the Immigration 
and Nationality Act, forbids any person or entity fi-om hir- 
ing, recruiting, or referring for employment (for a fee), any 
alien knowing that the alien is ineligible to be employed in 
the U.S. Employers who violate this provision are subject to 
a range of sanctions. 8 U.S.C. § 1324a(a)(l) (1994). For a 
more detailed discussion of IRCA, see the section of this 
chapter discussing the INS. 

'"' A recent example of such exploitation arose out of a case 
filed by the New York attorney general against Jing Fong 
restaurant, the largest restaurant in Chinatown. The res- 
taurant agreed to pay more than $1.1 million to 58 workers 
who alleged they were underpaid and cheated of tips, be- 
cause they worked over 60 hours weekly and were paid as 
little as $65 a week. David Chen, "Waiters Settle Suit on 
Wages With Big Chinatown Restaurants," New York Times, 
Oct. 30, 1997, p. A-30. 

■" Velasquez Interview. 

42 Chinese Staff and Workers Association, CSWA NEWS: 
The Voice of Chinese American Workers, vol. 4, issue 1 (fall 
1993), p. 6; Lam Interview. Examples of labor law violations 
by Chinatown restaurants have recently made news. In 
October 1997, the largest Chinatown restaurant, Jing Fong, 
agreed to settle a lawsuit brought by the New York State 
attorney general's office, on behalf of workers alleging that 
the restaurant had cheated them out of more than $1.5 mil- 
lion in wages and tips. The settlement represented China- 
town's largest ever settlement over alleged labor law viola- 
tions. Jing Fong waiters and busboys alleged they were paid 
as little as $65 to $100 a week for workweeks that routinely 
exceeded 60 hours. Chen, "Waiters Settle Suit on Wages 
with Big Chinatown Restaurant"; Monte Williams, 
"Neighborhood Report: Chinatown; Labor Dept. Hears Tales 
of Sweatshops, Restaurants, and Fear," New York Times, 
Aug. 6, 1995, p. 7. Other Chinatown restaurants have also 
been assessed penalties for labor law violations. See Mae 
Cheng, "A Move for Laborers," Newsday, Apr. 25, 1997, p. 
A-43; CSWA News: The Voice of Chinese American Workers. 



27 



This chapter examines the exploitative 
working conditions of immigrants in New York 
City's Chinatown restaurants and apparel facto- 
ries. As the New York City locality with the 
highest violation rate among garment producers 
(nearly 90 percent of garment shops were re- 
cently found in violation of the monetary provi- 
sions of the Fair Labor Standards Act),'*^ China- 
town represents a dense microcosm of the 
worker exploitation problems faced by low- 
skilled immigrants throughout the rest of the 
city. 

The Restaurant Industry 

Although the garment industry is often the 
focus of discussions on sweatshops, a powerful 
restaurant industry characterized by harsh 
working conditions also booms in Chinatown.**'* 
Intense competition among the more than 200 
Chinatown restaurants means that survival re- 
quires constant price wars, sustained through 
cuts in wages across the industry. ""^ 

Unlike other industries employing immi- 
grants in New York City, the restaurant indus- 
try is not widely unionized. ""^ Only one restau- 
rant is unionized in Chinatown, and struggles 
between that restaurant and its employees over 
existence of the union and wages have persisted 
over several years. ""^ 

Worker exploitation in the restaurant indus- 
try is also exacerbated by the lack of a concerted 



« U.S. Department of Labor (USDOL), Office of Public Af- 
fairs, "U.S. Department of Labor Compliance Survey Finds 
More Than Half of New York City Garment Shops in Viola- 
tion of Labor Laws," press release, Oct. 16, 1997. 

■''' Jennifer H. Lee, "Chinatown, Jing Fong, and Unfair La- 
bor Practices," Asian American Policy Review, vol. VII 
(1997), p. 146. 

■IS Ibid., p. 149. 

"•6 According to author Elizabeth Bogen, the immigrant work 
force is generally divided into unionized and nonunionized 
industries. Health care industry jobs are usually unionized; 
restaurant jobs generally are not. The garment industry is 
split between unionized and nonunionized shops. Bogen, 
Immigration in New York, p. 95. In 1980 the Chinese Staff 
and Workers' Association (CSWA) was formed to organize 
workers in Chinatown. While the CSWA has never identi- 
fied itself as a union, it has represented Chinatown workers 
and has helped unionized workers with contract negotia- 
tions. Despite the efforts of the CSWA, only one restaurant 
in Chinatown is unionized. Lee, "Chinatown, Jing Fong," p. 
150. 

'''' Rick Bragg, "A Seven-Month Lockout Ends at China- 
town's Only Unionized Restaurant," New York Times, Mar. 
14, 1994, p. B-3. 



effort by Federal and State labor departments to 
target that industry, according to New York 
State elected officials. '•^ Whereas abuses in the 
garment industry have led to speciaHzed task 
forces in both the Federal and New York de- 
partments of labor designed to target violations 
by apparel producers, there are no equivalent, 
specialized programs to address violations in the 
restaurant industry. 

According to immigrant advocates in New 
York's Chinese community, passage of IRCA 
caused working conditions in Chinatown to re- 
gress.''^ Whereas before IRCA many workers had 



''^ Mae M. Cheng, "A Move for Laborers," Newsday, Apr. 25, 
1997, p. A-43. At a news conference outside a Chinatown 
restaurant, elected State officials, including Sen. David 
Paterson (D-Manhattan), contended that immigrants are 
exploited by unscrupulous employers because, in part, the 
New York State Department of Labor fails to monitor ag- 
gressively restaurants and factories across the city. Ibid.; 
Wing Lam, executive director, Chinese Staff and Workers' 
Association, interview in New York City, Mar. 18, 1994 
(hereafter cited as Lam Interview). As an example of lacking 
enforcement resources, although Chinatown is home to the 
largest concentration of garment factories, the INS' New 
York office has only one Chinese-speaking agent. Celia W. 
Dugger, "A Tattered Crackdown on Illegal Workers," New 
York Times, June 3, 1996, p. A-1. The Federal Department 
of Labor is similarly underresourced to deal with labor viola- 
tions in Chinatown. As of 1995, USDOL deployed only 14 of 
its 900 investigators to New York City and none spoke Chi- 
nese. Lee, "Chinatown, Jing Fong, and Unfair Labor Prac- 
tices," p. 156. Yet in response to an investigation-based 
compliance survey in New York City garment shops, the 
USDOL's Wage and Hour Division hired 16 additional in- 
vestigators for the New York City metropolitan area — all 
with bilingual ability in Chinese or Spanish. USDOL, Office 
of Public Affairs, "U.S. Department of Labor Compliance 
Survey Finds More Than Half of New York City Garment 
Shops in Violation of Labor Laws." 

^^ Wing Lam, executive director, Chinese Staff and Workers' 
Association, testimony, New York Hearing, vol. II, p. 523 
(hereafter cited as Lam Testimony); Peter Kwong, director, 
Asian American Studies Program, interview in New York 
City, May 25, 1994 (hereafter cited as Kwong Interview). 
The impact of IRCA on working conditions in New York City 
is not limited to Chinatown, however. According to Muzaffar 
Chishti, director. Immigration Project, International Ladies 
Garment Workers' Union: "[T]he Immigration Reform and 
Control Act has had no effect in controlling the flow of illegal 
aliens into the United States. . . . [I]t has actually had the 
reverse impact on wages and working conditions, that ironi- 
cally today, what the law has achieved is the exact opposite 
of what the framers of the law had in mind. . . . [Wjhat em- 
ployer sanctions have done is that in a very, very subtle way 
they have segregated the labor market. Before IRCA, a de- 
cent U.S. employer was free to hire either a documented or 
an undocumented worker, because there was fluidity in the 
labor market. Now, if you have a decent U.S. employer you 
can only hire authorized workers, and, therefore, the nonau- 
thorized workers now are completely diversive [sic] to and 



28 



secured collective bargaining or other work force 
agreements limiting the number of overtime 
hours worked and protecting wages, IRCA 
served as a way of releasing many employers out 
of those commitments, at least with respect to 
undocumented workers, by allowing them to 
threaten workers with deportation by turning 
them over to the Immigration and Naturaliza- 
tion Service. 5" The resulting desperate, undocu- 
mented labor force ' willing to work under ex- 
treme conditions has led to reduced wages, 
longer hours, and deteriorated working condi- 
tions for all workers. 5' Wing Lam, executive di- 
rector of the Chinese Staff and Workers Associa- 
tion, a workers' advocacy organization for New 
York City's Chinese community, explained to 
Commission staff that the passage of IRCA set 
Chinatown workers back to conditions that ex- 
isted before 1980, when workers at a Chinese 
restaurant were successful in resolving a dispute 
with a Chinatown restaurant and formed the 
first Chinatown restaurant workers union, the 
318 Restaurant Workers Union. ^2 In response to 
the worker exploitation that became rampant 
with the passage of IRCA, the unionized Chinese 
restaurant sought to revert to preunion working 
conditions where workers toiled for low wages, 
had no medical insurance, and were required to 
turn over a portion of their tips to management. 
Following 7 months of picketing and a manage- 
ment lockout, management agreed to rehire the 
workers and allow them to retain their benefits.^s 



converge into the sweatshop sector, and, therefore, we have 
now created actually a dichotomy in the labor market, in 
which the authorized workers now work in the more stable, 
the more organized sectors of the economy, and the un- 
documented workers have converged into the sweatshop 
sector, and I think that is probably an unintended effect of 
the employer sanctions, but the results in the workplace are 
evident." Chishti Testimony, pp. 478-82. 

50 Lam Testimony, pp. 523-26; Lam Interview; Kwong In- 
terview. "A major consequence of IRCA is that employees 
are better equipped to violate basic labor standards. Work- 
ers cannot organize because they fear employers will turn 
them over to the INS for deportation. Employers can use the 
threat of deportation to deter employees from complaining 
about working conditions." Lee, "Chinatown, Jing Fong," p. 
156. 

51 Kwong Testimony, pp. 512-13; Lam Interview. 

52 Lam Interview. 

'•■^ Ibid.; Bragg, "Seven-Month Lockout Ends." Recently, 
other Chinatown restaurants have also made news over 
charges of wage and hour violations by employees. See note 
42 for discussion of these cases. 



Rather than having the desired effect of de- 
terring the employment of undocumented immi- 
grants, the passage of IRCA actually forced 
management at the restaurant to revert to pre- 
union conditions in order to compete with the 
other restaurants in Chinatown, which were not 
unionized and operating more inexpensively by 
violating labor laws. 5' Advocates suggest this 
example illustrates how IRCA may encourage 
previously law-abiding employers to seek out 
undocumented workers in order to compete with 
those employers who rely on undocumented labor. 

The Apparel Industry 

The apparel industry has long been a main- 
stay of New York City's manufacturing base. In 
the early years of the 20th century, the industry 
relied on immigrants from southern and western 
Europe. Today, immigrants from China and 
Latin America constitute the majority of New 
York City's garment industry work force. ^s The 
intense competition and low wages that charac- 
terize the industry have always made it suscep- 
tible to labor violations, and, therefore, to sweat- 
shop conditions. 5s Large-scale attention to the 
existence of sweatshops was achieved for the 
first time with the tragedy of the Triangle 
Shirtwaist Factory fire in 1911. On March 25, 
1911, the New York City factory was consumed 
by fire, killing 146 workers, most of them women 
and immigrants. Investigation of the fire re- 
vealed locked exits and blocked fire escapes that 
made evacuation impossible. ^'^ 

Sweatshops continue to thrive nationally and 
in New York City. According to a GAO report, 
the number of garment sweatshop operations 
has grown nationally since 1989, although there 
is conflicting evidence whether the number has 
grown or remained constant in New York City's 



5'' Bragg, " Seven-Month Lockout Ends." 

55 Bogen, Immigration in New York, p. 83. 

56 GAO, Garment Industry: Efforts to Address the Prevalence 
and Conditions of Sweatshops, p. 3 ("Analysts have long 
identified the labor-intensive U.S. garment industry as one 
characterized by extreme price competition, low wages, an 
immigrant workforce, and a vulnerability to sweatshop 
working conditions"). 

5' Robert Reich, U.S. Secretary of Labor, news conference 
transcript. Federal Document Clearing House (FDCH) Po- 
litical Transcripts, Mar. 25, 1996, available in LEXIS, News 
Library, Poltran File. 



29 



garment industry. ^^ In 1994 an estimated 2,000 
of New York City's 6,000 garment shops were 
believed to be sweatshops. ^^ 

A 3-month investigation by US News and 
World Report revealed that half of all women's 
garments made in America are produced in 
whole or in part by factories that defy labor 
standards laws.^" Labor officials in New York 
City and Los Angeles beUeve the large number 
and severity of minimum wage and overtime 
violations in garment manufacturing may be 
related to the larger population of undocu- 
mented immigrant workers employed by that 
industry. 61 In addition to labor law violations, 
the investigation found that State and Federal 
treasuries lose millions of dollars in tax revenue 
to garment contractors that pay no taxes. Of the 
estimated 50,000 sewing contractors in the coun- 
try, at least one-third are operating with no li- 
censes or permits and pay their workers in 
cash. ^2 

In addition to economic factors that drive 
competitors to operate in violation of labor laws, 



5* The chief of New York's Apparel Industry Task Force 
reported that, while sweatshops remain a widespread prob- 
lem, the severity of the 1990-91 recession forced many of 
the shops into bankruptcy, significantly reducing the num- 
ber of sweatshops operating in the city. Officials fi-om 
USDOL's Wage and Hour Division in New York City believe 
the problem of sweatshops in New York City's garment in- 
dustry remains the same as in 1989. GAO, Garment Indus- 
try: Efforts to Address the Prevalence and Conditions of 
Sweatshops, p. 5. Yet in an earlier report, GAO reported 
that sweatshops in the apparel industry were a serious 
problem that had not improved or had become worse during 
the 1980s. GAO, 'Sweatshops' in New York City: A Local 
Example of a Nationwide Problem (GAO/HRD-89-101 BR, 
June 1989). 

^^ GAO, Garment Industry: Efforts to Address the Prevalence 
and Conditions of Sweatshops, p. 5. 

60 Headden, "Made in the USA," p. 48. 

6' GAO, Garment Industry: Efforts to Address the Prevalence 
and Conditions of Sweatshops, p. 8. 

'^ The report also found that many factories consistently 
violate safety and health regulations, such as blocked fire 
exits, rodent infestation, and unsanitary bathroom and 
lunch areas. Headden, "Made in the USA." Small garment 
industry firms often operate in violation of tax laws due to 
pressure from retailers and manufacturers to keep costs 
down. These enterprises' profit margins are so small that 
"their viability is impinged upon by taxes and other regula- 
tions. . . ." To earn a profit, contractors draw from the mar- 
gin between the amount they receive for the contract, and 
the low amount they pay workers and underreport as busi- 
ness earnings. Alex Cohen, Immigrant Entrepreneurship in 
New York City (New York: New York City Economic Policy 
and Marketing Group, Dec. 14, 1993), p. 29. 



Other factors play roles in the sweatshop phe- 
nomenon. A 1989 study by the GAO found that 
sweatshops thrive in New York City because of 
weaknesses in existing labor laws, lack of coor- 
dination among enforcement agencies, and in- 
adequate resources to target violators.^^ Several 
officials interviewed by Commission staff called 
for tougher enforcement of labor laws and for 
repeal of the employer sanctions provision of 
IRCA as ways of ehminating sweatshops.^'' On- 
going reform of enforcement approaches and in- 
creased funding since the hearing have produced 
some of these suggested changes, yet New York 
City's apparel industry continues to lead the Na- 
tion in sweatshop abusers. 

Since January 1996, when the U.S. Depart- 
ment of Labor began issuing quarterly reports 
on garment industry labor law violations. New 
York has topped the list of garment industry la- 
bor law violators in the first three out of five re- 
ports, and was second only to California in the 
other two reporting periods.^^ According to Louis 



63 GAO, 'Sweatshops' in New York City: A Local Example of 
a Nationwide Problem, p. 3. 

*■' Lam Interview (Exploitation of workers increased after 
passage of IRCA by increasing the demand for vulnerable, 
exploitable workers by unscrupulous employers); Velasquez 
Interview (Repeal of employer sanctions, stronger enforce- 
ment of labor standards laws, and more funding for the de- 
partments of labor are needed to eliminate the exploitation 
of immigrant labor); Louis Vanegas, Wage and Hour Divi- 
sion, U.S. Department of Labor, interview in New York, 
Feb. 2, 1994 (hereafter cited as Vanegas Interview) 
(strengthening the "hot goods" provision, creating labor 
courts to hasten adjudication of labor violation claims, re- 
pealing employer sanctions, and adding Federal penalties 
for violators are needed to address worker exploitation in 
the apparel industry). 

6'' The first report, covering the first half of the 1996 fiscal 
year, found that New York led the Nation in both rate of 
violations and in back wages collected. Back wages due by 
New York firms totaled $593,327. California firms owed 
$447,532 in back wages. USDOL, "Labor Secretary Releases 
Nationwide Garment Report Revealing Sweatshops Persist 
in US Apparel Industry," FDCH Federal Department and 
Agency Documents, May 3, 1996, available in LEXIS, News 
Library, Feddoc File. The June 1996 report revealed New 
York as the worst offender, with $310,347 in back wages 
recovered, followed by California, vyith $67,771 in back 
wages recovered. USDOL, "Too Many Garment Assembly 
Firms Break Labor Laws According to New Report Released 
by Labor Secretary," FDCH Federal Department and 
Agency Documents, Aug. 23, 1996, available in LEXIS, 
News Library, Feddoc File. The Sept. 30, 1996, report re- 
vealed California as the worst offender for the period, fol- 
lowed by New York. During that period, $353,686 in back 
wages were recovered from California apparel companies, 
while $342,382 was recovered as wages from New York 



30 



Vanegas, apparel industry specialist for the 
Wage and Hour Division of the U.S. Department 
of Labor and other Wage and Hour Division 
sources, more than half of New York City's gar- 
ment contractors operate in violation of one or 
more labor laws.^^ 

Government Responses to Sweatshop Problem 
INS and Employer Sanctions 

The Immigration and Naturalization Service 
(INS) is the agency charged with enforcing the 
employer sanctions provision of the Immigration 
Reform and Control Act of 1986 (IRCA).^^ The 
employer sanctions provision, an amendment to 
the Immigration and Nationality Act, prohibits 
any person or entity from hiring, recruiting, or 
referring for employment or continuing to em- 
ploy any alien known to be unauthorized to work 
in the United States. ^^ Violators are subject to a 
series of civil fines or, in cases of pattern or prac- 



companies. Greg Johnson, "California Leads Labor Offense 
List: $353,686 in Back Wages Recovered Last Quarter from 
State's Garment Industry," Los Angeles Times, Nov. 23, 
1996, p. 2-D. The December 1996 report revealed California 
as the worst offender, with $479,247 due in back wages, 
followed by New York, with $171,160 due in back wages. 
Carl Fillichio, "Labor Department Releases Garment En- 
forcement Report," U.S. Newswire, Mar. 4, 1997, available 
in LEXIS, News Library, Usnwr File. The March 1997 re- 
port revealed New York as the worst offender, with $336,602 
in back wages recovered, with California coming in second, 
with $117,069 in recovered back wages. USDOL, Wage and 
Hour Division, Garment Enforcement Report, January 
1997-March 1997 <http://www.dol.gov/dol/esa/public/noseat/ 
nosweat.htm>. The Garment Enforcement Reports were 
initiated by the Labor Department at the request of retail- 
ers, who needed additional information about manufacturers 
and contractors violating labor laws. USDOL, "Too Many 
Garment Assembly Firms Break Labor Laws," FDCH Fed- 
eral Department and Agency Documents, Aug. 23, 1996, 
available in LEXIS, News Library, Feddoc File. 

^ Zachary Margulis, "Sweatshops Hit for Back Wages," 
Daily News, May 4, 1996, p. 7; USDOL, Office of Public Af- 
fairs, "U.S. Department of Labor Comphance Survey Finds 
More Than Half of New York City Garment Shops in Viola- 
tion of Labor Laws." 

6' Immigration Reform and Control Act of 1986, Pub. L. No. 
99-603, 100 Stat. 3359 (1986) (codified as amended at 8 
U.S.C. § 1324a et seq. (1994)). In addition to imposing sanc- 
tions on employers of undocumented aliens, IRCA also pro- 
hibits employment discrimination against persons who are 
or appear to be foreign born. The antidiscrimination compo- 
nent of IRCA is enforced by the Office of Special Counsel for 
Immigration-Related Unfair Employment Practices. 

8' Immigration Reform and Control Act of 1986, Pub. L. No. 
99-603, 100 Stat. 3359 (1986) (codified as amended at 8 
U.S.C. § 1324a et seq. (1994)). 



tice violations, criminal penalties.^^ Prior to pas- 
sage of IRCA, there was no bar against the em- 



''" IRCA imposes civil penalties for violations of the employer 
sanctions and the document fraud provisions. There are four 
types of conduct that violate the employer sanctions compo- 
nent: (1) knowingly hiring, recruiting or referring for a fee, 
unauthorized aliens; (2) knowingly continuing to employ 
unauthorized aliens; (3) failing to comply with the employ- 
ment verification requirements for all individuals for em- 
ployment; and (4) requiring any individual who is hired, 
recruited or referred for employment to post a bond or secu- 
rity, to pay or agree to pay an amount, or otherwise to pro- 
vide a financial guarantee or indemnity, against any poten- 
tial liability or fine. 

The document fraud provision of 8 U.S.C. § 1324c prohibits 
the following activities; "It is unlawful for any person or 
entity knowingly: (1) to forge, counterfeit, alter, or falsely 
make any document for the purpose of satisfying a require- 
ment of this Act (INA), or to obtain a benefit under this Act; 
(2) to use, attempt to use possess, obtain, accept, or receive 
or to provide any forged, counterfeit, altered, or falsely made 
document in order to satisfy any requirement of this Act or 
to obtain a benefit under this Act; (3) to use or attempt to 
use or to provide or attempt to provide any document law- 
fully issued to or with respect to a person other than the 
possessor (including a deceased individual) for the purpose 
of satisfying a requirement of this Act or obtaining a benefit 
under this Act; (4) to accept or receive or to provide any 
document lawfully issued to or with respect to a person 
other than the possessor (including a deceased individual) 
for the purpose of complying with section 274A[1324c] or 
obtaining a benefit under this Act; or (5) to prepare, file, or 
assist another in preparing or filing, any application for 
benefits under this Act, or any document required under 
this Act, or any document submitted in connection with such 
application or document, with knowledge or in reckless dis- 
regard of the fact that such application or document was 
falsely made or, in whole or in part, does not relate to the 
person on whose benefit it was or is being submitted, or (6) 
to present before boarding a common carrier for the purpose 
of coming to the United States a document which relates to 
the alien's eligibility to enter the United States, and to fail 
to present that document to an immigration officer upon 
arrival at a United States port of entry." INS Frequently 
Asked Questions, INS Web site <http://www.ins.usdoj.gov/>. 
See also 8 U.S.C. §§ 1324a, 1324c (1994). 

In addition to the provision on employer sanctions, the act 
also prohibits discrimination against citizens and authorized 
aliens in hiring. IRCA also gave temporary resident status 
to aliens who had lived illegally in the United States since 
before 1982. These aliens could later adjust to permanent 
resident status under a legalization program created under 
the act. IRCA also created the Special Agricultural Worker 
Program, which granted temporary, and later permanent, 
status to former illegal aliens who worked at least 90 days 
in seasonal agriculture during the year ending May 1, 1986. 
Immigration Reform and Control Act of 1986, Pub. L. No. 
99-603, 100 Stat. 3359 (1986) (codified as amended at 8 
U.S.C. § 1324a el seq. (1994)). U.S. Department of Justice, 
Immigration and Naturalization Service, An Immigrant 
Nation: United States Regulation of Immigration, 1798-1991 
(June 1991), p. 25. 



31 



ployment of undocumented immigrants. IRCA 
was enacted to address that deficiency."" 

Before the passage of IRCA, Congress heard 
testimony from groups who were concerned that 
the threat of sanctions could result in extensive 
employment discrimination against minorities, 
especially Asian American and Pacific Islanders 
and Hispanics, whom employers might be reluc- 
tant to hire for fear of violating the law."i In re- 
sponse to these concerns, Congress added an an- 
tidiscrimination component to the act. The anti- 
discrimination section protects employees who 



'" The legislative history of the statute reflects the belief 
that IRCA would deter employers from relying on undocu- 
mented immigrants as cheap sources of labor and, in that 
manner, diminish the economic magnet of jobs as an in- 
ducement for immigrants to enter or remain in the U.S. 
illegally. A House Judiciary Committee report accompany- 
ing IRCA explained: "Employment is the magnet that at- 
tracts aliens here illegally or, in the case of nonimmigrants, 
leads them to accept employment in violation of their status. 
Employers will be deterred by the penalties in this legisla- 
tion from hiring unauthorized aliens and this, in turn, will 
deter aliens from entering illegally or violating their status 
in search of employment." H.R. Rep. No. 99-682, pt. 1, at 46 
(1986), reprinted in 1986 U.S.C.C.A.N. 5649, 5650. Drafters 
of IRCA also expected the law would help preserve jobs and 
wages for authorized workers. Id. at 47, 52, 58. 

7' See H.R. Conf Rep. No. 99-682, pt. 1, at 70 (1986), re- 
printed in 1986 U.S.C.C.A.N. 5649, 5672. In various reports, 
the Commission also predicted discrimination based on na- 
tional origin for job applicants who appeared foreign. See 
U.S. Commission on Civil Rights, The Tarnished Golden 
Door (September 1980), pp. 64,74 (hereafter cited as 
USCCR, The Tarnished Golden Door); 

U.S. Commission on Civil Rights, The Federal Civil Rights 
Enforcement Effort — 1974, vol. VII, To Preserve, Protect and 
Defend the Constitution (June 1977), pp. 41-^2. In its report. 
The Tarnished Golden Door, the Commission found: 
"[I]ncreased employment discrimination against United 
States citizens and legal residents who are racially and cul- 
turally identifiable with major immigrant groups could be 
the unintended result of an employer sanctions law. If sanc- 
tions against the employment of undocumented workers are 
enacted, unintentional employment discrimination against 
current or prospective employees by employers, even when 
they act in good faith, may not be preventable. Bona fide job 
applicants who are "foreign looking" or "foreign speaking" 
may be denied employment because employers are unable to 
make determinations of lawful immigration status." The 
Tarnished Golden Door, Finding 5.4, p. 74. The Commission 
warned that creating remedies for anticipated discrimina- 
tion cannot restore applicants to the status quo: "If employer 
sanctions legislation will result in increased employment 
discrimination .... any remedy provided for the redress of 
violations does not erase the primary offense. No after-the- 
fact remedy is ever adequate to compensate for discrimina- 
tion that prevents some American citizens or legal resident 
aliens from the full enjoyment of and participation in our 
democratic society." The Tarnished Golden Door, p. 64. 



may face discrimination on the basis of national 
origin, citizenship status, or the documents they 
choose to present when establishing their em- 
ployment eligibility. "2 

IRCA also requires employers to comply with 
employment eligibility verification require- 
ments. ^^ Employers must verify that each person 
hired is authorized to work in the United States. 
To satisfy the verification requirement, the law 
requires each employer to complete an Employ- 
ment Eligibility Verification Form, called the 
form 1-9, for every new employee hired after 
November 6, 1986, at the time of hire.'''' For the 
employer to complete the form 1-9, the employee 
must present document(s) that establish both 
identity and authorization to work in the United 
States. ''5 A list of acceptable documents for this 
purpose is set forth in § 1324a and implementing 
regulations. 

The Illegal Immigration Reform and Immi- 
grant Responsibility Act (IIRIRA), passed in 
1996, creates additional penalties and imposes 
requirements beyond those found in IRCA. Some 
of the mandates of IIRIRA are designed to ad- 
dress the issue of undocumented aliens and em- 
ployment. Among other provisions, the law cre- 
ates new penalties against immigrant smug- 
gling, estabhshes a worker verification pilot pro- 
gram, and amends IRCA requirements. "^ 



'2 8 U.S.C. § 1324b (1994). Allegations of employment dis- 
crimination based upon national origin, citizenship status, 
or refusal to accept certain documents are investigated and 
prosecuted by the Department of Justice's Office of Special 
Counsel for Immigration-Related Unfair Employment Prac- 
tices. 8 U.S.C. § 1324b(c). 

" 8 U.S.C. §§ 1324a(a)(l)(B), 1324a(b) (1994). 

'■i 8 U.S.C. § 1324a(b) (1994). 

'5 Prior to passage of Illegal Immigration Reform and Immi- 
grant Responsibility Act, an employee could produce 1 of a 
combination of 29 different documents to establish identity 
and work authorization. The new law reduces the number of 
documents that can be presented. Pub. L. No. 104-208, § 
412(a), 110 Stat. 3009 (codified as amended at 8 U.S.C. § 
1324a(b)(l) (1994)). Yet it also authorizes the Attorney Gen- 
eral to designate other documents to prove identity and/or 
work authorization, and the INS issued an interim rule in 
September 1997 restoring most of the documents deleted by 
the statute, in order to give the public an additional 6 
months to understand the new law. Congress followed with 
a 6-month reprieve to allow the INS more time to implement 
the verification changes mandated by IIRIRA. Pub. L. No. 
105-543, § 3. See also Stanley Mailman and Stephen Yale- 
Loehr, "The Complexity of Verifying Work Authorization," 
New York Law Journal, Oct. 27, 1997, p. 3. 

■"> IIRIRA treats the smuggled entry of every alien as a sepa- 
rate offense for the smuggler. Before the law. the offense 



32 



The Immigration and Nationality Act was 
also amended by the Violent Crime Control and 
Law Enforcement Act of 1994 (VCCLEA) to in- 
clude new nonimmigrant visa classifications."" 
Among the visa classifications created by the 
VCCLEA was the S visa classification. A nonim- 
migrant who possesses critical and reliable in- 
formation concerning a criminal organization or 
enterprise and who is wilHng to provide that in- 
formation to Federal or State authorities may be 
eUgible for one of the 250 visas granted annually 
under this classification.''^ These visas have been 
considered in cases involving large, egregious 
violations of labor and immigration laws, such as 
those revealed in the Mexican trinket vendor 
case and the El Monte case involving Thai 
workers. '3 



was linked to the entire smuggling transaction, rather than 
to each person smuggled. Under the new law, any employer 
hiring 10 or more aliens who the employer knows are not 
authorized to be in the U.S. and who were brought into the 
U.S. illegally is also guilty. IIRIRA also increases penalties 
for the fraudulent use or alteration of documents establish- 
ing work authorization. It increases the maximum prison 
term for this offense and increases penalties for violations 
involving involuntary servitude, peonage, and slave trade 
from a maximum of 5 years, to 10 years. Illegal Immigration 
Reform and Immigrant Responsibility Act of 1996, Pub. L. 
No. 104-208, § 203, 211, 110 Stat. 3009 (1996). 

The new law also creates three employment eligibility vol- 
untary pilot programs. Employers have the option of partici- 
pating in the program being tested by the State in which 
they conduct business. By participating in the program, the 
employer establishes a rebuttable presumption that it has 
complied with employment verification procedures. Employ- 
ers who can show a good faith attempt to comply with the 
verification requirement are exempted from liability, as long 
as they cure the violations within 10 days of the date it is 
discovered. Illegal Immigration Reform and Immigrant Re- 
sponsibility Act of 1996, Pub. L. No. 104-208, § 411, 110 
Stat. 3009 (1996). 

''^ Violent Crime Control and Law Enforcement Act, Pub. L. 
No. 103-322, § 130003 (codified as amended at 8 U.S.C. § 
1101(a)(15) (1994) (amending the INA by adding § 
101(a)(15)). 

'* Visas: Documentation of Nonimmigrants Under the Im- 
migration and Nationality Act, as amended, 61 Fed. Reg. 
1837 (Jan. 24, 1996) (to be codified at 22 C.F.R. pt. 41). 

'3 Moore and Kasindorf, "Enslavement in America"; Marga- 
ret Ramirez, "Video Tie to Mexico Eases Anxiety, For Deaf, 
Joyful Visit," Newsday, Aug. 16, 1997, p. A-7. In the El 
Monte case, authorities uncovered 72 Thai women confined 
to an El Monte sweatshop for 6 years, working 17-hour days 
under threats from the operators. The women had been 
smuggled from Thailand under a promise of good earnings 
in the U.S., but were instead kept in the compound, guarded 
by razor wire, fencing, and barricades to work off their debts 
to their smugglers. In the case of the Mexican trinket ven- 
dors, police discovered 55 deaf immigrants who had been 



The employer sanctions provision has been 
widely criticized for having the opposite effect of 
inducing unscrupulous employers, especially 
those in small manufacturing and restaurant 
industries — industries typically characterized by 
tight competition and slim profit margins — to 
seek out undocumented immigrants as cheap, 
vulnerable sources of labor.^o According to advo- 
cates and scholars, these employers know that 
undocumented immigrants desperate for work 
will accept any wage and work under the most 
deplorable conditions, without recourse. The law 
has thus sparked a large market for production 
of falsified work authorization documents. 

Yet even for those brazen employers who do 
not require prospective employees to produce 
work authorization documents, the prospect of 
being fined for violations is httle incentive to 
comply with the law. INS officials explained to 
Commission staff and testified at the hearing 
that limited resources devoted to the enforce- 
ment of employer sanctions has meant that, 
even when INS finds sufficient evidence of viola- 
tions and imposes fines, they simply do not have 
the resources to enforce these penalties in 
court.8' Consequently, most penalties are nego- 



smuggled from Mexico and forced with threats and violence 
to sell trinkets on subways and streets. The immigrants 
were housed in a hotel in the custody of INS but were later 
released. Authorities have granted S visas to some of the 
immigrants, in exchange for their assistance in providing 
evidence to convict the smugglers. Applications for S visas 
are pending in other cases. 

8" Chishti Testimony, pp. 478-82; Kwong Testimony, pp. 
512-13; Foo, The Vulnerable and Exploitable Immigrant 
Workforce, pp. 2179, 2182-83. 

8' John Shaw, assistant commissioner for investigations, 
U.S. Immigration and Naturalization Service, interview in 
Washington, DC, June 24, 1994. Mr. Shaw told Commission 
staff that the greatest obstacle to full implementation of 
IRCA is the lack of automated support for the Investigations 
Division and the lack of human resources to conduct investi- 
gations. At the time of the interview, there existed a backlog 
of 23,000 uninvestigated leads of potential employer sanc- 
tions violations nationwide, because INS had the means to 
investigate only approximately 3,500 of those annually. 
Thus, few followup investigations were conducted, and "the 
INS is frequently forced to settle penalties for less than the 
assessed amount rather than take the case to trial." Ibid. 

In New York resources are equally limited. Misters McElroy 
and Malario explained that the Investigations Branch of 
INS' New York District Office has 17 agents to investigate 
all IRCA violations. As a result, the office is able to investi- 
gate only 60 of the approximately 1,200 complaints it re- 
ceives every year. Of the 60, approximately 40 are resolved 
annually. Of the $11,840,000 assessed fines since enactment 
of IRCA, the district office has recovered $3,800. Edward 



33 



tiated down significantly. Employers are aware 
of these limitations and thus hold an advantage 
in the negotiations process. Awareness of these 
budgetary constraints also emboldens employers 
to violate the law, because they know that the 
odds of being caught are slight and that any 
penalty is simply a cost of doing business. ''^ For 
many smaller employers, the response to imposi- 
tion of penalties is to declare bankruptcy — 
frequently without paying their employees — and 
to set up shop as a different corporation. 

Beginning October 1995, the New York Dis- 
trict INS Office initiated a pilot interagency co- 
ordination program with the U.S. Department of 
Labor (USDOL) to target its enforcement re- 
sources on the garment industry.*'' For the pilot 
program, INS increased the number of agents in 
New York from 17 to 45, and the headquarters 
office intends to more than double the number of 
agents nationally, to 700.*-' According to Doris 
Meissner, Commissioner, Immigration and 
Naturalization Service, the FY 96 budget, with 
its $63.5 million worksite enforcement initiative, 
"represents for the first time since the sanctions 
law passed in 1986 that the INS has received the 
resources [needed] to enforce employer sanctions 
vigorously. The new investigations personnel . . . 



McElroy, acting district director, and Dan Molerio, assistant 
district director for investigations, U.S. Immigration and 
Naturalization Service, New York Region, telephone inter- 
view, June 20, 1994 (hereafter cited as McElroy and Malario 
Interview). See also Edward McElroy, district director. New 
York District OfQce, Immigration and Naturalization Serv- 
ice, testimony. New York Hearing, vol. II, pp. 567-69 
(hereafter cited as McElroy Testimony). 

82 McElroy and Malario Interview. Misters McElroy and 
Malario explained that no case against an employer has 
gone to hearing since IRCA has been in effect because the 
INS does not have adequate funding to prosecute a case. As 
a result, the INS is forced to settle contested disputes be- 
cause there are no resources to conduct discovery and try 
the case. According to Mr. Malario, employers know that 
your "chances of getting struck by lightning are better than 
your chances of the INS coming after you." McElroy and 
Malario Interview. 

83 "Budget Briefing Remarks with Doris Meissner," INS 
Press Releases, INS <http;//www. ins. usdoj.gov/>. The new 
enforcement approach will target the worst violators of im- 
migration and employment laws and coordinate investiga- 
tions with the Department of Labor, increase work site op- 
erations to remove unauthorized workers and make jobs 
available for authorized workers, and test and expand pilot 
programs to assist employers in complying with the law. 
Summary of Priorities for Fiscal Year 96, INS <http://www 
.ins.usdoj.gov/>. 

?■' Dugger, "A Tattered Crackdown." 



represent more than a doubling of staff devoted 
to employer enforcement."*^ 

The INS also initiated its "Anti-Exploitation 
Task Force" in response to the discovery of 
smuggled deaf immigrants being forced to work 
under conditions of indentured servitude as 
trinket vendors on subway systems in New York 
City and Chicago.*^ The INS intends to use the 
task force to consolidate efforts to identify and 
apprehend those who smuggle or abuse immi- 
grants. As of the date of this report, the program 
was in its formative stages.*' 

U.S. Department of Labor and Federal Labor Laws 

The USDOL's Wage and Hour Division (part 
of the Employment Standards Administration) is 
responsible for enforcing more than 100 labor 
standards statutes nationally. The majority of 
the complaints it receives involve fair labor 
standards, such as wage and hour and child la- 
bor violations. The Division processes more than 
70,000 compliance actions per year and recoups 
millions of dollars of unpaid wages for employ- 
ees.** Typically, employers are cooperative and 
complaints are settled by negotiation. Few cases 
result in Utigation. 

Labor law violations and violations of em- 
ployer sanctions are governed by several Federal 
and State statutes, including the Fair Labor 
Standards Act and Occupational Safety and 
Health Act at the Federal level, and by the La- 
bor Law Code in New York. The Fair Labor 



85 "Budget Briefing Remarks with Doris Meissner," INS 
Press Releases <http://www.ins.usdoj.gov/>. See also "INS 
Targets Worksites Across Eastern United States," INS Press 
Releases <http://www.ins.usdoj.gov/>. 

86 Immigration and Naturalization Service's Doris Meissner 
News Conference on Immigrant Smuggling in New York 
City, Federal News Service, July 21, 1997, available in 
LEXIS, News Library, Fednew File. 

87 Announcement by Immigration and Naturalization Serv- 
ice deputy commissioner Chris Sale on Deaf-Mute Mexican 
Immigrants Removed fi-om Residences in Sanford, North 
Carolina, Federal News Service, July 25, 1997, available in 
LEXIS, News Library, Fednew File; William Branigan and 
Blaine Harden, "Deaf Aliens In INS Care: Task Force To 
Probe Abuse of Immigrants," Washington Post, July 25, 
1997, p. A-3. 

88 The Division has two general areas of responsibility: (1) 
receiving and responding to complaints and (2) directing 
investigations in areas of likely violation. In receiving and 
responding to complaints, the Division's first course of ac- 
tion is determining whether it has jurisdiction. The second 
step involves investigating the employment situation. The 
final step is enforcement. 



34 



Standards Act (FLSA)*^ protects all covered em- 
ployees (which the U.S. Supreme Court has in- 
terpreted to include undocumented workers) and 
employers from the economic consequences of 
subminimum wages and other substandard 
working conditions. ^^ The Occupational Safety 
and Health Act assures safe working conditions 
and the protection of workers' health. ^^ 

The FLSA authorizes USDOL's Wage and 
Hour Division to seize goods produced by labor 
contractors in violation of minimum wage re- 
quirements, overtime, or child-labor laws. Goods 
produced in violation of this law may not be 
shipped across State hnes. This provision, more 
commonly known as the "hot goods" law, bars 
companies from selling, transporting, delivering, 
or shipping goods that they know were produced 
by contractors committing wage and hour viola- 
tions. ^2 Producers who operate in violation of the 
law may be fined up to $10,000 and/or impris- 
oned for not more than 6 months. They are also 
liable to their employees for all unpaid wages or 
overtime. ^^ The law authorizes district courts to 
enjoin violations of the provision.^* Exempt from 



89 29 U.S.C. §§ 201-219 (1994). 

8" Undocumented immigrant workers are "covered employ- 
ees" under these provisions. See, e.g., Sure-Tan, Inc. v. 
N.L.R.B., 467 U.S. 883 (1984). Millions of undocumented 
aliens currently hold full-time jobs in the United States. See 
Neil Friedman, "A Human Rights Approach to the Labor 
Rights of Undocumented Workers," California Law Review, 
vol. 74 (1986), p. 1715; GAO, Illegal Aliens: Despite Data 
Limitations, Current Methods Provide Better Population 
Estimates (August 1993). 

9> 29 U.S.C. §§ 651-678 (1994). 

92 29 U.S.C. § 215 (1994); see also "Echaveste Says 'Hot 
Goods' Clause of FLSA Will Be Invoked More Frequently," 
BNA Daily Labor Report, Mar. 14, 1994. 

'•' Specifically, the law provides: (a) . . . it shall be unlawful 
for any person — (1) to transport, offer for transportation, 
ship, deliver, or sell in commerce, or to ship, deliver, or sell 
with knowledge that shipment or delivery or sale thereof in 
commerce is intended, any goods in the production of which 
any employee was employed in violation of section 206 or 
207 of this title [the minimum wage provisions]. 29 U.S.C. § 
215 (1994). ... (a) Any person who willfully violates any of 
the provisions of section 215 of this title shall upon convic- 
tion thereof be subject to a fine of not more than $10,000, or 
to imprisonment for not more than six months, or both. . . . 
Any employer who violates the provisions of section 206 or 
section 207 of this title shall be liable to the employee or 
employees affected in the amount of their unpaid minimum 
wages, or their unpaid overtime compensation, as the case 
may be, and in an additional equal amount as liquidated 
damages 29 U.S.C. § 216 (1994). 

S'l 29 U.S.C. §217(1994). 



the law are purchasers who in good faith and 
without knowledge of a violation, acquire goods 
for transport, shipment, delivery, or sale.^^ 

In response to criticisms that the USDOL has 
not done enough to target violations in the ap- 
parel industry, the Department's Wage and 
Hour Division initiated reforms starting in 1993 
to strengthen enforcement of labor laws and to 
target sweatshops.^^ The Wage and Hour Divi- 
sion adopted an antisweatshop program after an 
examination of wage and hour data showed that 
the most often mistreated workers tended to be 
in low-wage industries. As a result of the study, 
the Division has targeted the garment industry 
through a strategy that encourages manufactur- 
ers and retailers to assist enforcement efforts.^'' 
The "Eradicating Sweatshops" program seeks to 
eliminate worker abuse in the U.S. garment in- 
dustry by conducting enforcement sweeps in 
garment centers, showcasing retailers and 
manufacturers that have assumed responsibility 
over monitoring practices through the Division's 
Trendsetter List, and disseminating public 
service announcements designed to create public 
awareness of worker abuse. ^^ Since the start of 
the program, the Division has collected $7.3 mil- 
lion in back wages for more than 25,000 work- 
ers.99 

Some critics argue that although the an- 
tisweatshop program has helped draw attention 
to illegal contracting, the underground apparel 
industry will continue to thrive without more 
consistent enforcement of wage and hour laws. 



95 29 U.S.C. § 215 (1994) requires the purchaser to have had 
no notice of any such violation and to have acquired the 
goods in good faith reliance upon a written assurance fi-om 
the producer that the goods were produced in compliance 
with the law. 

'■"^ Donna Mungen, "Maria Eschaveste; Help for the Hourly 
Worker — From Someone Who's Been There," Los Angeles 
Times, Mar. 3, 1996, p. 3. 

97 USDOL, "Labor Secretary Releases Nationwide Garment 
Report Revealing Sweatshops Persist in U.S. Apparel Indus- 
try," Federal Department and Agency Documents, May 3, 
1996, available in LEXIS, News Library, Feddoc File. 

9" USDOL, Wage and Hour Division, Garment Enforcement 
Report, January 1997-March 1997 <http://www.dol.gov/dol 
/esa/public/nosweat/nosweat.htm>; Frank Swoboda, "Anti- 
Sweatshop Program Tailored for the Times," Washington 
Post, May 30, 1996, p. A-29. 

'J9 Swoboda, "Anti-Sweatshop Program Tailored for the 
Times"; Robert Reich, U.S. Secretary of Labor, news confer- 
ence transcript, FDCH Political Transcripts, Mar. 25, 1996, 
available in LEXIS, News Library, Poltran File. 



35 



As one apparel contractor explained, "There are 
some companies that have really cleaned up 
their sourcing systems, but there are many oth- 
ers who only slow down while the highway pa- 
trol officer is directly next to them."'"" Despite 
efforts of the departments of labor, these agen- 
cies have been criticized for failing to do enough 
to address problems facing employees in low- 
skill industries. Frank Velasquez, then policy 
director for the Center for Immigration Reform, 
asserts that there has been a significant weak- 
ening of the enforcement of labor standards and 
health and safety regulations, and that enforce- 
ment efforts rarely reach into the economies of 
immigrant communities.'"' 

A recent survey by USDOL's Wage and Hour 
Division confirms the critics' concerns. In its first 
investigation-based compUance survey of gar- 
ment shops in New York City, Wage and Hour 
Division investigators found that an alarming 63 
percent of the 94 garment contractors investi- 
gated were in violation of the minimum wage 
and overtime provisions of the FLSA. According 
to Labor Secretary Alexis Herman, "Obviously 
these results are unacceptable. They show that 
neither the Department nor the garment indus- 
try can become any less diligent. In fact, we 
must redouble our efforts to seek solutions to the 
serious problem in New York City.'''^^ 

In response to the survey, the Division insti- 
tuted a new strategy for targeting manufactur- 
ers with a history of contracting with garment 
sweatshops. The new strategy includes targeting 
contractors who are repeat violators of labor 
laws; working with manufacturers to monitor 
contractors who are repeat violators; more vigor- 
ously enforcing the hot goods law; and increas- 
ing coordination with other Federal, State, and 



'00 Kathleen DesMarteau, "U.S. Apparel Contractors; Can 
They Beat the Odds?" Bobbin, February 1997, p. 32. 

'01 According to Mr. Velasquez: "[E]nforcement of fair labor 
standards is extremely important, and I think many immi- 
grants themselves make complaints because they believe 
the government is really not going to step in and do some- 
thing and, in fact, when they do make complaints sometimes 
they're waiting years without getting a response. . . ." 
Franklin Velasquez, policy director. Center for Immigrants' 
Rights, testimony, New York Hearing, vol. II, p. 743 
(hereafter cited as Velasquez Testimony). See also Velasquez 
Interview. 

'0^ USDOL, Office of Public Affairs, "U.S. Department of 
Labor Compliance Survey Finds More Than Half of New 
York City Garment Shops in Violation of Labor Laws." 



local agencies to increase overall enforcement 
effectiveness. "*3 

Several bills designed to target labor viola- 
tions in the apparel industry have also been in- 
troduced in the U.S. Congress and Senate. The 
bicameral Stop Sweatshops Act of 1997'°'' would 
amend the Fair Labor Standards Act of 1938 to 
make manufacturers liable to the same extent as 
contractors for any labor violations of their con- 
tractors. Manufacturers would be jointly and 
severally hable to the employees of contractors 
found to be in violation of minimum wage laws. 
The bills would also impose monetary penalties 
on contractors who failed to keep payroll records 
or who otherwise falsified such records. 

The Child Labor Free Consumer Information 
Act of 1997"'5 would establish a voluntary pro- 
gram for product labels indicating the products 
were made without the use of child labor. It 
would also estabUsh a commission of govern- 
ment, business, union, and nonprofit members to 
create guidelines for use of the label and would 
levy penalties against fraudulent use. 

New York State Department of Labor 

The New York State Department of Labor 
has also implemented programs to target labor 
law violations in New York's garment industry. 
The Division of Labor Standards administers the 
State Labor Law concerning minimum wages, 
work hours, child labor, payment of wages and 
wage supplements, industrial homework, mi- 
grant farm labor, and conditions in the apparel 
industry. 'OS The Apparel Industry Task Force 
operates within the Division. Created in 1987 by 
then Governor Mario Cuomo and the New York 
Legislature, the Apparel Industry Task Force is 
charged with the enforcement of labor laws in 
the garment industry through unannounced fac- 
tory raids, referrals of violations to appropriate 
agencies, and registration requirements. '°^ 



103 Ibid. 

104 H.R. 23, 105th Cong., 1st Sess. (1997) and S. 626, 105th 
Cong., 1st Sess. (1997). 

105 H.R. 1301, 105th Cong., 1st Sess. (1997) and S. 554, 
105th Cong., 1st Sess. (1997). See also Joyce Barrett, 
"Sweatshop Bill Would Make Vendors, Retailers Liable for 
Contractor," Women's Wear Daily, Sept. 26, 1996. 

106 New York State, Department of Labor, Functions of the 
Division of Labor Standards information sheet, n.d., New 
York Hearing, subpoena duces tecum document. Exhibit 3. 

10' New York State Department of Labor, "A Department of 
Labor Fact Sheet: The Apparel Industry Task Force, F.Y.I.," 



36 



In response to renewed commitments to tar- 
get apparel industry labor violations, the State 
of New York enacted its own hot goods law in 
1996. The law makes it unlawful for any manu- 
facturer or contractor in the apparel industry to 
ship, deliver, or sell any apparel if the manufac- 
turer or contractor knew or should have known 
the goods were made in violation of labor laws.io^ 
Like its Federal counterpart, the New York law 
exempts retailers who acquired the goods in 
good faith and without knowledge of violations 
and grants the New York Supreme Court 
authority to enjoin the transport, shipment, de- 
livery, or sale of goods produced unlawfully. '"^ 

What is unique about New York and other 
State hot goods laws is that they target specifi- 
cally the apparel industry. New York's law is 
part of its Apparel Industry Task Force code, 
which authorizes the task force to enforce labor 
laws affecting employees in the apparel indus- 
try."" Like New York, New Jersey's hot goods 
law targets the apparel industry, and authority 
over its enforcement is vested with its Apparel 
Industry Unit. New Jersey's hot goods law is 
tougher than New York's or the FLSA's hot 
goods laws, however. Amended and strength- 
ened in 1996, the New Jersey law authorizes the 
Apparel Industry Unit to confiscate equipment 
and goods without a court order from manixfac- 
turers who have committed three labor law vio- 
lations in 3 years. If the violator fails to appeal, 
the unit may dispose of the goods and equip- 
ment, m 

n.d., New York Hearing, subpoena duces tecum document, 
Exhibit 3. See also Charles DeSiervo, supervisory labor 
standards investigator, Garment Industry Task Force, Divi- 
sion of Labor Standards, New York State Department of 
Labor, testimony, New York Hearing, September 1994, vol. 
II, pp. 562-66. 

'08 N.Y. Lab. Law § 345(10) (McKinney's Supp. 1997-98). 

"'^ Id. See also John Furfaro and Maury Josephson, "An 
Update on 'Hot Goods,'" New York Law Journal, Mar. 7, 
1997. 

•'" The Apparel Industry Task Force is charged with in- 
specting manufacturers and contractors for compliance with 
registration requirements, labor laws, and orders assessing 
civil penalties. N.Y. Lab. Law § 343 (McKinney's Supp. 
1997-98). 

•" N.J. Stat. Ann. § 34: 6-151 (West 1998). The New York 
and Federal hot goods provisions only authorize the freezing 
of goods found to have been produced in violation of labor 
laws. California is the only other State with a similar law. 
Yet unlike New Jersey, California requires labor officials to 
obtain a court order before confiscating goods or equipment. 
See Furfaro and Josephson, "An Update on 'Hot Goods'"; 



In addition to the new hot goods law, the New 
York State Department of Labor (NYSDOL) is 
buttressing its enforcement efforts by seeking 
maximum cooperation among government agen- 
cies for better enforcement, and working with 
the private sector to increase awareness of labor 
laws. 1^2 According to Thomas Glubiak, chief. Ap- 
parel Industry Task Force, the objective of the 
task force is to establish comphance through 
education and to eUminate the unfair competi- 
tion posed by New York City's estimated 2,500 
sweatshops. "3 

Interagency Cooperation 

Studies of the USDOL's enforcement effort 
identify a need for greater interagency coordina- 
tion among Federal and State agencies. In its 
report on sweatshops, the GAO found that while 
USDOL has made progress in combating the 
growth of sweatshops in the garment industry, 
better coordination of labor law enforcement 
continues to be hindered by administrative con- 
straints on Federal agencies and the less vigor- 
ous enforcement efforts of the States."'' 

The USDOL has implemented coordination 
agreements with the New York Department of 
Labor and INS."5 USDOL's New York Region 

Arthur Friedman, "New Sweatshop Law in NJ Touted as 
Toughest in US," Women's Wear Daily, Aug. 6, 1996. 

"2 Mark Tosh, "New York State: Education Key to Anti- 
Sweatshop Drive," Women's Wear Daily, June 24, 1996, p. 2. 

"3 Ibid. 

"'' GAO, Garment Industry: Efforts to Address the Preva- 
lence and Conditions of Sweatshops, pp. 10-13. Constraints 
on Federal agencies impede interagency cooperation of 
sweatshop enforcement. For example, USDOL efforts to 
coordinate with the Internal Revenue Service to expose and 
target businesses suspected of violating both labor and tax 
laws is impeded by tax laws that restrict IRS' ability to 
share tax data. Thus, according to the GAO, "IRS' partners 
tend to provide much more data than they receive." GAO, 
Tax Administration: Data on the Tax Compliance of Sweat- 
shops (GAO/GGD-94-210FS, September 1994), app. 111:5. See 
also GAO, Garment Industry: Efforts to Address the Preva- 
lence and Conditions of Sweatshops, pp. 10-11. The Internal 
Revenue Code prohibits IRS from sharing tax data under 
IRC § 6103. USDOL officials report referring garment cases 
to the IRS and not being able to receive the results of IRS' 
investigation because of the disclosure law. GAO, Garment 
Industry: Efforts to Address the Prevalence and Conditions 
of Sweatshops, p. 11. 

"5 Doris Wooten, regional administrator. Wage and Hour 
Division, USDOL, testimony. New York Hearing, vol. II, pp. 
551-54 (hereafter cited as Wooten Testimony). See also 
Mungen, "Maria Eschaveste; Help for the Hourly Worker — 
From Someone Who's Been There," p. 3. 



37 



was the first to implement a memorandum of 
understanding (MOU) with a State department 
of labor. • '6 The MOU establishes methods of ex- 
changing information and coordinating enforce- 
ment in handling cases involving the apparel 
industry.''^ The Regional Office also works with 
INS in joint investigations and exchanges of in- 
formation.''* Charles DeSiervo, a supervisor in 
the NYSDOL's Garment Industry Task Force, 
testified that cooperation between the New York 
and Federal labor departments has increased 
significantly in the past several years. Never- 
theless, instances of crossover still remain be- 
tween the offices. "3 

The USDOL Regional Office also has an 
MOU with the INS' New York District Office. 
The New York District Office of the INS began a 
program in October 1995 to uncover undocu- 
mented workers in New York's garment district. 
In the first 6 months of the program, INS appre- 
hended 790 garment workers at shops in Man- 
hattan, Queens, and Brooklyn. '^o If a sweep 
finds suspected labor violations, they are re- 
ferred to the Labor Department. '^i 

According to Maria Eschaveste, former ad- 
ministrator of the USDOL's Wage and Hour Di- 
vision, the USDOL is working with the INS to 
ensure that undocumented workers who testify 
against their employers are not deported. 
Through INS cooperation, Ms. Eschaveste ex- 
plained, employers would be prevented "from 
using deportation as a way to close up shop 
when things go bad."'22 The new S visa category 
created by the VCCLEA may be a step in that 



i'6 Wooten Testimony, pp. 550-51. 

'■■' Memorandum of Understanding Between the U.S. De- 
partment of Labor Employment and Standards Administra- 
tion and Occupational Safety and Health Administration 
and the New York State Department of Labor Division of 
Labor Standards, New York Hearing, subpoena duces tecum 
document, Exhibit 3; Wooten Testimony, pp. 551-52. 

'18 Wooten Testimony, p. 553. 

"9 DeSiervo Testimony, pp. 560-61. 

'20 Arthur Friedman, "INS Raids New 231 Workers from 14 
NY Garment Shops," Women's Wear Daily, Apr. 3, 1996, p. 
18. 

'2' McElroy Testimony, p. 568. According to Mr. McElroy, 
the INS District Office referred 80 violations to USDOL 
during 1993-94, and 12 percent of its leads came firom 
USDOL. Ibid. See also Friedman, "INS Raids New 231 
Workers from 14 NY Garment Shops," p. 18. 

122 "Eschaveste Says 'Hot Goods' Clause of FLSA Will Be 
Invoked More Frequently," BNA Daily Labor Report, Mar. 
14, 1994. 



direction. As discussed earlier in this chapter, S 
nonimmigrant visas are awarded to those ahens 
who the INS determines possess critical and re- 
liable information about a criminal organization 
or enterprise, who are willing to supply or who 
have supplied such information to Federal or 
State law enforcement authorities, and whose 
presence in the United States is essential to the 
success of an authorized investigation or prose- 
cution. The availabihty of the S visa has been 
very useful in prosecuting various international 
criminal and terrorist organizations, and in 
helping law enforcement efforts involving nar- 
cotics, terrorists, fraud, immigration violations, 
and numerous other criminal activities. 

There is a concern among immigrant advo- 
cates that coordination by Federal and State la- 
bor departments with the INS may create a con- 
flict of interest for the labor agencies. The poUcy 
director at the Center for Immigrants' Rights, an 
immigrant advocacy organization, testified that 
the center sends undocumented immigrants to 
the NYSDOL, even though the USDOL would 
respond more quickly, due to concerns that 
USDOL may turn over the undocumented em- 
ployee's name to the INS.'^s USDOL cooperation 
with INS deters immigrants from fihng com- 
plaints against employers for labor violations, 
thus frustrating a central mission of the De- 
partment to target violators and enforce labor 
laws. Yet failure to cooperate with the INS by 
withholding the names of employers suspected of 
hiring undocumented immigrants could hinder 
enforcement of IRCA while simultaneously pro- 
tecting unscrupulous employers from prosecu- 
tion under the employer sanctions law and 
shielding undocumented immigrants. 

Labor department officials in both the Fed- 
eral and New York agencies have pondered this 
conflict and resolved that the potential existence 
of violations of immigration laws cannot override 
their own mandate of protecting workers against 



'23 According to Mr. Velasquez: "Currently. . . we're very 
cautious in terms of who we send ... to what agency. . . . 
For instance, if a person comes to us and they are undocu- 
mented, we will send them to the State Department of La- 
bor. Now, we know that the United States Department of 
Labor is faster. We send people there who are permanent 
residents, but we are seriously concerned about issues of 
confidentiality. If we send an undocumented to the U.S. 
Department of Labor . . ., will they in turn contact the INS, 
and I think that has to be very clear for people that that will 
not happen." Velasquez Testimony, p. 745. 



38 



labor violations. In an interview by National 
Public Radio published in the Los Angeles Times, 
a former administrator of the USDOL's Wage 
and Hour Division explained: 

We're a nation of laws and we have a right to control 
our borders. But let's make it very clear, I don't work 
for the Immigration and Naturalization Service. . . . 
People come to this country because opportunities are 
here; but the fact that they break the immigration 
law does not justify employers exploiting these work- 
ers. Whether you are here legally or illegally, you are 
entitled to protection — because, otherwise, employers 
would always want undocumented workers. My job is 
to enforce labor standards, regardless of status. ^^4 

The New York State Department of Labor 
operates under a similar poHcy. In a memoran- 
dum from Tom Glubiak, chief labor and stan- 
dards investigator, New York State Department 
of Labor, to Richard Polsinello, director, New 
York State Department of Labor on the labor 
division's poUcy on immigrant labor, Mr. Glubiak 
states: 

1. Recognizing the apparel industry as an industry of 
immigrants we do not ask any employee's or em- 
ployer's immigration status during our investigations. 

4. We do not share information with the INS in re- 
gard to the presence of Ulegal aliens at particular 
firms or if an individual's alien status becomes known 
to us we do not reveal that information to the INS. 

5. We encourage illegal [undocumented] aHens to 
come forward and complain to us about illegal treat- 
ment without fear that we will divulge their Ulegal 
[undocumented] status to the INS.^^s 

According to Mr. Glubiak, "Oxir experience 
has indicated that by eHmination of the fear fac- 
tor we are in a better position to take action 



against sweatshops who violate the Labor 
Law."'26 

The new immigration and welfare laws, by 
prohibiting governmental restrictions against 
cooperation between agencies and the INS,'^? 
may defeat this mechanism of encouraging all 
workers, regardless of documented status, to 
report labor law violations. Undocumented 
workers, knowing that coming forward to the 
departments of labor to report violations now 
means that their names may be turned over to 
INS, may remain silent about violations, thereby 
further insulating unscrupulous employers from 
detection. 128 This point is discussed further in 
the section about New York City's cooperation 
poUcies below. 

Legislation introduced in the 105th Congress 
would require joint efforts by the USDOL and 
the INS to investigate and enforce violations of 
labor laws and the employer sanctions provision 
of IRCA. Under the "EHminate the Magnet for 
lUegal Immigration Act of 1997," the investiga- 
tive staffs of both the INS and USDOL's Em- 
ployment Standards Administration would be 
increased to ensure heightened enforcement of 
labor standards and employer sanctions laws 
and mandatory joint investigations in target ar- 
eas suspected of employing high concentrations 
of undocumented workers. '^a Two other pending 
bills would repeal the prohibitions in the immi- 
gration and welfare laws against government 
restrictions on communications between State 
and local agencies and the INS regarding an 
ahen's immigration status, arguably preserving 
confidentiahty against INS disclosure of poten- 
tial undocumented aHens in both the NYSDOL 
and New York City services. '^o 



'^'i Mungen, "Maria Eschaveste; Help for the Hourly 
Worker — From Someone Who's Been There," p. 3. 

'26 Tom Glubiak, chief, L.S.I. , interoffice memorandum to 
Richard J. Polsinello, director, New York State Department 
of Labor, May 31, 1995, New York Hearing, subpoena duces 
tecum document, Exhibit 3 (hereafter cited as Glubiak 
Memo). The remainder of the memo includes the following 
two points: "(2) We require all employers to comply with the 
New York State Labor Law for all employees regardless of 
their immigration status. (3) We require all employers to 
document the hours worked and wages paid for all employ- 
ees regardless of immigration status. All employees must 
work on the books." Ibid. 



126 Ibid. 

i^'' Restrictions addressing cooperation among local. State, 
and Federal agencies and the INS are discussed in greater 
detail in the "Executive Order 124 and the Immigration and 
Welfare Reform" section of this chapter. 

128 por additional discussion of noncooperation restrictions, 
see the section titled "Executive Order 124 and the Immigra- 
tion and Welfare Reform" in this chapter. 

'29 H.R. 470, 105th Cong., 1st Sess. (1997). 

'30 See H.R. 850 and S. 145, 105th Cong., 1st Sess. (1997). 
For a detailed discussion of New York City's policy on com- 
municating information about suspected undocumented 
aliens, see the section titled "Executive Order 124 and the 
Immigration and Welfare Reform" in this chapter. 



39 



Section II. Executive Order 124 and 
immigration and Welfare Reform 

In 1989 then New York City Mayor Edward 
Koch signed Executive Order 124, estabUshing a 
city poUcy to protect the confidentiahty of ahens 
seeking city services. The order, adopted by both 
the Dinkins and Giuliani administrations, pro- 
hibits city employees and officers from releasing 
the names of undocumented aliens who seek city 
services, such as emergency medical assistance, 
pubhc education, or pohce protection, to Federal 
immigration authorities. '^^ Known informally as 
the "Non-Cooperation Pohcy," the order author- 
izes city employees to disclose the names of un- 
documented ahens only under three circum- 
stances: (1) where the city agency is required by 
law to make such disclosure, (2) where the ahen 
has authorized such disclosure in writing, or (3) 
where the ahen is suspected of engaging in 
criminal activity. '32 

Any city employee who suspects an ahen of 
criminal activity is required to turn that infor- 
mation over to a designated officer within the 
agency, who alone is responsible for determimng 
what action should be taken. City employees are 
prohibited from reporting the ahen to Federal 
authorities directly. '^^ 

The order was enacted to ensure that city 
services were available to all city residents, re- 
gardless of citizenship or immigration status. 
Concerns that ahens residing in the city had not 
been seeking the protections and benefits of such 
services for fear of being revealed to immigration 
authorities spurred passage of the measure. Ac- 
knowledging the potential detrimental effect on 
the pubhc welfare of an immigrant population 
fearful of requesting assistance from city law 
enforcement, education, and health care provid- 
ers, the Koch administration codified the pohcy 
that city government had no obhgation to report 
any ahen to Federal authorities (with Hmited 
exceptions), because Federal law vested exclu- 
sive authority for immigration control with the 
Federal Government. '34 

Executive Order 124 has been subsequently 
endorsed by former Mayor Dinkins and Mayor 



Giuhani. Yet the measure faces an uncertain 
future, due to welfare and immigration reform 
legislation passed in 1996. Both laws prohibit 
States and localities from withholding informa- 
tion about immigrants, documented or undocu- 
mented, from Federal immigration enforcement 
authorities. The welfare reform law, known as 
the Personal Responsibility and Work Opportu- 
nity Reconcihation Act, provides: 

Notwithstanding any other provision of Federal, 
State, or local law, no State or local government en- 
tity may be prohibited, or in any way restricted, from 
sending to or receiving from the Immigration and 
Naturalization Service information regarding the 
immigration status, lawful or unlawful, of any ahen 
in the United States. '35 

The immigration law, known as the Illegal 
Immigration Reform and Immigrant Responsi- 
bihty Act of 1996 (IIRIRA), also prohibits States 
and locahties from restricting or prohibiting any 
Federal, State, or local government from send- 
ing, receiving, maintaining, or exchanging in- 
formation with the INS or any other Federal, 
State, or local government agency regarding any 
person's immigration status. '^^ Section 642 of 
IIRIRA adds an additional component: 

Notwithstanding any other provision of Federal, State 
or local law, no person or agency may prohibit, or in 
any way restrict, a Federal, State, or local govern- 
ment entity from doing any of the following with re- 
spect to information regarding the immigration 
status, lawful or unlawful, of any individual; 

(1) Sending such information to, or requesting such 
information from, the Immigration and NaturaU- 
zation Service; 

(2) Maintaining such information; or 



'" City of New York, Office of the Mayor, Executive Order 
No. 124, Aug. 7, 1989. 

"32 Id. 

'33 Id. 

'3'' See City of New York, Office of the Mayor, Statement of 
Basis and Purpose of Executive Order No. 124. 



135 Personal Responsibility and Work Opportunity Recon- 
ciliation Act of 1996, Pub. L. No. 104-193, § 434, 110 Stat. 
2105 (codified at 8 U.S.C. § 1644 (1998)). 

136 Illegal Immigration Reform and Immigrant Responsibil- 
ity Act of 1996, Pub. L. No. 104-208, 110 Stat. 3009, § 642 
(codified at 8 U.S.C. § 1373 (1998)). The corresponding lan- 
guage in the immigration law varies only slightly. It pro- 
vides: "Notwithstanding any other provision of Federal, 
State, or local law, a Federal, State, or local government 
entity or official may not prohibit, or in any way restrict, 
any government entity or official fi-om sending to, or re- 
ceiving from, the Immigration and Naturalization Service 
information regarding the citizenship or immigration status, 
lawful or unlawful, of any individual." Pub. L. No. 104-208, § 
642(a), 110 Stat. 3009 (codified at 8 U.S.C. § 1373(a) (1998)). 



40 



(3) Exchanging such information with any other 
Federal, State, or local government entity. '^^ 

New York City opposes measures requiring 
disclosure of information about noncriminal, un- 
documented immigrants. According to Mayor 
Giuliani, turning over the names of undocu- 
mented immigrants who seek public education, 
preventive or emergency medical care, or police 
protection would not only further backlog al- 
ready overwhelmed INS offices, but would also 
discourage undocumented immigrants from 
sending their children to school, obtaining im- 
munizations or prenatal care, and reporting 
crimes to the poUce, with detrimental effects on 
immigrants, their children, and the population 
with whom they Uve.i^s Citing to the importance 



'37 Pub. L. No. 104-208, § 642(b), 110 Stat. 3009 (codified at 
8 U.S.C. § 1373(b) (1998)). The Senate Judiciary Committee 
explained the rationale for sec. 642(b) in its report: 
"Effective immigration law enforcement requires a coopera- 
tive effort between all levels of government. The acquisition, 
maintenance, and exchange of immigration-related informa- 
tion by State and local agencies is consistent with, and po- 
tentially of considerable assistance to, the Federal regula- 
tion of immigration and the achieving of the purposes and 
objective of the Immigration and Nationality Act." S. Rep. 
No. 104-249, at 19-20 (1996). 

'38 Giuliani Testimony, pp. 50-51. In a letter to Senator 
Alan Simpson, Mayor Giuliani stated: "fljn the case of aliens 
who seek emergency health care, attend pre-natal or other 
public health clinicfs], enroll their children in our schools, 
or, as victims or witnesses, report crimes to the police, it is 
not in the interest of public health or safety that they be 
deterred due to fear of deportation. INS currently cannot 
handle the number of aliens apprehended for illegal entry, 
let alone the number of aliens apprehended for violating 
state and local laws. Rather than flood the INS with cases, 
. . . the Congress should adequately fund INS to process and 
deport those aliens who break our laws while visiting or 
residing in the United States. I believe that requiring local 
officials to notify INS when an alien is arrested by state or 
local authorities — and providing adequate support for INS — 
would be a major improvement over the current level of INS 
performance. . . . Concentrating on these alien criminal 
cases alone will keep INS busy, and probably require an 
increase in its annual budget. Further, it would focus INS 
on the more important issue of alien crime and its affect on 
public safety. This first step approach would remove those 
illegal aliens who cause the most harm while we, as a na- 
tion, work to resolve other immigration issues." New York 
Mayor Rudolph Giuliani, letter to Senator Alan Simpson, 
July 11, 1994. See also David Firestone, "Giuliani to Sue 
Over Provision on Welfare," New York Times, Sept. 12, 1996, 
p. B-1. 

The recent case of the undocumented deaf aliens smuggled 
into New York City fi'om Mexico to sell trinkets in the sub- 
ways illustrates the potential consequences of an inhibited, 
undocumented immigrant population. Fearing police repri- 
sal, the smuggled immigrants attempted to notify police 



of an immigrant populace that does not fear re- 
prisals in coming forward to report a crime, 
Mayor Giuhani testified at the hearing: 

[T]he same person that rapes or mugs an undocu- 
mented illegal [alien] doesn't ask for someone's green 
card before they make the determination as to 
whether to rape or mug. That's the same predator 
that's going to act against a person who is here in a 
legal capacity. So it makes no sense not to say to peo- 
ple who are undocumented and illegal, if you are the 
victim of a crime, please report it, we need to know 
that. '39 

Los Angeles and Chicago, two cities with 
similar policies, voice the same concerns that 
reporting practices inhibit undocumented immi- 
grants from seeking pohce and other local serv- 
ices, to the detriment of not only the immigrants, 
but their children and the rest of society as 
weU.i'io 



several times, but each time left the station for fear of ap- 
proaching the system. Once finally alerted to the situation, 
police found dozens of immigrants, including pregnant 
women and children, living in conditions of indentured ser- 
vitude in two small apartments, facing physical abuse and 
squalid conditions. According to an editorial by Garrett 
Epps, "Restricting the rights of immigrants — whether legal 
or illegal — creates a population with little recourse against 
those who subject them to inhuman conditions or even out- 
right slavery." Garrett Epps, "Lessons from Deaf Aliens," 
Washington Post, July 24, 1997, p. A-21. See also Deborah 
Sontag, "7 Arrested in Abuse of Deaf Immigrants," New 
York Times, July 21, 1997, p. A-1. 

The right of undocumented children to receive a public edu- 
cation has been upheld by the U.S. Supreme Court. In Plyler 
V. Doe, 457 U.S. 202 (1982), the Court found that the equal 
protection clause protects all persons and that all children, 
regardless of citizenship status, are entitled to a public edu- 
cation. The majority of New Yorkers agree that children of 
undocumented immigrants should not be barred or intimi- 
dated firom attending school, according to a survey which 
found that 70 percent of New Yorkers oppose barring the 
children of undocumented immigrants from a public educa- 
tion. Richard Behn and Douglas Muzzio, "Empire State Sur- 
vey: New Yorkers on Immigration" (Empire Foundation and 
Lehrman Institute, 1994), p. 37. 

139 Giuliani Testimony, p. 53. 

I'*" Alexandra Marks, "Social Workers Reject Role as INS 
Agents," Christian Science Monitor, Aug. 1, 1997, p. 4. Like 
New York City, Chicago's policy was enacted in 1989 and 
prohibits police, school, and other municipal officials from 
inquiring into the public's immigration status or reporting 
suspected undocumented immigrants to the INS. Mary 
Mitchell, "City, State Thumb Nose at Immigration Laws," 
Chicago Sun-Times, Jan. 19, 1997, p. 12. In Los Angeles, 
both the police department and the sheriffs office have poli- 
cies against reporting suspected undocumented immigrants 
to the INS. Special Order 40, adopted in 1979, prohibits 



41 



Mayor Giuliani advocated for language pro- 
hibiting State or local governments from refus- 
ing to cooperate with Federal authorities in 
turning over information about criminal or sus- 
pected criminal immigrants. '■*' According to the 
mayor: 

Our first objective should be to use the resources of the 
Immigration and Naturahzation Service to focus on 
people who are creating danger[] and difficulties in our 
society and to try to find a more humane and more sen- 
sible solution for the people who happen to be here 
and it may be that they are not here legally. . . .'•'^ 

New York City arrests more than 4,000 un- 
documented immigrants yearly and reports each 
of these persons to the INS. Of these 4,000 re- 
ported immigrants, the INS deports on average 
between 200 and 300 persons annually. "^ 

Nevertheless, principal architects of the im- 
migration and welfare reform laws opposed Um- 
iting the prohibition against State and local gov- 
ernment cooperation to immigrants suspected or 
charged with criminal activity and included pro- 
visions in the new laws barring any prohibition 
on cooperation. •'•'* 



LAPD officers from initiating police action "with the objec- 
tive of discovering the ahen status of a person" and prohibits 
officers from arresting someone suspected only of being in 
the U.S. illegally Office of the Chief of Police, Special Order 
No. 40: Undocumented Aliens, pp. 1-2 (Nov. 27, 1979). In a 
policy statement, the Los Angeles Sheriffs Department de- 
clared that "reporting persons to INS who are merely sus- 
pected undocumented immigrants prevents those who are 
victims of crime or who may be witnesses to crimes from 
coming forward and cooperating with local law enforcement 
officials." Office of the Sheriff, Undocumented Immigrants, 
Mar. 1, 199G. For a detailed discussion of Los Angeles' po- 
hces, see U.S. Commission on Civil Rights, Racial and Eth- 
nic Tensions in American Communities: Poverty, Discrimi- 
nation, and Inequality: The Los Angeles Report (1999). 

''" Robert Lynch, City of New York, Office of the Mayor, 
Office of the Criminal Justice Coordinator, memorandum to 
Ankur Goel, June 22, 1994. 

"^ Giuliani Testimony, p. 51. 

143 "ivTYC Sues to Avoid Turning Aliens In," Washington 

Times, Oct. 14, 1996, p. A-7. 

'■''' In a letter responding to Mayor Giuliani's concerns. 
Senator Alan Simpson stated: "While I can sympathize with 
your concerns about reporting illegal aliens who are victims 
or witnesses to crime and who can assist law enforcement 
agencies in criminal prosecutions, I believe it is counterpro- 
ductive to state or local governments to shield illegal aliens 
from INS. Several states are suing the federal government 
for reimbursement of costs which they believe are attribut- 
able to illegal aliens, even though they may prohibit their 
employees from communicating with the INS. This just does 



In response to these new provisions, New 
York City sued the Federal Government, argu- 
ing that the provisions violate the 10th amend- 
ment, the guarantee clause, and principles of 
federaUsm by prohibiting States and locahties 
from engaging in the central sovereign process of 
passing laws or otherwise determining policy; 
and usurping States' and localities administra- 
tion of core functions of government, including 
the provision of pohce protection and regulation 
of their own work forces. '""^ The U.S. District 
Court for the Southern District of New York de- 
nied New York City's request for declaratory and 
injunctive reUef, holding that Congress is 
authorized to regulate in any area of Federal 
interest, even if that regulation affects States' 
poUcies. While Congress cannot require States to 
regulate, the provisions at issue do not consti- 
tute unconstitutional infringements on States' 
and locahties' rights to be free of requirements to 
regulate. •■'fi The court emphasized that the pro- 
visions merely bar States and locahties from 
prohibiting cooperation but do not require any 
action: 

In this case. Sections 434 and 642 do not require the 
City to legislate, regulate, enforce, or otherwise im- 
plement federal immigration policy. Instead, they 
direct only that City officials and agencies be allowed, 
if they so choose, to share information with federal 
authorities. The statutes do not even require a City 
official to provide any information to federal authori- 
ties. They only prevent the City from interfering with 
a voluntary exchange of information. Although the 
statutes can be characterized as interfering with a 
City policy that prevents its officials from cooperating 
with federal immigration authorities except in accor- 
dance with certain procedures, that effect on local 
policy is not the type of intrusion that is sufficient to 
violate the Tenth Amendment or principles of feder- 
alism. '■»■' 



not make sense." U.S. Sen. Alan Simpson, letter to New 
York Mayor Rudolph GiuUani, Aug. 9, 1994. 

'■•s Firestone, "Giuliani to Sue Over Provision on Welfare." 

'46 City of New York v. U.S., 971 F. Supp. 789 (S.D.N.Y. 
1997). 

''" Id. at 18. The 10th amendment provides: "The powers not 
delegated to the United States by the Constitution, nor pro- 
hibited by it to the States, are reserved to the States respec- 
tively, or to the people." U.S. Const, amend X. 



42 



The city of New York has appealed the deci- 
sion. ^''^ In the meantime, New York City will 
interpret the court's ruling narrowly, according 
to Mayor Giuliani, and city agencies will be en- 
couraged not to report undocumented aliens to 
the INS.''*^ Nevertheless, the ruling will likely 
have the effect of discouraging undocumented 
immigrants from seeking public services, be- 
cause of uncertainty over whether any particular 
agency may elect to report an immigrant to the 
INS. 

Two bills have been introduced in the 105th 
Congress to repeal the cooperation provisions in 
the new welfare and immigration laws. Senate 
bill 145, introduced by Senator Moynihan, would 
repeal the respective sections of the welfare and 
immigration laws mandating cooperation and 
H.R. 850, introduced by Representatives Rangel 
and Oilman, would repeal the cooperation 
clauses, requiring cooperation only in disclosing 
information about convicted criminals.'^" 

Section III. Immigration's Effect on 
Wages, Jobs, and Racial/Ethnic Tensions 

The debate over immigration frequently 
turns to the impact of immigration on job avail- 
abihty and wages. In its 1980 report, The Tar- 
nished Golden Door, the Commission on Civil 
Rights noted that those who have examined the 
economic impact of immigrant workers on the 
labor markets fall into one of two broad catego- 
ries: (1) those who conclude that, because some 
immigrants enter the United States and secure 
employment, they contribute to the severe eco- 
nomic displacement of U.S. workers, particularly 
minorities, and to the reduction in wage levels 
for jobs that would otherwise be attractive to 
American workers; and (2) those who, while cog- 
nizant of the high national unemployment rate, 
suggest that undocumented workers do not have 
a significant impact on the domestic labor force 



'''8 Thus, information collected by the city currently cannot 
be shared with the INS, pending the outcome of the appeal. 
Merle English, "Keeping Well in a New World," Newsday, 
Sept. 28, 1997, p. A-5; Marks, "Social Workers Reject Role 
as INS Agents," p. 4. 

I'lo David Firestone, "Mayoral Order on Immigrants is 
Struck Down," New York Times, July 19, 1997, p. 21. 

150 S. 145, 105th Cong., Ist Seas. (1997), and H.R. 850, 105th 
Cong., 1st Sess. (1997). 



because they take undesirable jobs that Ameri- 
cans do not want. 151 

The current debate over the impact of immi- 
gration on native workers continues to generate 
similar contrasting views, not only among re- 
searchers but also among immigration advocates 
and the minority native-born work force. Those 
who oppose the current visa allocation system 
maintain that the policy of awarding 10,000 vi- 
sas annually to low-skilled workers under the 
employment-based category of the Immigration 
and Nationality Act of 1990'52 hag ^ detrimental 
effect on jobs and wages of the native born, espe- 
cially those employed in low-skill industries, i^s 
Low-skilled immigrants accept fewer or no fringe 
benefits and are wilhng to work longer hours for 
lower wages, thus driving compensation to levels 
that American workers find unacceptable. i^-* 



"' U.S. Commission on Civil Rights, The Tarnished Golden 
Door: Civil Rights Issues in Immigration (September 1980), 
p. 58. 

'52 The Immigration and Nationality Act of 1990 creates a 
third preference class under employed-based preferences for 
visa allocation. It provides: 

(3) Skilled Workers, Professionals, and Other Workers. 

(A) In General. Visas shall be made available, in a number 
not to exceed 28.6% of such worldwide level, plus any visas 
not required for the classes specified in paragraphs (1) and 
(2), to the following classes of aliens who are not described 
in paragraph (2): 

(i) Skilled Workers. Qualified immigrants who are capable, 
at the time of petitioning for classification under this para- 
graph, of performing skilled labor (requiring at least 2 years 
training or experience), not of a temporary seasonal nature, 
for which qualified workers are not available in the United 
States. 

(ii) Professionals. Qualified immigrants who hold baccalau- 
reate degrees and who are members of the professions, 
(iii) Other Workers. Other qualified immigrants who are 
capable, at the time of petitioning for classification under 
this paragraph, of performing unskilled labor, not of a tem- 
porary or seasonal nature, for which qualified workers are 
not available in the U.S. 

(B) Limitation on Other Workers. Not more than 10,000 of 
the visas made available under this paragraph in any fiscal 
year may be available for qualified immigrants described in 
subparagraph (A)(iii). 

Immigration and Nationality Act of 1990, Sec. 203(b)(3), 8 
U.S.C. § 1153(b)(3) (1994). 

'S3 A recent study by the Center for Immigration Studies 
defines low-skill occupations as those "performed on average 
by workers with no more than a high school degree." Steven 
A. Camorata, The Wages of Immigration: The Effect on the 
Low-Skilled Labor Market (Washington, DC: Center for 
Immigration Studies, January 1998), p. 5. 

'5'' John F. Hudacs, commissioner, New York State Depart- 
ment of Labor, testimony before the New York State Senate 
Committee on Cities on Sept. 28, 1993 (hereafter cited as 



43 



Some critics argue that legal and undocumented 
immigrants compete unfairly for jobs against the 
most disadvantaged of native-born workers. 
They reject the position of immigration advo- 
cates that immigrants take jobs that native 
workers would not otherwise want, and posit 
that by flooding the labor markets in the sLx cit- 
ies containing the largest numbers of native mi- 
nority workers, immigrant labor keeps wages 
low and causes displacement of native, primarily 
low-skilled workers. '^^ Finally, opponents argue 
that the immigration pohcy embodied in the 
1990 act (which increased the number of visas 
awarded for skilled workers and professionals) 
discourages government efforts to provide job 
training for native minority workers. '^^ 

In contrast, immigration advocates point to 
the benefits of immigration on the labor mar- 
kets, including immigrants' wilUngness to work 
in industries and jobs found unappealing to the 
native-born population. Without the existence of 
immigrant labor in low-wage industries, advo- 
cates maintain, many of these industries would 
either cease to exist in the United States or 
would be forced to raise the price of their prod- 
ucts to a level that would put them out of the 
reach of many consumers. '^^ Advocates also cite 
the job-creating impact of immigrant entrepre- 



neurs 



158 



New York State Senate Committee on Cities, Hudacs Tes- 
timony). 

155 According to Professor Vernon Briggs: "The current wave 
of immigration has opened up at a time in which there is 
diminished need for unskilled workers, and those workers 
who are unskilled in the United States are in the greatest 
jeopardy of all in terms of the ability of hang on to employ- 
ment opportunities in labor markets that are diminishing. 
Nowhere is that more clear than in the labor market of New 
York. ... In that environment, our immigration policy has 
been pumping large numbers of low skilled workers exactly 
into the labor market that does not need them, and that's 
where I think there is real tension. . . ." Vernon Briggs, pro- 
fessor, Cornell University, School of Industrial and Labor 
Relations, testimony, NY Hearing, vol. II, pp. 717-19. See 
also Frank Morris, "Statement for the Record," in Immigra- 
tion Impacts: Minority Issues, Minority Views (Washington, 
DC: Federation for American Immigration Reform, n.d.), p. 
16; Foner, "New Immigrants," p. 24. 

'56 Morris, Immigration Impacts: Minority Issues, Minority 
Views, pp. 16-19. 

'5' National Research Council. The New Americans, p. 5-23. 
See also Michael Fix and Jeffrey Passel, Immigration and 
Immigrants: Setting the Record Straight (Washington, DC: 
The Urban Institute, January 1994), p. 45. 

'58 Fix and Passel, Immigration and Immigrants, p. 45. 



Immigration Factors Affecting Jobs and Wages 

The impact of immigration on local job mar- 
kets and prevailing wages is influenced by vari- 
ous factors, including the skill and education 
level of arriving immigrants, the type of industry 
involved, and, according to some studies, the 
geographic location of immigrant settlement. i^s 
A recent study by the National Research Council 
commissioned by the U.S. Commission on Immi- 
gration Reform'^" found that immigration does 
not reduce economic opportunities for African 
Americans, in the aggregate, due, in part, to the 
fact that immigrants and African Americans Uve 
in different areas of the country. According to 
the study, 63 percent of blacks hve in States 
other than the six top immigration States. In the 
remaining 44 States, only 4 percent of the 
population is composed of immigrants. '^^ Yet 
another recent study conducted by the Center 
for Immigration Studies dismisses geography as 
a significant variable in determining the effect of 
immigration on job markets, and finds instead 
that "the effect of immigration is national in 
scope, and is not simply confined to cities or 
states with large concentrations of immi- 
grants."i^2 

Supporters of Current Immigration Levels 

Supporters of immigration cite several rea- 
sons why immigrants do not displace native low- 
skilled workers. First, they argue that immigra- 
tion does not have a significant impact on the 
wages of native workers as a whole. While im- 
migration may cause displacement of native low- 



'59 National Research Council, The New Americans, pp. 5-22 
to 5-30. 

160 "pjje U.S. Commission on Immigration Reform commis- 
sioned the National Research Council to examine the effects 
of immigration on the national economy, government reve- 
nues and spending, and on the future makeup of the Na- 
tion's population. The report titled The New Americans: 
Economic, Demographic, and Fiscal Effects of Immigration 
was the culmination of that study. National Research Coun- 
cil News <http;//www.nas.edu/new/>. 

161 National Research Council, 77ie New Americans, pp. 5-25 
to 5-26. According to the 1990 census, 76 percent of immi- 
grants arriving in the U.S. during the 1980s resided in the 
following six States: California, New York, Texas, Florida, 
New Jersey, and Illinois. By and large, these new arrivals 
have been settling in these same States over the last several 
decades. Ibid., pp. 2-24 to 2-25 (citing U.S. Immigration and 
Naturalization Service Statistical Yearbooks, 1974, 1984, 
and 1994). 

162 Camorata, The Wages of Immigration, p. 5. 



44 



skilled workers, the evidence in cities with large 
immigrant populations is that wages of native- 
born workers are not lower in those areas than 
in areas with low levels of immigration, sug- 
gesting that displaced workers either find other 
employment or leave those areas altogether. '^3 
According to these researchers, new waves of 
immigrants present the greatest level of compe- 
tition and displacement to older immigrants, 
who may not have yet mastered Enghsh or as- 
similated into U.S. culture at the level required 
to find employment in primary-sector jobs. '^'' Yet 
other scholars argue that immigration has 
harmed the earning potential of low-skilled Afri- 
can Americans and native-born Hispanics.i^^ 
This view is discussed in the section that follows. 
Second, supporters argue that the availabihty 
of immigrants as low-wage workers in industries 
undergoing transition helps to ensure continued 
domestic operation of industries that would oth- 
erwise relocate overseas, thereby preserving jobs 
for other low-skilled native workers in the 
area.'S'' Indeed, some labor researchers maintain 
that garment manufacturing and health care 
services in New York City could not survive 
without immigrant labor. '^' 



1G3 National Research Council, The New Americans, p. 5-26. 
According to the National Research Council, African Ameri- 
cans as a whole have not suffered displacement caused by 
influxes of immigrants because the majority of African 
Americans do not live in the top six immigrant States. Yet 
African Americans who reside in States and localities with 
high immigrant populations have experienced displacement 
by immigrant workers penetrating lovz-skill industries, such 
as the apparel and restaurant sectors. Ibid. See also Paul 
Ong and Abel Valenzuela, Jr., "The Labor Market: Immi- 
grant Effects and Racial Disparities," in Ethnic Los Angeles, 
ed. Roger Waldinger and Mehdi Bozorgmehr (New York: 
Russell Sage Foundation, 1996), p. 178. The authors con- 
clude that although emigration of immigrants with low lev- 
els of education into Los Angeles has increased joblessness 
for African Americans, it has had no apparent effect on 
earnings. Ibid. 

'64 Gregory DeFreitas, "Fear of Foreigners: Immigrants as 
Scapegoats for Domestic Woes," Dollars and Sense, Janu- 
ary/February 1994, p. 33. See also National Research Coun- 
cil, The New Americans, pp. 5-24 to 5-33. 

IG5 Roger Waldinger, Still the Promised City? African- 
Americans and New Immigrants in Postindustrial New York 
(Cambridge, MA: Harvard University Press, 1996), p. 173; 
Gregory DeFreitas, Inequality at Work: Hispanics in the 
U.S. Labor Force (New York: Oxford University Press, 
1991), p. 250. 

'*6 Fix and Passel, Immigration and Immigrants, p. 43. 

'6'' New York State Senate Committee on Cities, Hudacs 
Testimony, p. 4. According to the National Research Coun- 
cil, industries such as textile could not survive domestically 



Finally, limited Enghsh proficiency and dis- 
crimination can be impediments to economic mo- 
bility for immigrants in a number of occupational 
areas and can encourage self-employment. '^^ In 
particular, spatial concentration of immigrant 
populations often creates a demand for special 
products and goods that immigrants are well 
positioned to supply. In addition to meeting the 
particularized needs of an immigrant commu- 
nity, persons from developing countries are often 
able to capitalize on ties with their native coun- 
tries to develop import-export and related com- 
mercial ventures. '^9 Thus, a number of recent 
immigrants have sought opportunities in areas 
that include retailing and garment subcontract- 
ing.i^o 

The job-creating impact of immigrant spend- 
ing has not been precisely quantified, but the 
effect is estimated to be substantial. Nationwide, 
total immigrant income (more than $285 billion 
in 1989) represents about 8 percent of aU re- 
ported income, equal to immigrants' share of the 
population (7.9 percent). Even recent immi- 
grants with relatively low earnings had an ag- 
gregate income in 1989 of $80 biIlion."i In New 
York, self-employed immigrants earned over $2 
billion and generated over $7 billion in 1989. ^''^ 
A study by the U.S. Department of Labor in 1989 
concluded that "the economic recovery of New 
York City in the 1980's . . . [was] fueled by the 
voluminous increases in small business activity. 

without immigrants. Other nontraded goods sectors would 
not exist on the same scale without immigrants, and their 
main economic impact "may well be in the form of lower 
prices." National Research Council, The New Americans, pp. 
5-20 to 5-21. 

'6* Cohen, Immigrant Entrepreneurship in New York City. 
But see Robert Fairlie and Bruce Meyer, "Ethnic and Racial 
Self-Employment Differences and Possible Explanations," 
Journal of Human Resources, vol. 31 (September 1996), p. 
757. The authors dispute the assumption that English profi- 
ciency or discrimination are significant motivators toward 
self-employment. Rather, the primary factors leading to self- 
employment among immigrants is the expectation of higher 
earnings, a higher than average education level, immigrant 
status, time in the country, in addition to language skills. 

169 New York State Senate Committee on Cities, Hudacs 
Testimony, p. 9. 

"" CJohen, Immigrant Entrepreneurship in New York City. 

"' Fix and Passel, Immigration and Immigrants, p. 46. 

"2 Cohen, Immigrant Entrepreneurship in New York City. 
See also N.Y. State Senate, Our Teeming Shore, p. 55 (citing 
the testimony of James Parrot, chief economist of New York 
City's Economic Policy and Marketing Group before the New 
York State Senate Committee on Cities, Sept. 24, 1993). 



45 



Immigrants are directly responsible for a sub- 
stantial share of this activity."''^ 

Opponents of Current Immigration Levels 

Those who express concern over current lev- 
els of immigrants in the work force, especially in 
low-skill industries, posit that the influx of im- 
migrants has a disproportionately negative im- 
pact on native minorities for several reasons. 
First, the majority of native minorities are set- 
tled in areas with high concentrations of immi- 
grants. This proximity increases competition for 
scarce jobs and exacerbates tensions between 
natives and non-natives. Second, low-skilled na- 
tive minorities are weak substitutes for immi- 
grants, especially the undocumented. Third, the 
self-employment rate of immigrants leads to 
domination in certain industries, creating com- 
petition with native minorities for market share 
while effectively shutting out native minorities 
from the jobs created by relying on ethnic re- 
cruiting to fill positions. Finally, immigration 
policies favoring family reunification lead to 
larger numbers of low-skilled immigrants com- 
peting for jobs with the least educated, lowest 
skilled native minorities. 

Geographic Distribution of Immigrants 
and Native Minorities. Much of the increase in 
the foreign-born population is concentrated in 
relatively few major areas where sizable African 
American populations now reside, according to 
Dr. Frank Morris, former dean of graduate 
studies and research at Morgan State Univer- 
sity. '^* As a result, African Americans bear a 
disproportionate share of immigrant competition 
for jobs and resources. '^^ The National Research 
Council's study, The New Americans, finds that, 
compared with highly skilled immigrants, low- 
skilled immigrants tend to be more geographi- 



1" USDOL, Bureau of International Labor Affairs, The Ef- 
fects of Immigration on the U.S. Economy and Labor Market 
(1989), p. 198. See also N.Y. State Senate, Our Teeming 
Shore, p. 48 (citing the testimony of Sandra Lief Garrett, 
New York Association for New Americans). 

"'' Morris, Immigration Impacts: Minority Issues, Minority 
Views, p. 16; N.Y. State Senate, Our Teeming Shore, pp. 46- 
47 (quoting Frank Morris, "Congressional Testimony: The 
Effects of U.S. Immigration Policy on African American 
Workers," Mar. 13, 1990); Vernon Briggs, labor economist, 
Cornell University, School of Industrial and Labor Rela- 
tions, telephone interview, Feb. 4, 1994. 

"5 Morris, Immigration Impacts: Minority Issues, Minority 
Views, p. 17; N.Y. State Senate, Our Teeming Shore, pp. 46- 
47. 



cally concentrated in areas with high immigrant 
densities'"^ and that their representation in 
these locahties creates displacement of native- 
born workers. 1" Yet a recent study by the Cen- 
ter for Immigration Studies dismisses geo- 
graphic proximity as a rehable determinant of 
native worker displacement. According to the 
study: 

[T]he movement of labor, capital and goods between 
cities in the United States spreads the effects of im- 
migration from the areas with large immigrant 
populations to the rest of the country. . . .The effect of 
immigration on the wages of natives [thus] is national 
in scope, and is not simply confined to cities or states 
with large concentrations of immigrants.'''* 

Some scholars maintain that competition for 
jobs requiring few skills affects African Ameri- 
cans more acutely because low-skilled African 
Americans, especially men, are weak substitutes 
for new immigrants. According to Dr. Donald 
Huddle, a professor of economics at Rice Univer- 
sity, large populations of immigrants displace 
natives in certain job markets by acting as re- 
placements for more expensive natives, against 
whom wage and hour violations are more likely 
to be uncovered; instituting informal ethnic re- 
cruiting networks that ensure vacancies are 
filled through word-of-mouth channels; crowding 
out natives with no prior job experience from 
low-skill jobs; and causing out-migration of na- 
tives to other areas with less competition.'''^ 

Substitutability of Native Minorities. 
Both racial bias and the desire for cheap labor 
contribute to discrimination against natives in 
favor of immigrants. '*° Studies of hiring prac- 



"6 National Research Council, The New Americans, p. 5-21. 

'" Ibid., p. 5-24. Yet as explained above, the majority of 
African Americans and immigrants live in different parts of 
the country. See notes 160-61 and accompanying text. 

"* Camorata, The Wages of Immigration, pp. 4-5 

"9 N.Y. State Senate, Our Teeming Shore, p. 49. See also 
Roy H. Beck, The Case Against Immigration (New York: 
Norton & Co., 1996), pp. 179-80. 

'80 Dr. Vernon Briggs, labor economist, Cornell University, 
School of Industrial and Labor Relations, testified about the 
impact of immigration policy on jobs, stating: "There is dis- 
crimination against immigrants, . . . but there is also heavy 
discrimination against [the] native born as a result of our 
immigration policy . . . Many employers think [that if) they 
have a choice, [they] would prefer to have an immigrant 
worker than a native-born worker, especially in the low- 
wage segment of the labor market. . . ." Briggs Testimony, p. 
738. 



46 



tices by Chicago employers have found that em- 
ployers rely on race and its interaction with class 
and residency in making hiring decisions, and 
that inner-city, poor African American workers 
are perceived as less desirable than other 
groups. '81 In New York City, other researchers 
have found employers prefer immigrants over 
natives, citing to low-wage employers in Harlem 
who hire three Latino and Asian American and 
Pacific Islander apphcants for every one African 
American apphcant.'^^ a recent study by sociolo- 
gists Katherine Newman and Chauncy Lennon 
revealed that, while immigrants constituted only 
11 percent of the job candidates in their test 
sample of Harlem job seekers, they represented 
26.4 percent of those hired by Harlem employ- 
ers. Moreover, the study found that 41 percent of 
the immigrants in the sample were able to find 
employment within a year, in contrast to only 14 
percent of the native-born blacks. '83 

Another study of wage stagnation and job 
displacement indicates that African Americans, 
while arguably not directly harmed in high- 
immigration areas, nevertheless fail to enjoy 
some of the benefits related to residence in high- 
and medium-immigration labor markets, such as 
the wage increases experienced by Anglos and 



Hispanics in these areas during the 1980s. '84 
The author of the study, Maria Enchautegui, 
interprets this finding to suggest that African 
Americans are viewed as weak substitutes for, 
and Anglos strong complements of, immigrant 
workers, and that Hispanic and Anglo men bene- 
fit from immigration over African Americans. '85 

Native minorities also face displacement be- 
cause of employer preferences for vulnerable — 
and therefore exploitable — immigrants. '86 As 
discussed in greater detail in the section on 
IRCA earher in section I of this chapter, immi- 
grants' lack of knowledge of labor laws, their 
lack of Enghsh proficiency, and, for the undocu- 
mented, their fear of deportation, make them 
more attractive labor soiarces for smaU busi- 
nesses and unscrupulous employers. 

While increased levels of immigration affect 
joblessness among African Americans, racism 
also plays a significant role, according to Paul 
Ong and Abel Valenzuela, faculty members at 
the Department of Urban Planning at UCLA. 
Blaming immigration for the discrimination 
against native-born workers'8' is misguided, ac- 
cording to these scholars: 

To focus on immigrants as the only source of disad- 
vantage to Afiican Americans scapegoats an already 
vulnerable group and misses the point that other fac- 



"" Joleen Kirchenman and Kathryn Neckerman, '"We'd 
Love to Hire Them, But . . .': The Meaning of Race for Em- 
ployers," in The Urban Underclass, ed. Christopher Jencks 
and Paul E. Peterson (Washington, DC: The Brookings In- 
stitution, 1991), p. 204. According to the authors: "Our in- 
terviews at Chicago-area businesses show that employers 
view inner-city workers, especially black men, as unstable, 
uncooperative, dishonest, and uneducated. Race is an impor- 
tant factor in hiring decisions. But it is not race alone: 
rather it is race in a complex interaction with employers' 
perceptions of class and space, or inner-city residence. Our 
findings suggest that racial discrimination deserves an im- 
portant place in analyses of the underclass." Ibid. Peter 
Kwong also testified about studies showing that "employers 
in Chicago, particularly smaller businesses, would prefer to 
hire immigrants, any kinds of immigrants, than native 
[born] Americans, . . . and in particular try to avoid African 
American laborers." Kwong Testimony, pp. 528-29. 

•82 Katherine S. Newman, "Dead-End Jobs: A Way Out," The 
Brookings Review, fall 1995, pp. 24-27; Katherine S. New- 
man, "What Scholars Can Tell Pohticians About the Poor," 
Chronicle of Higher Education, July 23, 1995, pp. B-1 to B-2. 

'8^ Camorata, The Wages of Immigration, pp. 26-27 (citing 
Katherine Newman and Chauncy Lennon, "Finding Work in 
the Inner City: How Hard Is It Now? How Hard Will It Be 
for AFDC Recipients?" Russell Sage Foundation, working 
paper #76 (1995)). 



'*• Maria Enchautegui, The Effects of Immigration on the 
Wages and Employment of Black Males (The Urban Insti- 
tute, May 1993). 

'** Ibid, (citing studies by Gregory DeFreitas, Francisco 
Rivera-Batiz, and George Borjas that confirm its finding). 
The study suggests that the large increase in the supply of 
immigrants, who are generally less skilled, raises the price 
of relatively scarce, presumably better skilled Anglos. The 
study's explanation of wage increases enjoyed by native 
Hispanics is more speculative. The author suggests that the 
wage increase for Hispanics may be due to native Hispanics 
taking jobs for which newly arrived Hispanic immigrants 
may not be qualified. 

186 Frank Morris, "Mass American Immigration and African 
American Vulnerability," testimony before the Commission 
on Immigration Reform, Oct. 1, 1993. See also Moore and 
Kasindorf, "Enslavement in America." 

187 Vernon Briggs testified that U.S. immigration policy 
leads to increased discrimination against the native born. 
Briggs Testimony, p. 738. The influx of low-skilled immi- 
grants supported by current immigration policies increases 
the supply of workers into a segment of the labor market 
that is already in trouble and keeps wages down. This leads 
to a preference by employers in favor of immigrants and 
against native-born workers. This, according to Professor 
Briggs, leads to "heavy discrimination against [the] native 
born." Briggs Testimony, pp. 738-39. 



47 



tors, such as labor market discrimination and seg- 
mentation, are more important in explaining African 
American inequality. Even worse, focusing solely on 
immigration brings out a form of nativism that ulti- 
mately reinforces racially based prejudices.'^* 

Immigrant Entrepreneurialism and Eth- 
nic Recruiting. Immigrant-owned businesses, 
such as Chinese restaurants, Korean grocers, 
and Indian newsstands dot the New York City 
landscape. Other immigrant businesses, includ- 
ing those owned by Caribbean or West Indian 
immigrants, tailor to more specific ethnic com- 
munities and clienteles. 

While immigrants represented 28.4 percent of 
New York City's population in 1990, approxi- 
mately 37 percent of aU self-employed individu- 
als in 1990 were emigres.'^^ Chinese immigrants 
were the largest group of immigrant entrepre- 
neurs, representing 8.2 percent of all self- 
employed immigrants in New York City, fol- 
lowed by Dominicans, representing 6.7 percent, 
and Koreans, representing 6.1 percent of city's 
self-employed immigrants. i^" 

African Americans and native Hispanics have 
smaller self-employment rates than immigrants. 
More than 40 percent of New York City's black- 
owned firms in 1990 were owned by foreign-born 
blacks. In 1980, 4.3 percent of foreign-born His- 
panic residents in city were self-employed, com- 
pared with 2.6 percent of native-born Hispanics. 
According to a study by the New York City Eco- 
nomic PoUcy and Marketing Group, these differ- 
ences are attributable to differences in education 
and access to capital between immigrant and 
native groups. '^^ 

According to Reverend Calvin Butts, head 
pastor of the Abyssinian Baptist Church, the 
perceived domination of certain community 



i8» Paul Ong and Abel Valenzuela, Jr., "The Labor Market," 

p. 179. 

189 Cohen, Immigrant Entrepreneurship in New York City, p. 

7. 

'90 Ibid., p. 8. 

'91 "Inner city residents have limited access to sources of 
capital that are more available to other groups, such as 
loans from family and friends and inherited wealth." Ibid., p. 
9. According to John MoUenkopf, "[I]mmigrant groups typi- 
cally have rates of self-employment that might range from 
10 to 12 percent of the people in the labor force, whereas the 
native-born groups would be more in the 6 to 8 percent 
range, so the immigrant groups tend to have a 50 percent 
higher rate of self-employment. . . ." MoUenkopf Testimony, 
p. 207. 



businesses by newcomers is a source of conflict 
between immigrants and native minorities. Na- 
tive-born residents resent the perceived eco- 
nomic domination by relative newcomers and 
attribute the rapid estabUshment of businesses 
by these immigrants as evidence of discrimina- 
tory lending practices in favor of immigrants. '^^ 
Native-born minorities further point to disre- 
spectful treatment by immigrant business pro- 
prietors toward the minority community, and 
the failure of many of these merchants to hire 
local residents, as conditions that further exac- 
erbate resentment and tensions. '^^ 

Self employment also creates a level of eco- 
nomic mobility that is not as available to those 
who work for others, according to John MoUenk- 
opf, graduate professor of political science and 
director of data services at the City University of 
New York. Entrepreneurship allows many im- 
migrants to rise faster and higher on the eco- 
nomic ladder than native minorities: 

The high rates of labor force participation and the 
high rates of self-employment among immigrants, are 
helping those groups make their way upward in New 
York City faster than some of the native-born minor- 
ity groups which tend especially among Afirican 



'92 Rev. Calvin O. Butts, pastor, Abyssinian Baptist Church, 
interview in New York, Feb. 4, 1994 (hereafter cited as 
Butts Interview); Pyong Gap Min, Caught in the Middle: 
Korean Merchants in America's Multiethnic Cities (Berkeley 
and Los Angeles: University of Cahfornia Press, 1996), p. 
101. 

'93 Butts Interview; Min, Caught in the Middle, p. 101. Ten- 
sions between native-born minorities and immigrants have 
arisen from perceived disrespect by immigrant entrepre- 
neurs toward members of the minority community they 
serve, and have been manifested in large-scale demonstra- 
tions. Examples include the 1990 boycott of the Korean Red 
Apple Market by Flatbush residents following an altercation 
between Korean American employees of the store and a 
Haitian American customer. Recounting statements made 
by persons demonstrating in front of the store, the com- 
manding officer of New York City's 70th Precinct PoUce 
Department stated, "Unidentified spokespersons voiced 
their opposition to the Korean-American treatment of cus- 
tomers in general, indicating that there have been a number 
of incidents in which customers have been manhandled and 
there is a lack of respect to all black customers.." U.S. Com- 
mission on Civil Rights, Ciuil Rights Issues Facing Asian 
Americans in the 1990s, February 1992, pp. 34-^0 (citing 
commanding officer, 70th Precinct, New York City PoUce 
Department, "Chronology of Events Surrounding Haitian 
Demonstrations on Church Avenue," Feb. 6, 1990, p. 1). 
Nancy Foner discusses similar accounts involving Korean 
shopkeepers in Harlem and complaints by residents that the 
proprietors are rude and resort to violence in dealing with 
suspected shoplifters. Foner, "New Immigrants," p. 21. 



48 



Americans, to rely much more heavily on employment 
in government and the nonprofit social services, hos- 
pitals and so forth where oftentimes wages are sub- 
ject to union agreements and in the past few years 
have been fairly stagnant. '^'' 

While many of the tensions between low- 
skilled natives and immigrants are, in fact, the 
result of economic conditions, some community 
tensions arise out of perceptions that are inaccu- 
rate. The perception that immigrants are 
awarded loans and provided greater assistance 
in setting up businesses by private lending insti- 
tutions or the Federal Government is one such 
example, according to a report by the Inter- 
Relations Collaborative. The success of Korean 
merchants and grocers has sparked tensions in 
native minority communities based on these 
misperceptions. Jerry Sookman Choo, a New 
York attorney who has represented Korean 
American business owners, states she has heard 
"all the misperceptions about where merchants 
get their money, how much they make, and all 
the media hype about how successful they are. 
. . . Most Korean immigrants, even though they 
have been here for ten years, are not sophisti- 
cated enough to go through the banker to fi- 
nance their stores. . . . [T]his is one of the last 
myths."i^5 In fact, most immigrant businesses 
rely on nontraditional, alternative sources of fi- 
nancing, including family, friends, foreign lend- 
ers, and temporary credit associations or re- 
sources pools estabUshed among immigrants of 
the same national origin, according to a study of 
immigrant entrepreneurship conducted by the 
New York City Economic Pohcy and Marketing 
Group. '86 

Another cited cause of displacement for na- 
tive minorities, especially African Americans, is 
ethnic recruiting by employers or employees. '^^ 
Ethnic recruiting is the practice of word-of- 



'9'' MoUenkopf Testimony, pp. 207-08. 

195 Inter-Relations Collaborative, Intergroup Cooperation in 
Cities: African, Asian and Hispanic American Communities 
(New York: Inter-Relations Collaborative, 1993), p. 19. In 
fact, the majority of Korean merchants rely on personal 
savings to finance their initial businesses; only 5 percent of 
survey respondents reported relying on commercial loans as 
a main source of startup capital. Min, Caught in the Middle, 
pp. 101-02. 

196 Cohen, Immigrant Entrepreneurship in New York City, 
pp. 25-26. 

■9' See sources cited in note 179. 



mouth announcement of job openings by v/ork- 
ers, usually to their relatives and other acquain- 
tances from their country of origin. This practice, 
according to some, leads to domination of the 
workplace by workers of the same or common 
ethnic backgrounds, thereby shutting out poten- 
tial employees from other groups who are out- 
side the network circles. i^^ According to econo- 
mist Marcia Freedman, ethnic recruiting is a 
crucial factor in the success that immigrants 
have enjoyed in finding work in New York: 

Large-scale employment of immigrants requires an 
economy with many jobs in relatively unstructured 
settings where firms are small and labor standards 
poorly enforced. . . . Immigrants do not only find such 
places, they create them, in small businesses, in 
trade, construction and provision of services. And it is 
the network they establish for access and the informal 
training that takes place in these enterprises that 
make it possible for them to maintain their foothold 
in the city's economy. '^^ 

The rapid growth of the garment industry in 
Manhattan's Chinatown offers a prime example 
of the workings of an immigrant job network. A 
1983 survey found that the number of garment 
workers employed in Chinatown doubled be- 
tween 1969 and 1980. The rapid growth was 
aided by the social cohesion of the Chinese im- 
migrant work force. ^oo According to the survey: 

Many young Chinese women took advantage of family 
and finendships that extended firom China to down- 
town Manhattan to form the core of a new work force 
in the women's apparel industry. . . . Families and 
neighbors maintained their ties through the long 
journey firom provinces in China to Chinatown, some- 
times comprising nearly the entire workforce in a sin- 
gle shop.^*" 

Ethnic recruiting is more pronounced in im- 
migrant-owned firms, according to scholars who 
cite studies showing that immigrant-owned 
businesses in New York City are underrepre- 
sented by African American employees.^o^ Afri- 



198 Beck, 77ie Case Against Immigration, p. 184. 

199 Bogen, Immigration in New York, p. 87 (quoting Marcia 
Freedman, "The Labor Market for Immigrants in New York 
City," New York Affairs, vol. 7, no. 4 (1983), p. 9G). 

200 Ibid., p. 86. 

201 Ibid. 

202 Beck, The Case Against Immigration, pp. 184-87. Beck 
cites several studies that have found bias by immigrant 



49 



can American job seekers face greater difficulties 
in industries increasingly controlled by immi- 
grant entrepreneurs or dominated by immi- 
grants, including grocery stores, textile manu- 
facturing, and contracting jobs. 

Redress for the discriminatory effects of these 
practices is often difficult, as demonstrated by a 
seventh circuit case brought by the U.S. Equal 
Employment Opportunity Commission (EEOC). 
In EEOC V. Consolidated Service Systems, the 
EEOC filed suit against a company owned by a 
Korean immigrant, charging the company with 
unlawful discrimination in favor of persons of 
Korean descent, in violation of title VII of the 
Civil Rights Act of 1964, by relying on word of 
mouth to obtain new employees.^os The district 
court dismissed the suit for lack of evidence of 
discrimination, and EEOC appealed to the sev- 
enth circuit. The appellate court found no inten- 
tional discrimination by Consolidated Services in 
relying on word of mouth to obtain employees. 
Word-of-mouth recruitment that produces a 
largely homogeneous work force is not illegal 
discrimination. Rather, the court noted, it is 
nothing more than the cheapest and most effi- 
cient method of recruitment.^^^ To impute a dis- 
criminatory motive to these practices would de- 
feat the purpose of Federal programs designed to 
protect minorities from discrimination that pres- 
ent barriers to their economic advancement. In 
strongly worded dicta, the court stated: 



businesses against native minorities, especially African 
Americans. Among them is a study by Pyong Gap Min, a 
sociologist at Queen's College, that found only 5 percent of 
employees of Korean-owned New York City stores are Afri- 
can American, despite that African Americans constitute 25 
percent of New York City's population. Min, Caught in the 
Middle. Another account in the Wall Street Journal de- 
scribes an "unwritten law" that immigrant businesses do not 
hire African Americans. Jonathan Kaufman, "Help Un- 
wanted: Immigrants' Businesses Often Refuse to Hire 
Blacks in Inner City," Wall Street Journal, June 6, 1995, p. 
A-1. Elizabeth Bogen writes in her book. Immigration in 
New York, that because of ethnic hfring networks and the 
growing numbers of immigrant-owned small businesses 
"there are tens of thousands of jobs in New York City for 
which the native-born are not candidates." Bogen, Immigra- 
tion in New York, p. 91. 

203 Equal Employment Opportunity Commission v. Consoli- 
dated Service Systems, 989 F.2d 233 (7th Cir. 1993). 

sO'i According to the court, "It is not discrimination ... for an 
employer to sit back and wait for people willing to work for 
low wages to apply to him. The fact that they are ethnically 
or racially uniform does not impose upon him a duty to 
spend money advertising. . . ." Id. at 237. 



In a nation of immigrants, this must be reckoned as 
an ominous case despite its outcome. The United 
States has many recent immigrants, and today as 
historically they tend to cluster in their own commu- 
nities, united by ties of language, culture, and back- 
ground. Often they form small businesses composed 
largely of relatives, friends, and other members of 
their community, and they obtain new employees by 
word of mouth. These small businesses . . . have been 
for many immigrant groups, and continue to be, the 
first rung on the ladder of American success. Derided 
as clannish, resented for their ambition and hard 
work, hated or despised for their otherness, recent 
immigrants are frequent targets of discrimination, 
some of it violent. It would be a bitter irony if the fed- 
eral agency dedicated to enforcing the antidiscrimina- 
tion laws succeeded in using those laws to kick these 
people off the ladder by compelling them to institute 
costly systems of hiring. There is equal danger to 
small black-run businesses in our central cities. Must 
such businesses undertake in the name of nondis- 
crimination costly measures to recruit non-black em- 
ployees?^''^ 

Immigration Policy: Family Reunifica- 
tion. Advocates of low-skilled native workers 
beheve that the family reunification emphasis of 
immigration policy also contributes to displace- 
ment of native minorities. They recommend re- 
forming current immigration poUcy to shift the 
primary focus from one of family reunification to 
one based on economic needs and existing labor 
market conditions, as reflected by the Canadian 
and AustraUan governments, ^oe Critics of the 
emphasis on family reunification maintain that 
immigration poUcy must strike a balance be- 
tween the needs of employers to recruit and re- 
tain quahfied workers and a guarantee of equal 
access for U.S. citizens competing for available 
jobs. 207 Rather than static levels set by statute, 



205 Id. at 237-38. 

206 Ronald Brownstein, "The Great Divide: Immigration in 
the 1990s," Los Angeles Times, Nov. 30, 1993, p. A-20. See 
also N.Y. State Senate, Our Teeming Shore, p. 50. The re- 
port blames an immigration pohcy that has been skewed 
since passage of the Hart-Cellar Act of 1965 and, especially, 
since the passage of IRCA, "away from economic concerns in 
favor of various foreign and domestic policy considerations, 
most notably the goal of family reunification." Ibid. 

207 N.Y. State Senate, Our Teeming Shore, p. 50. According 
to John Hudacs, commissioner, New York State Department 
of Labor: "Although recent immigration laws increase the 
number of immigrants allowed into the country, the current 
poUcy is centered on family considerations, not economic or 
labor force factors. . . . [N]ot enough attention [is] given to 
creating a balance between the need of employers to recruit 
and retain quahfied workers while guaranteeing equal ac- 



50 



allotment of immigration visas should be deter- 
mined administratively to meet present eco- 
nomic needs. 208 

According to Vernon Briggs, a professor at 
the Cornell University School of Industrial and 
Labor Relations, U.S. immigration policy since 
1970 has been characterized by mass immigra- 
tion and free trade. Because of free trade expan- 
sion, wages have faUen and U.S. industries have 
shifted from manual labor to service-sector 
jobs. 2"^ As a result, the need for iUiterate or low- 
skilled workers has declined, while the need for 
workers with more advanced skills has risen: 

The current wave of immigration has opened up at a 
time in which there is diminished need for unskilled 
workers, and those workers who are unskilled in the 
United States are in the greatest jeopardy of aU in 
terms of the ability to hang on to employment oppor- 
tunities in labor markets that are diminishing. No- 
where is that more clear than in the labor market of 
New York.210 

Professor Briggs argues that only through the 
simultaneous implementation of both pohcies 
(i.e., one that takes into account both economic 
needs and existing labor market conditions na- 
tionwide) can the United States avoid a serious 
dechne of job opportunities for low-skilled work- 
ers and ease tensions between native and immi- 
grant low-skiUed workers, ^n 

cess for U.S. citizens competing for available jobs. The difB- 
culty or ease with which aliens obtain labor certification 
must be linked to changing economic conditions." Ibid. 

208 Briggs Testimony, pp. 741^2. 

209 Ibid., pp. 715-18. According to Senator Marchi: "In Feb- 
ruary 1993, manufacturing jobs in New York State dropped 
below one million for the first time since 1906. In the 1940's 
we had approximately 2,250,000 manufacturing jobs — we 
now have approximately one million manufacturing jobs in 
New York State. Between 1980 and December 1991, New 
York lost one-third of its manufacturing jobs — 440,000 jobs. 
Over the past decade. New York City alone lost 150,000 
manufacturing jobs. Since mid- 1990 to mid- 1992, New York 
lost 114,000 jobs." Senator John J. Marchi, vice president 
pro-tempore. New York State Senate, testimony before New 
York State Senate Committee on Cities on Sept. 10, 1993, 
pp. 2-3. 

2'" Briggs Testimony, pp. 717-18, 737-38. 

2" Ibid., p. 719 ("In that environment, our immigration pol- 
icy has been pumping large numbers of low-skilled workers 
exactly into the labor market that does not need them, and 
that's where I think there is real tension. . . .") A recent 
report by the Organization for Economic Cooperation and 
Development also advocates the globalization of immigra- 
tion policy to reflect changes in world and domestic econo- 
mies, citing to the growing trend toward reUance on legal, 



Opinions are split, however, on whether a re- 
vised immigration policy should strive to admit 
more high-skilled workers, or whether it should 
merely set numerical limits according to eco- 
nomic needs, regardless of educational skills or 
work experience. Advocates of a pohcy that 
would exclude unskilled workers or give prefer- 
ence to high-skilled workers argue that most job 
growth is occurring in occupations requiring job 
skills and education and that a continued influx 
of low-skiUed, low-educated immigrants will con- 
tinue to compete more closely with low-skilled 
native workers for disappearing jobs. 212 

Those who oppose increasing the levels of 
high-skilled immigrants argue that their entry 
reduces the incentive to train native workers to 
perform these jobs. Gregory DeFreitas, professor 
of economics at Hofstra University, recommends 
awarding temporary visas to high-skilled immi- 
grant workers to allow them to fill industry 
needs until native workers are trained.^'^ 
"Instead of meeting supposed 'skill shortages' by 
importing people trained elsewhere, the U.S. 
should finally commit the resources needed to 
provide first-class schooling and training for the 
rising number of less-skilled and underemployed 
Americans."2i'* In response to these concerns, 
proponents of this view recommend education 
and training for native workers, to reduce the 
need for foreign skilled laborers. ^i^ 

seasonal immigration of workers by the U.S., Canada, and 
Australia and worker outsourcing programs in countries like 
Germany and Portugal. "Immigration: OECD Finds No Cor- 
relation Between Increased Immigration, Unemployment," 
BNA Daily Labor Report, Aug. 14, 1997, p. A-5 (citing Or- 
ganization for Economic Cooperation and Development, 
"Trends in International Migration: Annual Report 1996"). 

2'2 Briggs Testimony, pp. 717-20, 737-38. See also Vernon 
Briggs, Jr., "Immigration: The Neglected Orphan of Immi- 
gration Pohcy," Backgrounder, September 1993. 

2'3 Interview with Gregory DeFreitas, professor, Hofstra 
University, in New York City on Mar. 18, 1994. 

2''' Gregory DeFreitas, "Fear of Foreigners," Dollars and 
Sense, January/February 1994. 

2'5 John Sweeney, international president. Service Employ- 
ees International Union, testimony before House Judiciary 
Committee on H.R. 2202, Sept. 19, 1995 (hereafter cited as 
House Judiciary Committee, Sweeney Testimony). Accord- 
ing to Mr. Sweeney, "Giving employers the privilege of ap- 
plying for permanent or temporary visas for workers simply 
allows them to avoid the expense of retraining resident or 
citizen workers." Mr. Sweeney also warns about compla- 
cency and a growing dependence on workers originally 
authorized by statute to fill a shortage beyond the time 
when there is no longer a need. He cites to the H-IA visa 
program enacted in 1989 to respond to the shortage of 



51 



A proposal to fund education and training for 
native low-skilled workers was in fact recom- 
mended by the Chairman of the Subcommittee 
on Immigration, Refugees, and International 
Law, former U.S. Representative Bruce A. Mor- 
rison, during hearings and debates of the Immi- 
gration Act of 1990. As approved and submitted 
by the House Committee on the Judiciary, that 
draft legislation of the immigration bill con- 
tained a section entitled the Family Unity and 
Employment Opportunity Immigration Act of 
1990, which required employers who were 
granted labor certification to import foreign 
workers to pay a fee that would be deposited into 
a separate account within the general fund of 
the U.S. Treasury to be used for educational as- 
sistance and training of unemployed and under- 
employed U.S. citizens in fields that had short- 
ages of employees. 21^ Funds collected under this 
system would have been distributed through 
States for educational grants and training. Dis- 
tribution factors would have included the loca- 
tion of foreign workers admitted into the United 
States, the location of individuals in the country 
requiring educational assistance or training, and 
the location of unemployed or underemployed 
individuals. Under the bill, 10 percent of the 
money in the fund would have been used specifi- 
cally to provide funding for postsecondary educa- 
tion in the areas of mathematics and the sci- 
ences. Eighty-three percent of the remaining 
funds would have been used to train U.S. work- 
ers in fields that have shortages of employees.^i^ 
The provision was deleted by the Committee on 
Ways and Means prior to passage of the law. 

In addition to job training, witnesses at the 
New York hearing and other experts propose 
additional measures to reduce the levels of un- 
documented immigration while simvdtaneously 
improving conditions for native minorities and 
immigrants already in the United States. First, 
the integrity of our national borders must be en- 



nurses. Although there is no longer a shortage of nurses, 
employer applications for visas have not declined. 

2>6 H.R. Rep. No. 101-723, pt. 2 (1990). The bill would have 
imposed a fee for granting lawful permanent resident status 
to an alien who qualified for admission on the basis of his 
extraordinary ability, status as an outstanding professor or 
researcher, multinational executive or manager, or other- 
wise possessed business expertise or who satisfied any other 
employment-based criteria. 

2"/d. 



sured through appropriate border control. ^is 
Stemming the flow of undocumented immigra- 
tion is the first step in reducing the number of 
low- or unskilled immigrants in the labor mar- 
kets.219 

Witnesses at the hearing also agreed that, 
while controlhng the border is an important step 
in minimizing the number of undocumented 
immigrants and the consequences they present 
for native minorities and documented immi- 
grants, once immigrants are in the United 
States, they deserve the same fundamental pro- 
tections against exploitation and abuse that all 
workers enjoy. 220 Consistent, strong enforcement 
of wage and hour laws and of IRCA is necessary 
to ensure fair and safe working environments for 
all workers and to reduce the ease with which 
unscrupulous employers can exploit immi- 
grants. 221 Ensuring compliance with labor laws 
also has a derivative, beneficial affect on native 
workers by sustaining lawful, hving wages, re- 
ducing the economic attractiveness of unauthor- 
ized workers, and eUminating competition by 
employers who can remain viable only by vio- 
lating wage, overtime, and safety laws, accord- 
ing to Muzaffar Chishti.222 Mr. Chishti explained 
through testimony: 



2'8 Ong and Valenzuela, "The Labor Market," p. 180. Ac- 
cording to the authors, "Weak enforcement of border policies 
creates a large undocumented population that is at the 
heart of the immigration debate." Ibid. 

2'9 Ibid. 

220 Peter Salins, a senior fellow at the Manhattan Institute, 
testified at the hearing that any measures aimed at stem- 
ming the tide of undocumented immigrants should be im- 
plemented at the point of entry, not after they are already in 
the country. "But nevertheless, we should not be complacent 
about illegal immigration because it invites exploitation, 
increases the resentment of native Americans, rewards 
queue jumping, and contributes to the further erosion in the 
public's respect for the law. But the place to stop illegal im- 
migration is before, at or near the point of entry into the 
United States. Measures aimed at smoking out or punishing 
illegals once they are settled are both ineffective and un- 
fair." Peter Salins, senior fellow, Manhattan Institute, tes- 
timony. New York Hearing, vol. II, pp. 710-11 (hereafter 
cited as Salins Testimony). See also House Judiciary Com- 
mittee, Sweeney Testimony. Illegal border entry accounts 
for 60 percent of all undocumented immigrants. Camorata, 
The Wages of Immigration, p. 40. 

22' Chishti Testimony, pp. 482-«3; 510-11. 
222 Ibid., pp. 491-93. According to Mr. Chishti, an absolute 
commitment is needed "to enforce labor laws vigorously 
without regard to status. ... If we say that the interests of 
the society is only to enforce the laws regarding wages and 
working conditions of U.S. workers, then basically you are 
saying that the employers are free to set the standards with 



52 



[I]f, as a society, we make that the pubhc policy [i.e., 
ehminating all undocumented immigration], th[en] 
employer sanctions as a law to achieve that has not 
been successful at all, and I am suggesting that a bet- 
ter approach to achieving the goal is to have laws 
which focus on improving wages and working condi- 
tions, because I think laws of economic gravity, 
frankly, operate much more effectively than other 
laws, and that if you really pay people better, and 
whatever you do to achieve that, then it's likely that 
you would have U.S-. citizens looking for those jobs 
and U.S. citizens will take those jobs, and the incen- 
tive for foreign workers to move into those jobs, and, 
by inference, especially the undocumented to move 
into those jobs would reduce. ^^^ 

Yet the Center for Immigration Studies disa- 
grees that better labor laws will improve wages 
for native workers. While vigorous enforcement 
of existing labor laws protects immigrants 
against exploitation, according to CIS "this ap- 
proach is likely to have httle effect on the wages 
of natives in low-skilled occupations because it 
does not change the fact that immigration has 
significantly increased the supply of low-skilled 
labor. It is this increase that is causing the trou- 
bhng decHne in wages for workers at the bottom 
of the labor market."22'« 

Community Responses to Ethnic Diversity 

Concern over the impact of immigration on 
the United States is not rooted exclusively 
within low- income communities and low-skill 
jobs. A cultural perspective is also apparent. 
Some of the recent impetus to curtail immigra- 
tion stems from white-collar and professional 
communities who fear the transformation of the 
Nation from a Eurocentric society to a multicul- 
tural one, with whites no longer in the majority. 
Thomas MuUer, in a statement to the Commis- 
sion on Immigration Reform, concluded that the 
calls for added restrictions on immigration are 
more likely generated by the discomfort with 
ethnic changes in predominantly white areas, 
than with the more often stated reason relating 

respect to all other workers and, therefore, if you then pro- 
vide the incentive for the employer to pay any wages that 
they would like to pay for the unprotected workers, laws of 
market will tell you quickly that the wages and working 
conditions of all workers will go down, and that is just not 
permissible. . . ." Ibid., p. 491. See also Kwong Testimony, 
pp. 517-20. 

223 Chishti Testimony, p. 510. 
^^'i Camorata, The Wages of Immigration, p. 7. 



to the costs of providing services. According to 
Mr. Muller: 

[Tjensions between native and immigrant communi- 
ties exist at two levels. At the first "gut" level, en- 
countered in inner cities, friction is mostlj' associated 
with the competition to attain economic and political 
advancement among those lacking power. At the sec- 
ond, more abstract level, typically characteristic of 
middle income residents, anxiety is high among those 
uncomfortable with ethnic change or those who be- 
lieve that new immigrants will weaken the sense of 
national identity.^^s 

Other commentators question the abiUty of 
multiethnic societies to exist harmoniously. Ac- 
cording to Peter Brimelow, a writer for Forbes 
magazine and author of the book Alien Nation, 
U.S. immigration policy has historically imposed 
immigration "pauses" to ensure assimilation 
(i.e., "Americanization") of new immigrant 
waves. Recent immigration poUcy, by allowing 
large groups of immigrants of all nationahties 
and ethnicities to emigrate without emphasizing 
assimilation, risks the creation of a truly multi- 
ethnic, ultimately divided, society. 226 



225 Thomas Muller, "Immigration and Community Ten- 
sions," prepared testimony for the Commission on Immigra- 
tion Reform, Oct. 1, 1993, p. 8. "The argument about immi- 
gration — what kind of people should come, and in what 
quantities — is actually two arguments. One is economic, but 
the more interesting one, is cultural." Behn and Muzzio, 
"Empire State Survey," p. 5 (quoting George Will). 

226 Peter Brimelow, senior editor, Forbes magazine, testi- 
mony. New York Hearing, vol. II, pp. 688-89 (hereafter cited 
as Brimelow Testimony); Peter Brimelow, Alien Nation 
(New York: Random House, 1995), pp. 123-29. Mr. 
Brimelow argues that U.S. immigration policy must do more 
to ensure the integration of newcomers: "The last time there 
was a great wave of immigration ... it was accompanied by 
what was called an 'Americanization' campaign both public 
and private, there was a real serious and determined effort 
to make sure that immigrants assimilated, . . . and, frankly, 
if the immigration that we see now is going to continue, 
then obviously we're going to have to pay more attention to 
Americanization, if the society is going to hold together. . . ." 
Brimelow Testimony, p. 688. In an article about immigra- 
tion, Mr. Brimelow questions the impact of multiculturalism 
as he notes the existence of "another parallel with New 
York: just as when you leave Park Avenue and descend into 
the subway, on entering the INS waiting rooms you find 
yourself in an underworld that is almost entirely colored. . . . 
Only the incurious could fail to wonder: Where do all these 
people get off and come to the surface? That is: What impact 
will they have on America?" Peter Brimelow, "Time to Re- 
think Immigration," National Review, vol. 44, no. 12 (June 
22, 1992), p. 30. See also Beck, The Case Against Immigra- 
tion, p. 216. According to Mr. Beck: "To say that the imposi- 
tion of a foreign culture into an American community is 



53 



These concerns over the ethnic diversity of 
New York's immigrants are not, however, shared 
by New Yorkers as a whole. According to the 
Empire State Survey, a survey of New Yorkers' 
attitudes about immigration. New Yorkers are at 
odds with the rest of the Nation about the per- 
ceived role of immigration on American culture. 
While 55 percent of Americans polled in a na- 
tional survey believe that the increasing diver- 
sity of immigrants threatens American culture, 
60 percent of New Yorkers beheve that this di- 
versity actually improves it. ^27 

Nevertheless, the survey also revealed that 
New Yorkers believe there is significant tension 
between the city's racial and ethnic groups, es- 
pecially among white and black residents, and 



that tensions have worsened over the past sev- 
eral years. Tensions between blacks and whites 
are more pronounced than tensions between na- 
tives and immigrants, according to New Yorkers 
responding to the survey. ^^s Multiculturahsm 
also leads to tensions between groups of the 
same race. According to Walter Stafford, associ- 
ate professor of urban planning and pubhc policy 
at the Wagner Graduate School of Pubhc Serv- 
ice, the large popidation of residents of African 
decent but of different nationaUties has also 
been a source of tension among New York City 
blacks. 229 These tensions, Uke tensions among all 
groups, could benefit from a multicultural pol- 
icy that addresses ethnic, racial, and linguistic 
differences. 230 



disruptive is not to say there is anything negative about that 
foreign culture itself. The point is that differing cultures 
often tend to clash. And no matter how admirable the traits 
of a foreign culture, it can produce less than admirable re- 
sults when introduced too rapidly and in too large a dose 
into the middle of a community." Ibid. 

227 Behn and Muzzio, "Empire State Survey," p. 5. 



228 Ibid., p. 17. 

229 Walter Stafford, associate professor of urban planning 
and public policy, Wagner Graduate School of Pubbc Serv- 
ice, New York University, testimony, New York Hearing, 
vol. II, pp. 627-28. 

230 Ibid., pp. 627-28, 683-84. 



54 



Chapter 3 

Minorities and Women in New York City's Finance Industry 



Section I. Background of the Study 

The Commission on Civil Rights' studies of 
racial tensions in cities throughout the Nation 
have repeatedly grappled with minority groups' 
lack of opportunities for economic equahty. In 
New York City, two aspects suggested that a 
study of the finance industry, and the represen- 
tation of minorities and also women in it, would 
greatly enhance our understanding of economic 
inequahty in reference to these groups. First, as 
a prominent and well-paying industry in the 
city, the finance industry could serve as a major 
source of jobs for minorities and women, thereby 
increasing their opportunities for economic 
equality. Second, past research studies as well as 
current news reports suggested that minorities 
and women, when compared with their numbers 
in the population, were not well represented in 
the finance industry, or at least some segments 
of it. 

A great deal has occurred in the financial in- 
dustry since the Commission held its 1995 
hearings that spotHghted the lack of diversity in 
the best and highest paying jobs on Wall Street 
as part of our racial and ethnic tensions hear- 
ings. Mergers continue at such a pace that some 
of the firms we examined no longer exist. Jesse 
Jackson's Wall Street project and annual meet- 
ings with participation from the President and 
highest Administration officials have further 
highlighted the need for participation in the in- 
vestment side of the business and employment 
on Wall Street. The firms have made efforts to 
become more inclusive for sound business and 
other pubhc policy reasons. 

In the securities industry, a few people of 
color have been hired at higher levels, and the 
"standing" of minority-owned and women-owned 
investment firms has improved. Seventeen mi- 
nority-owned and one woman-owned securities 
firm participated in the underwriting syndicate 
for the common stock initial public offering in 



May 1999 of one of the largest securities firms in 
the country. The securities industry announced 
on April 20, 1999, a plan of action to assist firms 
in increasing the diversity of both their work 
force and client base. This announcement dem- 
onstrates the continued need to increase the rep- 
resentation of women and people of color in the 
securities industry. The report and plan of action 
were based in part on a survey sent to 740 firms, 
of which 95 (or 13 percent) responded. Forty-five 
of the responding firms are national or interna- 
tional, 26 are regional, and 24 are local. Seventy- 
four firms (or 10 percent) provided demographic 
data. "The data," says the industry "can be used 
as a snapshot against which to analyze trends 
and compare the degree to which the securities 
industry employee population has shifted."' 

The firms are aware of the need to increase 
the representation of minorities and women in 
the industry — especially in retail and institu- 
tional areas where the higher compensated job 
opportunities can be found. Many of these firms 
describe efforts currently underway to recruit 
and train minorities and contend that commit- 
ting to diversity programs "is a long term in- 
vestment in the future of the U.S. economy, the 
capital markets, securities firms and the U.S. 
economy. "2 

This chapter does not prove the existence of 
underrepresentation in the sense that the term 
is used as showing legally the existence of em- 
ployment discrimination in the finance industry 
or at any of the subpoenaed firms. In part, that 
is because the firms did not provide sufficient 
information concerning the qualifications of the 
various jobs.^ The chapter describes the extent of 



' Press Release, Marc Lackritz, president, Securities Indus- 
try Association, Apr. 20, 1999. 

2 Ibid. 

3 The firms contend that because, as a matter of business 
practice, they do not keep such records, they do not have the 



55 



the presence of women, African American, La- 
tino, and Asian American and Pacific Islander 
males in the finance industry based on the sub- 
poenaed materials and EEOC data. 

The Prominence of New York City's 
Finance Industry 

Since the founding of our country, the heart 
of New York City's and also the Nation's finan- 
cial district has been located on Wall Street, the 
address by which the securities marketplace is 
known. It is here that merchants, agents, and 
customers of finance buy and sell securities.'' 
The New York Stock Exchange (NYSE)— the Na- 
tion's largest exchange in which stocks are 
traded in a two-way auction process — and the 
U.S. Securities and Exchange Commission — an 
organization that regulates the securities indus- 
try — also reside here.^ And although Wall Street 
is most often associated with securities, banking 
also has a strong presence in this area. 

The finance industry includes depository in- 
stitutions, nondepository credit institutions, 
holding (but not predominantly operating) com- 
panies, other investment companies, brokers and 
dealers in securities and commodity contracts, 
and security and commodity exchanges. Insur- 
ance and real estate are also included in the fi- 
nance industry when standard industry divi- 
sions are used.^ 



information and cannot supply such information to the 
Commission. 

'' A "security" is any evidence of debt or ownership, espe- 
cially a stock certificate of bond. The term is defined by the 
Securities Act of 1933 as; "any note, stock, treasury stock, 
bond, debenture, evidence of indebtedness, certificate of 
interest or participation in any profit-sharing agreement, 
collateral-trust certificate, preorganization certificate of 
subscription, transferable share, investment contract, vot- 
ing-trust certificate, certificate of deposit for a security, frac- 
tional undivided interest in oil, gas, or other mineral rights, 
or any put, call, straddle option, or privilege on any security 
certificate of deposit, or group or index of securities 
(including any interest therein or based on the value 
thereof), or any put, call, straddle option or privilege entered 
into on a national securities exchange relating to foreign 
currency, or, in general, any interest or instrument com- 
monly known as 'security,' or in any certificate of interest or 
participation in, temporary or interim certificate for, receipt 
for, guarantee of, or warrant or right to subscribe to or pur- 
chase, any of the foregoing." 15 U.S.C. § 77b(a)(l) (1997). 

'' The principal office of the U.S. Securities and Exchange 
Commission is in Washington, DC. 

'' Office of Management and Budget, Standard Industrial 
Classification Manual (Springfield, VA: National Technical 



Figure 3.1 shows employment in the various 
segments of New York City's finance industry in 
1994. Thirty-eight percent of employees in this 
industry work in establishments classified as 
security and commodity brokers. Another 34 
percent are employed in depository institutions, 
which include commercial banks, savings insti- 
tutions, and credit unions, and which we shall 
refer to as "banking." Insurance and the re- 
maining segments account for 23 percent of em- 
ployment in the finance industry. Thus, securi- 
ties and banking are the largest components of 
the finance industry. 

Figure 3.1 

Employment in New York City's 
Finance Industry, 1994 



3% 



34% 




38% 



■ Depository 
institutions 

QNondepository 
institutions 

DSecurity and 
commodity brokers 

ID Insurance carriers 

n insurance agents, 
brokers, and service 

BReal estate 

B Holding companies 



17% 



source: EEOC data. See appendix B, table B.2. 

Compared with other industries in the city, or 
to financial industries in other cities. New York 
City's finance industry is large and prominent. 
Finance, insurance, and real estate, 1 of 10 ma- 
jor industrial groupings, is the second largest 
industry in New York City, surpassed in the 
number of persons employed only by the services 
industry. Of the 1,253,992 workers in private 
industry in New York City, 22.7 percent were 
employed in finance in 1991.' A much larger 



Information Service, No. PB 87-100012) (1987), p. 335. Note 
that insurance covers carriers of all types of insurance, and 
insurance agents and brokers. Real estate includes owners, 
lessors, lessees, buyers, sellers, agents, and developers of 
real estate. Establishments primarily engaged in the con- 
struction of buildings for sale are not included. Ibid. 

' The services industry employs 36 percent of private indus- 
try workers in New York City. Percentages were calculated 



56 



pei'centage of private industry workers are em- 
ployed in New York City's finance industry than 
in other cities, including Chicago, Boston, Phila- 
delphia, and Los Angeles, and the United States 
as a whole.* Furthermore, New York City's fi- 
nancial industry accounts for a large proportion 
of high-status jobs such as officials and manag- 
ers — 35.9 percent of officials and managers 
throughout the city were in finance, insurance, 
or real estate in 1991. Apart from the services 
industry, the finance industry is the major 
source for professional jobs in New York City — 
24.8 percent of professionals are in the finance 
industry. And, a large proportion of office and 
clerical workers, 38.3 percent, were employed in 
New York City's finance industry in 1991.^ 

Finally, the finance industry pays well. In 
1990 finance, insurance, and real estate ac- 
counted for 35 percent of the annual payroll of 
estabhshments in New York County (that is, 
Manhattan) and 40.2 percent of payroll in the 
first quarter of the year. The payroll exceeded 
that of the services industry even though the 
services industry in Manhattan had VA times as 
many employees.^" 



using figures firom Equal Employment Opportunity Com- 
mission (EEOC), Job Patterns for Minorities and Women in 
Private Industry, 1991 (1992), pp. 362-64. The numbers 
from this source differ very slightly from the 1991 figures in 
the analysis below. 

* Workers in the finance industry were only 11 percent of 
private industry employees in Chicago, 14 percent in Boston, 
11.7 percent in Philadelphia, 10.4 percent in Los Angeles, 
and 8.2 percent throughout the United States in 1991. Per- 
centages calculated from source. Ibid., pp. 1, 4, 256, 258, 
269, 275, 279, 307, 313, 346, 364, 376. 

' These proportions are also far larger for New York City 
than for other cities or the United States. In Boston, 19.1 
percent of officials and managers employed in private indus- 
try are in the finance industry. In Chicago, Philadelphia, 
and Los Angeles roughly 16 percent employed in the private 
sector are employed in the finance industry, and throughout 
the United States 13.4 percent are similarly employed. In 
Boston and Chicago, about 16 percent of professionals em- 
ployed in private industry are in the finance industry. That 
figure is 12.4 percent in Philadelphia and 10 percent in Los 
Angeles and the United States. In Boston, Philadelphia, and 
Los Angeles, 28 to 29 percent of ofBce and clerical workers 
are in the finance industry; in Chicago and the United 
States, about 25 percent of them are in the finance industry. 
Percentages were calculated using 1991 figures as above. 
Ibid. 

'0 Percentages calculated from figures in U.S. Department of 
Commerce, County Business Patterns 1990, New York, CBP- 
90-34, October 1992, table 2. pp. 130-39. 



Concerns about Minorities and Women in the 
Finance Industry 

As a major source of employment and well- 
paid, high-status, and white-collar jobs, the fi- 
nance industry is an important industrial seg- 
ment for minorities and women to penetrate in 
their quest for equal opportunities. As will be 
shown below, past studies of the representation 
of minorities and women within industries, par- 
ticularly the finance industry, have suggested, 
first, that minorities are generally not employed 
in New York City industries in the same propor- 
tion as their numbers in the population. Second, 
blacks and Hispanics may have fared better in 
New York City's finance industry, or at least the 
banking segment of it, than in other industries. 
Third, the securities segment of the finance in- 
dustry has historically employed a lower per- 
centage of minorities and women as compared 
with the banking industry. Finally, minorities 
and women may often be confined to lower pay- 
ing jobs in the finance industry, although per- 
haps more so in securities than in banking. 

Walter Stafford found that in 1982, blacks 
and Hispanics were tightly segmented in a nar- 
row range of industries in New York City's pri- 
vate sector; that only 4 of 212 specific industries 
had relatively proportional representation of 
blacks, Hispanics, and whites; and that blacks 
and Hispanics were virtually excluded from 130 
out of 193 industries in the city's private sector." 
At the same time, banking and insurance were 
among the industries in which blacks were con- 
centrated. '^ Commodities and stock savings 
banks was one of the four industry segments 
with a relatively proportional representation of 
blacks, Hispanics, and whites. i^ It employed a 
relatively large percentage of New York City 
workers, ranking at or near the top among 212 
specific industries." Stafford also found that be- 
tween 1978 and 1982, the proportion of whites 
employed in finance, insurance, and real estate, 
and particularly banking, decreased as whites 
were replaced by blacks and Hispanics. '^ And 



" Walter W. Stafford, Closed Labor Markets: Under- 
representation of Blacks, Hispanics and Women in New York 
City's Core Industries and Jobs (New York, NY: Community 
Service Society of New York, 1985), pp. vii-ix. 

'2 Ibid., p. ix. 

>■■' Ibid. 

"■1 Ibid., pp. 24-25, 52 (table VII). 

'■■> Ibid., pp. 57, 58, 60. 



57 



finally, while he found that blacks and Hispanics 
were poorly represented in professional jobs and 
had few opportunities to be managers in the pri- 
vate sector, 16 "[t]he highest portion of black and 
Hispanic managers was found in banking, the 
industry with the highest proportion of manag- 



ers. 



"17 



With respect to the securities industry, a 
1974 U.S. Commission on Civil Rights report 
concluded that this industry had a poor record in 
the employment of minority group members 
generally and in the employment of women in 
positions above the clerical level. '^ Nationwide, 
minorities represented only 11.3 percent of the 
employees in the securities industry, and blacks 
were only 5.8 percent. Minority employees held 
56 percent of all blue-collar jobs, 47.1 percent of 
all laborer jobs, and 62.5 percent of the craft po- 
sitions, but only 1.7 percent of the sales posi- 
tions. Blacks filled only 0.4 percent of sales posi- 
tions and only 1.4 percent of the managerial po- 
sitions. i^ Women constituted 33.8 percent of the 
securities industry work force nationwide, but 
they held only 6.5 percent of the management 
positions, compared with 56.2 percent of the 
clerical positions. 2" The report notes that 56 per- 
cent of those employed in the securities industry 
nationwide were employed in the New York City 
metropohtan area.^i 

In addition to these scientific studies, news 
reports have suggested that minorities and 
women have been and are still scarce in high- 
level positions in the securities industry. But 
some African Americans are employed in promi- 
nent positions on Wall Street. Black Enterprise 
reports having covered "African-Americans on 
Wall Street for' more than 20 years," and that 
"[flinding these bankers and traders wasn't as 
difficult as one might think." They "can be found 
at the highest levels of responsibiUty at several 
of the Nation's most prestigious Wall Street 
firms." But, "African-Americans at the nation's 
leading investment banks remain few in num- 



'^ Ibid., pp. x-xi. 

" Ibid. 

'8 U.S. Commission on Civil Rights, The Federal Civil Rights 

Enforcement Effort— 1974, Volume I, "To Regulate in the 

Public Interest," November 1974, p. 191. 

13 Ibid., p. 192. 

20 Ibid., p. 194. 

21 Ibid., p. 193. 



her, especially black women." Furthermore, the 
number of black finance professionals being 
trained is too few to improve the statistics. -^ 

News articles further claim that women have 
found at least one segment of the finance indus- 
try, investment banking, quite impenetrable for 
the past decade. A 1984 Business Week article 
reported that no large, privately held Wall 
Street investment banking firms had female 
partners. 23 But the dearth of women extended 
below the top executive positions. The presence 
of women in top executive positions in the fi- 
nance industry has improved over the last dec- 
ade, ^^ perhaps because firms have hired consult- 
ants to help increase recruitment of minority 
and women executives. 

Because of these continuing concerns, a care- 
ful examination of the presence of minorities and 
women in the finance industry is overdue. The 
securities industry warrants particular scrutiny 
as potentially the worst offending segment of the 
finance industry, while banking— a sector where 
minorities have fared better — offers a compari- 
son. Finally, the representation of minorities 
must be examined by type of job to ensure that 
minorities and women are not confined to low- 
paying, low-status jobs. 

Design of the Study 

The study focuses on the finance industry, 
specifically the securities and banking segments, 
in New York City. It rehes upon a variety of data 
sources, including (1) data on the racial and 
gender composition of the work force in the fi- 
nance industry in New York City (EEOC data), 
(2) data about persons designating certain occu- 
pations related to the finance industry in the 
1990 U.S. census (1990 census data),25 and (3) 



22 Caroline V. Clarke and Frank McCoy, "25 Hottest Blacks 
on Wall Street," Black Enterprise, October 1992, p. 47. 

23 "Taking a Shot at Another Male Bastion: Investment 
Banking," Business Week, Aug. 27, 1984, p. 28. Data shown 
in app. B, table B.l. 

24Seeapp. B, table B.l. 

25 The 1990 census data were generated by the EEOC and 
provided to the U.S. Commission on Civil Rights in a series 
of reports: "Occupation by Industry/Race/Sex," Dec. 8, 1993, 
and June 14, 1995 (for United States, New York County, 
and New York City Metropolitan Area-PMSA); "Occupation 
by Education/Race/Sex," Aug. 31, 1994, and Sept. 1, 1994 
(for a variety of occupations in the finance industry); 
"Occupation by Earnings/Race/Sex," Sept. 1, 1994 (for a va- 
riety of occupations in the finance industry). 



58 



documents from 31 banks and securities firms 
obtained through the use of the Commission's 
subpoena power (subpoenaed documents), as 
well as statistics from pubhshed reports. The 
EEOC data and the subpoenaed data are de- 
scribed in more detail below. 

EEOC Data 

Data were obtained from the U.S. Equal Em- 
ployment Opportunity Commission (EEOC) on 
the finance industry in the New York City met- 
ropohtan area. These data give the racial and 
gender composition of the work force employed 
in estabhshments located in the designated geo- 
graphic area. 26 In 1994 they included informa- 



26 The EEOC data were those reported to the EEOC on 
Standard Form 100, the Employer Information Report 
(EEO-1). The EEOC collects these data through the author- 
ity of title VII of the Civil Rights Act of 1964, as amended by 
the Equal Employment Opportunity Act of 1972. The data 
were provided to the U.S. Commission on Civil Rights 
through the authority of the Civil Rights Commission Act of 
1983 and the Civil Rights Commission Amendments Act of 
1994, which provides that "All Federal agencies shall coop- 
erate fully with the Commission to the end that it may effec- 
tively carry out its functions and duties." 42 U.S.C. 
§1975b(e) (1994). EEOC's authority to collect these data 
requires all employers with 15 or more employees to keep 
employment records as specified by their regulations. EEOC 
regulations require that certain large employers (typically 
private employers with 100 or more employees or Federal 
contractors with more than 50 employees) file the EEO-1 
annually. See Equal Employment Opportunity Commission, 
"Equal Employment Opportunity, Standard Form 100, Rev. 
4-89, Employer Information Report EEO-1, 100-116, In- 
struction Booklet." 

The EEO-1 reports distinguish between single-establishment 
employers, that is, employers doing business at only one es- 
tablishment in one location, and multiestablishment em- 
ployers, those doing business at more than one establish- 
ment. Single-establishment employers file a single Standard 
Form 100. Multiestablishment employers must file a sepa- 
rate report for each establishment employing 50 or more 
persons and a report covering the principal or headquarters 
ofBce. Multiestablishment employers must also file a con- 
sohdated report that includes all employees by race, sex, and 
job category in establishments with 50 or more employees as 
well as establishments with fewer than 50 employees. 

To simplify the analysis, the sample of establishments was 
restrained in several ways. First, EEO-1 reports were ob- 
tained for estabhshments located in the New York City Pri- 
mary Metropolitan Statistical Area (PMSA) — an area cov- 
ering New York City, White Plains, NY, Newark, and Jersey 
City, NJ, and certain contiguous areas, including one county 
of Pennsylvania (a detailed definition is given in app. A). 
The reports were obtained for single-establishment employ- 
ers and for establishments of multiestablishments if they 
were located in the New York City PMSA. Consolidated 
reports of multiestablishments were not obtained to avoid 



tion on 752 establishments. Because many firms 
had multiple establishments, the data included 
correspondingly many entries for them. The 
analysis of the finance industry focuses on 1994 
data because it corresponds to the time period of 
the subpoenaed documents (described below). 
However, EEOC data were obtained for the 
years 1987, 1989, and 1991 through 1996, and 
trends in employment are examined throughout 
all of these years. 

Subpoenaed Documents 

On July 26, 1995, the U.S. Commission on 
Civil Rights held a hearing in New York City 
during which it used its subpoena power^'' to ob- 
tain confidential documents from 35 banks and 
securities firms. ^^ 

The sample of banks and firms had been se- 
lected from those with estabhshments in the 
EEOC data. It was designed to increase the 
probabihty of including establishments with ei- 
ther high or low representation of minorities, 
particularly in managerial positions. Most banks 
or firms that were foreign owned, those head- 
quartered outside the New York metropolitan 
area or State, and those with fewer than 200 
employees or 30 officials and managers were 
ehminated.29 The resulting sample included 17 
domestic commercial banks and savings institu- 
tions^o and 18 securities dealers, brokers, and 
flotation companies. ^i 

any confusion in double counting establishments through 
the consolidated reports and the separate reports. 

The choice of sample has some advantages and some disad- 
vantages. Limiting it to the New York City PMSA focuses it 
on the city — the site of the Commission hearing. However, 
when large companies have headquarters offices in cities 
other than New York, this sample only captures the New 
York City establishments for those companies. 

27 See 42 U.S.C. §1975a(e)(2) (1994). 

'28 As a result of mergers and other factors, the Commission 
obtained documents firom 31 banks and firms. 

2" Note that among the best banks for employing minorities 
were the Banco Popular de Puerto Rico and foreign banks 
(such as American branches of Japanese-owned banks), but 
their success in including minorities reflects circumstances 
not encountered by the typical American bank. See "New 
York Hearing: Selection of Financial Institutions for Docu- 
ments Hearing," U.S. Commission on Civil Rights, memo- 
randum for Stephanie Moore, deputy general counsel, from 
Eileen E. Rudert, July 5, 1995. 

M Chemical Bank, Citicorp, Citibank, Chase Manhattan 
Bank, Bank of NY Co.. Inc., Marine Midland Bank, National 
Westminster Bank, J.P. Morgan & Co., Barclays Bank, 
Brown Brothers Harriman & Co., National Westminister 



59 



The documents subpoenaed included infor- 
mation on the company's position or job titles for 
positions classified as "officials and mangers," 
"professionals," and "sales workers"; vacancy 
announcements or other information giving the 
minimum qualifications for those positions or job 
titles; and the number of vacancies, the race and 
gender of appUcants, and the race and gender of 
persons hired for these vacancies. The compa- 
nies were asked to provide this information for 
the past 3 years. In addition, they were to pro- 
vide information on methods used to obtain ap- 
pUcants for these positions or jobs, including 
administrative pohcies, regulations, or proce- 
dures to obtain minority and female applicants 
for the positions or jobs, and administrative poli- 
cies, programs, or practices to increase retention 
and advancement of minorities and women in 
and to professional and/or managerial positions. 
Finally, they were to provide any administrative 
pohcies, practices, or requirements regarding 
tests for professional certification, such as the 
Series 6 and 7 exams the National Association of 
Securities Dealers and New York Stock Ex- 
change require of brokers and traders. 32 

With the exception of one, all the banks and 
firms responded to the subpoena duces tecum. If 
a bank or firm did not provide documents in re- 
sponse to a particular item of the subpoena du- 
ces tecum at the hearing, an official of the bank 
or firm was required to testify under oath that 
no such documents existed and to submit an af- 
fidavit to that effect. 



Markets, and U.S. Trust Co. of N^' were the domestic com- 
mercial banks whose documents were subpoenaed. Amal- 
gamated Bank of NY, Dreyfus Corp., Ridgeweed Savings 
Bank, Independence Savings Bank, and Commodity Ex- 
change, Inc., were the savings institutions receiving subpoe- 
nas. 

31 The firms included Prudential Securities, Inc., Smith 
Barney Shearson, Dean Witter Reynolds, Inc., Paine Webber 
Inc., Merrill Lynch Pierce Fenner & Smith, Donaldson 
Lufkin & Jenrette, Bear Stearns & Co., Fahnestock & Co 
Inc., Lehman Bros., Goldman Sachs & Co., Salomon Inc. 
Morgan Stanley, J & W Seligman & Co., Oppenheimer Mgt. 
Corp., Newberger & Berman, Scudder Stevens & Clark 
Cowen & Co., and Dillon Read & Co., Inc. Note that docu 
ments were also subpoenaed from self-regulating organiza 
tions in the finance industry, including the American Stock 
Exchange, National Association of Securities Dealers, Inc 
and the New York Stock Exchange. 

32 The full text of the subpoena duces tecum sent to the 35 
banks and firms is shown in app. C. 



The Study 

Much of the study is presented in a series of 
graphs and tables displaying the percentages of 
racial groups and women employed in the fi- 
nance industry or various segments of it. Simi- 
larly, tables showing education or other relevant 
characteristics of the work force, called bench- 
marks in this report, show the percentages of 
racial groups or women having the particular 
characteristic. Thus, the percentages presented 
in this report are a profile of the racial or gender 
composition of a population, for example, the 
percentage of persons with a bachelor's degree 
who are black. These percentages differ from 
those that are more commonly seen, which, in 
this example, might be the percentage of blacks 
who have a bachelor's degree (i.e., an educa- 
tional profile of blacks, rather than a racial pro- 
file of persons with a particular level of educa- 
tion). Note also, that in presenting the racial 
composition of employees or the benchmarks, the 
percentages of whites and men have been omit- 
ted from the tables. The percentage of whites is 
the difference between 100 percent and the per- 
centage of minorities. The percentage of men is 
the difference between 100 percent and the per- 
centage of women. 

Section 11 begins with a brief overview of the 
finance industry and the banking and securities 
segments of it. It looks in detail at the employ- 
ment of protected groups — minorities as a whole, 
blacks, Hispanics, and Asian American and Pa- 
cific Islanders, and women — within the industry 
segments and within major job classifications in 
the industry. Section III reviews company poh- 
cies on hiring and promotion, equal employment 
opportunity, and affirmative action. It looks at 
tests used for certification in the securities in- 
dustry and also examines recruitment and 
training programs for minorities and women for 
a small number of firms. Section IV compares 
gender and race of employees in New York de- 
pository institutions and securities firms as pre- 
sented through data from a subpoena sample 
and a peer group sample. Section V presents in- 
formation on relevant job quahfications, includ- 
ing education, job skills, work experience, and 
testing and certification, that may create barri- 
ers for minorities and women moving into the 
finance industry. Finally, section VI reviews re- 
cent trends in the industry and their effects on 



60 



the growth or decHne of employment of minori- 
ties and women. 

Section II. Overview of New York City's 
Finance Industry 

The Finance Industry's 1994 Employment Profile 

EEOC's data on the finance industry in the 
New York City metropohtan area in 1994 had 
information on 752 estabhshments, including 
multiple estabhshments for a large number of 
firms. Together the 752 estabhshments em- 
ployed 276,355 employees. Of the estabhsh- 
ments, 191 were security and commodity brokers 
and 258 were depository institutions, employing 
105,597 and 93,255 employees, respectively.^^ 
The figures below were drawn from EEOC data. 

Representation of Minorities and Women 

These data suggest that although minorities 
and women are well represented in the finance 
industry as a whole, they are concentrated in the 
lower status, lower paying jobs (job classifica- 
tions are discussed more fully in sections below). 
Minorities and women were also less well repre- 
sented in the securities segment. Figure 3.3 
shows that in 1994, roughly 48 percent of the 
employees in New York City's finance industry 
were women and 34 percent were minorities 
(i.e., blacks, Hispanics, Asian American and Pa- 
cific Islanders, and American Indians). Looking 
at individual minority groups, about 17 percent 
of employees were blacks, 9 percent were His- 
panics, and 8 percent were Asian American and 
Pacific Islanders. However, the percentages of 
minorities and women varied for different seg- 
ments of the finance industry. For example, se- 
curities firms, the segment with the largest 
number of employees in New York City, em- 
ployed only 26 percent minorities and less than 
41 percent women. Depository institutions, that 
is, the banking segment, employed 41 percent 
minorities and more than 50 percent women. 
Thus, the securities industry employed much 
smaller proportions of minorities and women 
than banking. 

Employment by Job Classification 

In 1994, 93 percent of the jobs in the finance 
industry fell into four job classifications — 
officials and managers, professionals, sales 



workers, and office and clerical workers. Indeed, 
half of the jobs fell in the top two classifica- 
tions — officials and managers and professionals. 
Another 37 percent were office and clerical 
workers. The 7 percent of jobs that did not fall in 
these four primary job classifications were filled 
by technicians; blue-collar workers such as craft 
workers, operatives, and laborers; and service 
workers (see figure 3.2). 

The distributions of job classifications in the 
banking and securities segments did not differ 
greatly from that shown in figure 3.2. Again, 
about half of the jobs in both segments were offi- 
cials and managers and professionals, however, 
in banking 31 percent fell in the former category, 
and in securities 31 percent fell in the latter 
category. Banking had shghtly more (about 40 
percent) office and clerical workers, which in- 
clude bank tellers, while securities had shghtly 
fewer (34 percent). Finally, in 1994 securities 
had 11 percent sales workers, including stock 
traders, while banking had only 3 percent. ^^ 

Figure 3.2 

Job Classification in New York City's 
Finance Industry, 1994 



7% 



23% 



37% 




26% 



■Officials and 
managers 

DProfessionals 



HSales workers 



DOffice and clerical 
workers 

QTechnlcal, blue- 
collar, and serclve 
workers 



source: EEOC data. See appendix B, table B.4. 



33 See app. B, table B.2. 



'■i Calculated from 1994 EEOC data. 



61 



Figure 3.3 

Employment of Minorities and Women in New Yorit City's Finance Industry, 1994 



The finance industry 



47.7% 




Minorities Blacks Hispanics Asians Women 



The banking segment 



50.6% 




50% -, 
40% 
30% - 
20% - 
10% 
0% 



Minorities Blacks Hispanics Asians Women 



The securities segment 



40.6% 



26.2% 



— ^ — I — ^ — I — 



6.8% 6.6% 



■+■ 




Minorities Blacks Hispanics Asians Women 



Source: EEOC data. See appendix B. table B.3. 



62 



Figure 3.4 

Percentage of Protected Groups Employed in the Finance Industry by Job Classification, 1994 



Officials and managers in banl^ing 
N = 28,894 



100% 
80% 
60% 
40% 
20% 
0% 



34.4% 



22.5% 



8.5% 53o/„ 86% 



Blacks Hispanics Asians Minorities Women 



Officials and managers in securities 
N = 19,686 



100% -t 
80% 
60% - 
40% - 



25.9% 



20%- 6.8% 34./, 4.2% 



144% 



Blacks Hispanics Asians Minorities Women 



Professionals in banking 
N = 19,613 



100% 
80% 
60% 
40% 
20% 
0% 



43.2% 



30.8% 




12.5% 



Blacks Hispanics Asians Minorities Women 



Sales workers in banking 
N = 3,183 



100% 

80% 
60% 
40% 
20% 
0% 



43.8% 



27.7% 




10.4% 8.7% 8.5% 

Blacks Hispanics Asians Minorities Women 



Professionals in securities 
N = 32,819 



100%-, 
80% - 
60% ■ 
40% 
20% 
0% 



35.2% 



21 1% 




Blacks Hispanics Asians Minorities Women 

Sales workers in securities 
N = 11,717 



100% •, 
80% - 
60% - 
40% 
20% 
0%4-' 



2.6% 



-t- 



2.1% 3.2% 

I 



7.9% 
-♦-^^■-+- 



18.3% 



Blacks Hispanics Asians Minorities Women 



Office and clerical workers in banking 
N= 36,606 



Office and clerical workers in securities 
N = 36,248 



61.4% 



70.9% 




Blacks Hispanics Asians Minorities Women 



62.2% 




Blacks Hispanics Asians Minorities Women 



source: EEOC data. See appendix B, table B.5. 



63 



Differences among Job Classifications 

Figure 3.4 shows that women and minorities 
were concentrated in the lower status, lower 
paying jobs of office and clerical workers. In 
banking, 70.9 percent of office and clerical work- 
ers were women and 61.4 percent were minori- 
ties. Specifically, 36.2 percent were blacks, 15.4 
percent were Hispanics, 9.6 percent were Asian 
American and Pacific Islanders, and a fraction of 
a percent (included in the "Minorities" bar of all 
charts but not as a separate bar) were American 
Indians. Similarly in securities firms, 62.2 per- 
cent of office and clerical workers were women 
and 40.9 percent were minorities. Office and 
clerical workers in securities were 23.3 percent 
black, 11.8 percent Hispanic, and 5.6 percent 
Asian American and Pacific Islander. 

Among higher level positions, that is, officials 
and managers, professionals, and sales workers, 
the largest percentages of women and minorities 
were employed as professionals and sales work- 
ers in banking, where women were just less than 
44 percent of employees and minorities were 
somewhat less than 31 percent of employees. 
Ten percent fewer women and 8 percent fewer 
minorities held a top position as an official or 
manager than those that held a professional po- 
sition. But, among sales workers in securities, 
only 18.3 percent were women and 7.9 percent 
were minorities. In this industry segment, "sales 
worker" is the job classification to which stock 
traders are assigned. For these higher level job 
classifications, the percentage of blacks roughly 
ranges between about 3 and 12.5 percent; the 
percentage of Hispanics roughly ranges between 
2 and 9 percent; and the percentage of Asian 
American and Pacific Islander roughly ranges 
between 3 and 12 percent (see figure 3.4). 

Differences among Industry Segments 

Apart from the stark differences in the per- 
centages of women and minorities employed in 
the higher level positions versus office and cleri- 
cal workers, note that like the finance industry 
as a whole, the racial and gender representation 
in each job classification is larger for the bank- 
ing segment than for the securities segment. For 
example, like banking, the securities segment 
had minorities and women concentrated in office 
and clerical positions, but there were propor- 
tionally fewer women and minorities in the secu- 
rities segment. Approximately 62 percent of of- 



fice and clerical workers were women in securi- 
ties firms, compared with about 71 percent in 
banking (and 70 percent in the finance industry 
as a whole35) — roughly a 10 percent difference. 
The difference between the banking and securi- 
ties segments in the percentages of minorities 
employed as office and clerical workers was 
roughly 20 percent (i.e., 61 versus 41 percent). 
Banking institutions employ about 8 percent 
more women and 8 to 9 percent more minorities 
as officials and managers and as professionals 
than securities firms. Finally, among sales 
workers, the securities segment employs about 
25 percent fewer females and 20 percent fewer 
minorities than the banking segment (see figure 
3.4). 

These data show stark contrasts in the pro- 
portions of minorities and women employed in 
the banking versus the securities industry seg- 
ments and among office and clerical workers 
versus sales workers, professionals, and officials 
and managers. Whether or not these differences 
arise from discrimination is not clear, however, 
without information about the qualified work 
force. Jobs falling in different job classifications 
often require different levels of education and 
job skills. Thus, differences in levels of education 
and job skills of minority groups and women 
would result in different proportions of the pro- 
tected groups being represented in particular job 
classifications. A later section wiU relate differ- 
ences in the representation of minorities and 
women among these industry segments and job 
classifications to differences in education levels 
and job skills. 

Dynamism within the Finance Industry 

The finance industry is a very dynamic indus- 
try influenced by factors and trends sometimes 
beyond its control which in turn affect the 
growth and decline of employment in this indus- 
try. Indeed, changes in the banking industry 
have been so vast that it has been characterized 
as a fundamentally different industry from what 
it was only a decade ago.^s Some changes are 
reviewed below as a backdrop for understanding 



35 1994 EEOC data. 

■'B "Remarks by Eugene A. Ludwig, Controller of the Cur- 
rency, Before the New York State Bankers Association, 
Lake George, NY," June 17, 1996, Comptroller of the Cur- 
rency, Administrator of National Banks, Washington, DC 
20219, News Release (NR 96-72), p. 4. 



64 



the employment trends that will be seen in later 
sections. The representation of minorities and 
women as employees in this industry is, then, 
examined both in terms of the increasing or de- 
creasing numbers and percentages of those em- 
ployed. 

Some of the major trends affecting the fi- 
nance industry in recent years include the Octo- 
ber 1987 drop in the stock market; widespread 
downsizing in the banking industry from con- 
soHdations and mergers as well as increased 
automation; the growth in diversity of bank 
products and services, including many tradition- 
ally available through securities firms; and the 
vast technological changes affecting both bank- 
ing and securities. Last but not least, the demo- 
graphics of the population of New York City 
changed between the 1980s and 1990s, possibly 
affecting the racial composition of the quahfied 
work force for the finance industry as well as 
other New York City industries. 

The 1987 Stock Market Readjustment and After 

On October 19, 1987, a day that became 
known as Bloody Monday, the stock market 
crashed. The Dow Jones Industrial Average 
plummeted more than 500 points, almost 5 times 
the previous record for a single-day drop (which 
occurred only the week before). It was a 22.6 
percent drop — almost twice the size of the Crash 
of 1929, and the drop created a full-scale stock 
market panic. ^^ Indeed, the crash itself spurred 
insecurity and further decline in the market. AH 
told, over the course of 354 months, the Dow fell 
nearly 1,000 points.^s 

Employment layoffs had begun to hit Wall 
Street even before the crash. Just days before 
the market began plummeting, Salomon, Inc., 
previously the unrivaled king of Wall Street, an- 
nounced layoffs of 12 percent of its work force, 
some 500 workers. Kidder, Peabody & Co. laid 
off 100 staff a day later. These were just two of 
the securities firms where several years of mar- 
ket growth had encoiu"aged the expansion of 
staff until Wall Street simply had too many 



commercial and investment bankers. ^^ In the 
turmoil and instability that followed the crash, 
job cuts were inevitable. 

Since the 1987 readjustment, the stock mar- 
ket has generally experienced growth. One ana- 
lyst states that if someone had bought at the 
very beginning of the 1987 decline (the worst 
possible day that year) and held on, he or she 
would have recouped the loss by July 1989.'"' 
Furthermore, 1991, 1992, and 1993 were more 
profitable years than any in the previous history 
of the U.S. securities industry. ''i Some wariness 
of the stock market occurred in 1994, ''^ but in 
1996 analysts were reporting sustained economic 
growth and a siarge in stock prices over the pre- 
vious 5 years, including 1994. '•^ And, from 1989 
through December 1995, the Dow Jones Indus- 
trial Average had risen 86 percent.'*'' 

Whether the recent growth in this industry 
has spawned rapid gains in employment Uke 
those that occurred in the previous decade is vin- 
clear. Certainly, stockbroker salaries mirrored 
the growth (and the 1994 decline) in company 
profits. '•5 And, the unprecedented growth in this 



" "The Crash of '87, Stocks Plunge 508 Amid Panicky Sell- 
ing; Percentage decline is far steeper than '29," Wall Street 
Journal, Oct. 20, 1987, p. 1. See also "Sinking Feeling; 
Trade-Gap News Sends Stock Market Reeling Into a Record 
Tailspin," Wall Street Journal, Oct. 15, 1987, p. 1. 

3* James K. Classman, "Market History Lesson: In time, the 
bull wins," Washington Post, Aug. 28, 1994, p. H-1. 



3' William Clasgall, Sarah Bartlett, and Richard A. Melcher, 
"Wall Street's New Austerity: A wave of cutbacks shows the 
global market can be a dangerous place," Business Week, 
Oct. 26, 1987, pp. 28-29; Anthony Bianco, "Can Salomon 
Grow by Shrinking?" Business Week, Oct. 26, 1987, pp. 30- 
31; David Zigas and Joan Berger, "The Street's retreat will 
be felt far from the Big Apple," Business Week, Oct. 26, 1987, 
p. 31. 

'"' Glassman, "Market history lesson," p. H-1. 

■" Brett D. Fromson, "The golden years; Wall Street's '90s 
prosperity makes the go-go '80s look small-time," Washing- 
ton Post, July 3, 1994, p. H-1. 

^^ Kenneth N. Gilpin, "Making a case for regional banks as 
an undervalued segment," New York Times, Jan. 6, 1994, p. 
D-6; Glassman, "Market History Lesson," p. H-1. 

'" Tom Petruno, "Market Beat: Your Money; In Earnings, 
Elements of Hope, Fear — Game Playing. Los Angeles Times, 
Aug. 4, 1996, p. D-1. 

^* Tom Petruno, "Countdown to a new millennium; As 2000 
looms, hope and fear court investors," Los Angeles Times, 
Dec. 31, 1995, p. D-1. 

"" Mid-level senior associates and vice presidents often re- 
ceive base pay of less than $100,000, but bonuses can bring 
the total compensation to as much as $600,000 in a profit- 
able year (Kenneth N. Gilpin, "With profits down. Wall St. 
braces for pay cuts," New York Times. Dec. 8, 1994, p. D-1). 
With the record high profits in 1991 and 1992, pay and bo- 
nuses for well-respected analysts ranged between $600,000 
to $1 million (Jay Mathews, "Fat is back in Wall St. pay- 
checks; big bonuses mirror brokerages' profits," Washington 
Post, Jan. 16, 1993, p. C-1). Of course, industry averages are 
much lower, but still quite attractive. The Securities Indus- 



65 



industry has been accompanied by changes in, 
and concern about, stockbroker salaries, bo- 
nuses, and other benefits. ^^ But at least one 
skeptic suggests that industry growth need not 
result in a growth in employment. He com- 
mented that overseeing a pot of money does not 
take many people. The more money a firm has 
under management the greater the economies of 
scale. Someone managing $100 milhon can 



try Association's study reported that, on average, retail bro- 
kers earned $116,510 in 1992. In 1993 their average earn- 
ings increased 10 percent, hitting a record $128,553. Institu- 
tional brokers, who earned an average of $271,495 in 1992, 
earned $304,716 in 1993 — a 12 percent increase. 
C'Stockbrokers took home record paychecks last year." Los 
Angeles Times, Aug. 9, 1994, p. D-2; Leslie Eaton. "Brokers' 
paychecks kept swelling in 1993," New York Times, Aug. 9, 
1994, p. D-1.) Retail brokers earnings averaged $117,037 in 
1994 and rose 6 percent in 1995, to $123,839. Institutional 
brokers earned $229,598 on average in 1994, and $289,405 
in 1995 — a 26 percent rise ("Earnings rise for stockbrokers," 
New York Times, Aug. 7, 1996, p. D-6). However, the set- 
back in average earnings in 1994 compared with earlier 
years reflects the slump in this industry that year. {See also 
Kenneth N. Gilpin, "With profits down. Wall St. braces for 
pay cuts." New York Times, Dec. 8. 1994, p. D-1; Stephanie 
Strom, "Two-tier Wall St.; Epidemic of pay envy as stars get 
more and others get less," New York Times, June 15, 1995, 
p. D-1.) 

■•6 Two major changes in how brokers and analysts are paid 
have occurred in recent years and seem to be the source of a 
great deal of turmoil among industry officials and employ- 
ees. First, an industry scandal revealed a conflict of interest 
between brokers and their clients and brought pressures to 
pay brokers based upon the assets they manage rather than 
the number of their transactions. (Robert Nylen, "Curbing 
Wall Street's seamier side," New York Times, Nov. 21, 1993, 
p. F-13; Scot J. Paltrow, "SEC looking to overhaul pay sys- 
tem for stockbrokers," Los Angeles Times, May 20, 1994, p. 
D-1; "Compensation panel cleared," New York Times, Aug. 
25, 1994, p. D-6; Scot J. Paltrow and Jube Shiver, Jr., 
"Panel urges alterations in how brokers are paid," Los Ange- 
les Times, Apr. 11, 1995, p. D-1.) Second, companies 
searched for strategies to attract and keep good employees 
while employees tried to find the best jobs. Highly profitable 
years engendered bidding wars for good staff (see Robert 
Steiner, "Hottest commodity in Asia's markets for securities 
just might be brokers," Wall Street Journal, Apr. 15, 1994, p. 
B-lOA). To avoid losing analysts to higher bidders and to 
promote corporate loyalty, many firms began paying bo- 
nuses in company stock, restricting or deferring the sale of it 
in some way (Jay Mathews, "Fat is back in Wall St. pay- 
checks; big bonuses mirror brokerages' profits," Washington 
Post, Jan. 16, 1993, p. C-1; Kenneth N. Gilpin, "With profits 
down. Wall St. braces for pay cuts," New York Times, Dec. 8. 
1994, p. D-1). In leaner years, corporate efforts to restruc- 
ture the pay system also caused job hopping among employ- 
ees (Stephanie Storm, "Two-tier Wall St.; Epidemic of pay 
envy as stars get more and others get less," New York 
Times, June 15, 1995, p. D-1). 



probably do as decent a job with $500 million.'*'' 
At the very least these changes have resulted in 
a rapid turnover in staff, if not a growth in em- 
ployees. 

Some Wall Street executives anticipate that 
securities firms will not be able to sustain the 
growth and high salaries of the 1990s in the fu- 
ture. Their firms will be facing new competition 
from banks offering investment services and 
from technological advances as clients and cus- 
tomers who once relied upon Wall Street obtain 
information from their own computers. ""^ These 
are some of the trends discussed below. 

A Major Downsizing in Banking 

While the securities segment of the finance 
industry was mostly growing through the 1990s, 
the banking segment was contracting. Legisla- 
tive changes during the last decade made it pos- 
sible for banks to operate across State hnes. 
Along with competitive market pressures to cut 
costs and increase efficiency, this spurred a 
trend in the 1980s to consolidate the industry 
and merge banks. -"^ This trend has accelerated in 
the 1990s. By one report, the number of national 
banks declined an average of 475 branches a 
year, a 4.2 percent annual decrease, between 
1991 and 1995.5" Furthermore, bank mergers 
continued in 1995. For example, in mid-summer, 
First Union Corp. acquired First Fidelity Corp.; 
PNC Bank Corp. acquired Midlantic Corp.; and 
First Chicago Corp. merged with NBD Ban- 
corp. ^^ By the end of August, three other merg- 



'" Brett D. Fromson. "The golden years; Wall Street's '90s 
prosperity makes the go-go '80s look small-time," Washing- 
ton Post, July 3, 1994, p. H-1. 

^^ Stephanie Strom, "Two-tier Wall St.; Epidemic of pay 
envy as stars get more and others get less," New York 
Times, June 15, 1995, p. D-1. 

^9 Jeffrey C. Kuster, "Occupational employment in commer- 
cial banking, 1987-90," Monthly Labor Review, April 1993, 
pp. 21-25. 

5" "Remarks by Eugene A. Ludwig, Controller of the Cur- 
rency, Before the New York State Bankers Association, 
Lake George, NY," June 17, 1996, Comptroller of the Cur- 
rency, Administrator of National Banks, Washington, DC 
20219, News Release (NR 96-72), p. 4. In contrast, mergers 
and acquisitions in the late 1980s resulted in decreasing 
numbers of banks, but increasing numbers of bank 
branches. See Jeffrey C. Kuster, "Occupational employment 
in commercial banking, 1987-90," Monthly Labor Review, 
April 1993, pp. 21-25. 

5' Timothy L. O'Brien and Steven Lipin, "In Latest Round of 
Banking Mergers, Even Big Institutions Become Targets," 
Wall Street Journal, July 14, 1995, pp. A-3, A-5. 



66 



ers had occurred, including one huge one be- 
tween Chemical Banking Corp. and Chase Man- 
hattan Corp. 52 

The result of these mergers, according to one 
report, is that today's average national bank is 
almost 3 times the size of the average national 
bank a decade ago.^^ One industry analyst pre- 
dicted that by the end of the decade, only a 
handful of gigantic institutions would have a 
nationwide presence, and only a sprinkUng of 
small local banks with specialized niches would 
remain along side of them. ^^ 

The mergers and consolidations resulted in a 
considerable loss of jobs in the banking industry. 
Nationwide, the number of people working for 
banks, savings and loans, and other depository 
institutions fell by roughly 10 percent (222,000 
jobs) between July 1989 and August 1995.55 in 
New York City, where the banking industry had 
been a big source of employment growth in the 
early 1980s, jobs at commercial banks had 
plunged from 118,000 in July 1988 to fewer than 
75,000 by August 1995, a fall of 36 percent.56 

The Chase-Chemical merger alone was pro- 
jected to ehminate 12,000 positions from a com- 
bined staff of 75,000 nationwide over a 3-year 
period.^'' About a third of the lost jobs were to 
occur in New York City, where plans called for 
eUminating 100 of the 480 bank branches. The 



52 David R. Francis, "Marriages multiply in banking indus- 
try: Chase-Chemical latest," Christian Science Monitor, Aug. 
29, 1995, sec. 1, p. 3. 

53 "Remarks by Eugene A. Ludwig, Controller of the Cur- 
rency, Before the New York State Bankers Association, 
Lake George, NY," June 17, 1996, Comptroller of the Cur- 
rency, Administrator of National Banks, Washington, DC 
20219, News Release (NR 96-72), p. 4. 

S'' Timothy L. O'Brien and Steven Lipin, "In Latest Round of 
Banking Mergers, Even Big Institutions Become Targets," 
Wall Street Journal, July 14, 1995, pp. A-3, A-5. 

55 Leslie Eaton, "Banking's New Giant: The Displaced; Job 
losses to fall hard in New York City," New York Times, Aug. 
29, 1995, p. C-5. See also James Aley, "Where the laid-off 
workers go," Fortune, vol. 132, no. 9 (Oct. 30, 1995), p. 45. 
Aley reports a 9 percent decline from 1990 to 1995. In ear- 
lier years (i.e., 1987 to 1990), employment in banking had 
been increasing slightly. See Jeffrey C. Kuster, 
"Occupational employment in commercial banking, 1987- 
90," Monthly Labor Review, April 1993, pp. 21-25. 

56 Eaton, "Banking's New Giant," p. C-5. 

5' David R. Francis, "Marriages multiply in banking indus- 
try: Chase-Chemical latest," Christian Science Monitor, Aug. 
29, 1995, sec. 1, p. 3; Leslie Eaton, "Banking's New Giant," 
p. C-5. 



positions most likely to be eliminated were cleri- 
cal and technical workers.^s 

Industry experts say, however, that while the 
big share of job cuts in the banking industry are 
in low-level jobs, higher level staffing reductions 
hurt more. Because of the high turnover rate for 
jobs such as tellers, reductions can be achieved 
through attrition with a simple hiring freeze. 
Among senior loan officers and branch manag- 
ers, the lower rate of turnover is more likely to 
result in layoffs.59 

Diversification of Bank Services 

At the same time that banks have been 
downsizing to become more competitive and effi- 
cient, market forces have made them diversify 
the product lines they offer. Indeed, deregulation 
in the late 1980s enabled banks to engage in new 
forms of business, such as the limited under- 
writing of securities and corporate bonds, ^'^ 
broadening the diversity of products they could 
offer. As a result of the increased diversity, the 
very nature of banks themselves has changed. 
For example, in the last decade, the percentage 
of bank lending made up of loans to consumers 
has increased through home mortgage lending, 
credit card operations, installment loans, and 
home equity business. The percentage of bank 
assets in residential real estate has nearly tri- 
pled. Many more banks sell insurance to con- 
sumers today than a decade ago. Finally, bank 
mutual fund sales — products that were not 
available through banks just over a decade ago — 
have soared in recent years.^i 

Along with the diversification of bank prod- 
ucts and services has come a redefinition of the 
role of the bank teller. While tellers once needed 
httle more than clerical skills, today they often 
staff the customer service desk, advising cus- 
tomers about the latest in interest rate changes, 
IRA accounts or personal loans, and filling posi- 



58 Eaton, "Banking's New Giant," p. C-5. 

59 James Aley, "Where the laid-off workers go," Fortune, vol. 
132, no. 9 (Oct. 30, 1995), p. 45. 

60 Jeffrey C. Kuster, "Occupational employment in commer- 
cial banking, 1987-90," Monthly Labor Review, April 1993, 
pp. 21-25. 

6' "Remarks by Eugene A. Ludwig, Controller of the Cur- 
rency, Before the New York State Bankers Association, 
Lake George, NY," June 17, 1996, Comptroller of the Cur- 
rency, Administrator of National Banks, Washington, DC 
20219, News Release (NR 96-72), p. 2. 



67 



tions that may be interchangeable with several 
others in the bank.^^ 

In particular, banks' increase in mutual fund 
sales has resulted in their employees conducting 
activities that securities firms typically engage 
in. With these added functions, regulators be- 
came concerned that bank employees selling mu- 
tual funds were not professionally hcensed or 
certified like employees in the securities indus- 
try. In September 1994, bank regulators reached 
an informal agreement that bank employees who 
sell mutual funds and other investments will 
have to pass certification tests. ^^ in December 
1996, the Office of the Comptroller of the Cur- 
rency, the Federal Deposit Insurance Corpora- 
tion, and the Federal Reserve Board proposed a 
rule that bank employees must be certified with 
the same tests administered to stockbrokers and 
securities dealers by the National Association of 
Securities Dealers.^"* The examinations test 
knowledge of how to sell stocks, bonds, mutual 
funds, and other investment products. Thus, 
along with the diversification of bank products 
and services has come a change in the types of 
employees banks now have. Indeed, bank em- 
ployees are now more like those who work in 
securities firms in both training and skills. 

The Revolution in Computer Technology 

In less than a decade, the technology revolu- 
tion has redefined careers in many fields, in- 
cluding banking, changing the nature of the 
work employees perform as well as the services 
provided to customers. Not too many years ago, 
workers starting in the banking business manu- 
ally recorded customers' deposits and withdraw- 



62 Robin Greene, "Cutting-edge careers: Technology rede- 
fines work roles: Teachers, secretaries and bank workers 
find computer skills becoming an integral part of their jobs," 
Los Angeles Times, Feb. 26, 1996, pt. D2, p. 17. See also 
Jonathan D. Glater and Frank Swoboda, "Taking a bite out 
of bank jobs; in the quest for convenience and lower costs, 
ATMs eat into services provided by tellers," Washington 
Post. July 10, 1995, p. F-1. 

S3 Jonathan D. Glater, "Bank workers to be given NASD 
exam," Washington Post, Sept. 28, 1994, p. F-1; "NASD puts 
banks to test," Pittsburgh Post-Gazette, Sept. 28, 1994, p. D- 
7; Snigdha Prakash, "Securities Dealers Group Agrees to 
Certify Employees of Banks," American Banker, Apr. 19, 
1994, p. 12. 

S'* Comptroller of the Currency, "OCC Proposes Rule For 
Bank Employees Who Recommend or Sell Certain Securi- 
ties," News Release, Dec. 11, 1996, Washington, DC. 



als on a ledger card.^^ Now the majority of such 
transactions are handled by automated teller 
machines. 

Although automated teller machines (ATMs) 
were introduced in the early 1980s or before, 
their use has exploded in the 1990s. The ma- 
chines provide bank customers greater accessi- 
bihty because they are open 7 days a week and 
can be conveniently located in places people 
gather, such as shopping maUs. Furthermore, 
ATMs reduce the amount of salaries banks must 
pay to human tellers, require only a few indi- 
viduals to stock the boxes with cash and to pick 
up any deposits, and automatically debit or 
credit withdrawals and deposits to the appropri- 
ate accounts along with service charges. Thus, 
by using ATMs, banks need fewer workers, pay 
lower wages to workers servicing ATMs than to 
tellers, and reduce human error. ^^ 

The use of ATMs contributed to job losses in 
the banking industry and was likely an enabhng 
factor for the downsizing that occurred with con- 
soUdations and mergers. Dechnes in the em- 
ployment of bank tellers are similar in magni- 
tude to decreases in employment industr>'wide. 
By one report, there were 484,000 bank tellers 
nationwide in 1985, but the number had dropped 
9 percent, to 441,000, by 1994.^7 Furthermore, 
job losses due to ATM cards are predicted to con- 
tinue occurring over the next decade. Some in- 
dustry experts expect that half of the Nation's 
bank teller jobs will be ehminated during that 
time and most of the remaining jobs will be con- 
verted to part-time status.^* 

The technological changes occurring in the 
banking and securities industries are far more 
vast than the use of ATMs. With the popularity 
of the home computer, computer networking ad- 
vancements in telecommunications, and the In- 
ternet, a variety of services are, or are becoming, 
available whereby chents can directly manage 
their own bank accoiuits and securities portfo- 



65 Greene, "Cutting-edge careers," pt. D2, p. 17. 

66 Thomas R. Ide and Arthur J. Cordell, "Automating work," 
Society, vol. 31. no. 6 (September-October 1994), pp. 65-71. 

6' Greene, "Cutting-edge careers," pt. D2, p. 17. The author 
was citing figures from the American Banking Association, 
in Washington, DC. 

68 Jonathan D. Glater and Frank Swoboda, "Taking a bite 
out of bank jobs; in the quest for convenience and lower 
costs, ATMs eat into services provided by tellers," Washing- 
ton Post, July 10, 1995, p. F-1. 



68 



lios, for example, by making electronic pay- 
ments, transfers of funds between accounts, and 
online trades of securities. These changes also 
reduce the need for tellers, clerks, stock traders, 
brokers, supervisors, accountants, auditors, and 
managers. ^^ 

But while changing technology is reducing 
the number of workers needed to support the 
finance industry, it is also affecting the types of 
jobs that are available. Career counselors are 
finding that employers are increasingly requir- 
ing appUcants to be proficient with computers 
and other forms of technology. Computer skills, 
once considered a luxury, are now a necessity.'" 
Two observers further suggest that a work force 
with a bimodal set of skills will emerge: highly 
trained people will design and implement the 
new technologies while unskilled workers carry 
out the remaining jobs.'^i 

Demographic Changes in New Yorl< City 

The racial composition of New York City also 
affects the racial makeup of employees in the 
finance industry located there. During the 
1980s, the city's white population decreased 
while its minority population increased until the 
majority of the population was minority. Whites 
who were 52.3 percent of the city's 7 miUion 
population in 1980, were 43.2 percent of it in 
1990. African Americans remained a relatively 
constant proportion of the population, about one- 
quarter of the city's census counts in both 1980 
and 1990. Both the Hispanic and Asian Ameri- 
can and Pacific Islander populations increased. 
Hispanics were roughly 20 percent of the 1980 
population in the city and about 24 percent in 
1990. The Asian American and Pacific Islander 
population doubled, from 3.4 percent in 1980 to 



69 Thomas R. Ide and Arthur J. Cordell, "Automating work," 
Society, vol. 31, no. 6 (September-October 1994), p. 66. For 
the effect of the Internet on the securities industry, see Hal 
Lux, "The Cyberspace Threat: Will the Internet do to Wall 
Street what Wall Street did to the banks?" [circa August 
1996], and "Wall Street Wires Into the Web," [circa July 
1995], both at <http;//nestegg.iddis.com/webfinance/brokh 
123.html>. Lux reports that on-line brokerage services first 
became available on the Internet in January 1995. The ef- 
fect of the Internet on employment in the securities industry 
is therefore too recent to be observed in the data presented 
in the section below. 

'" Robin Greene, "Cutting-edge careers," pt. D2, p. 17. 

" Thomas R. Ide and Arthur J. Cordell, "Automating work," 
Society, vol. 31, no. 6 (September-October 1994), p. 69. 



6.8 percent in 1990. ''^ Very likely these same 
trends — the decreasing white, increasing His- 
panic, and rapidly growing Asian American and 
Pacific Islander populations — continued during 
the 1990s. 

Except for the 1987 stock market crash and a 
milder slump in 1994, the securities industry 
segment was growing through the years, but 
banking was contracting. Furthermore, advances 
in technology were changing the very nature of 
jobs in the finance industry. Although jobs in the 
past had not required computer skills, such re- 
quirements were now commonplace. Also in 
banking, the diversification of products and 
services was changing jobs, such as tellers, to 
include duties traditionally found in secvirities 
firms, with the result that bank employees were 
now being required to meet certain testing re- 
quirements of the securities industry. Finally, 
the demographics of New York City were 
changing, with the percentage of whites de- 
creasing. Asian American and Pacific Islanders 
and Hispanics were immigrating to the city and 
possibly bringing about similar changes in the 
qualified work force available to the finance in- 
dustry. 

Section III. Recruiting and Hiring 

Race and Gender of Applicants and Persons 
Hired 

The Commission requested data on the gen- 
der and race of job apphcants and persons hired 
within three categories of personnel; the data 
covered the most recent 36-month period. The 
subpoena specified submission of both quantita- 
tive data and quahtative information. 

Categories of personnel requested were: 

• Officials and managers 

• Professionals 

• Sales workers 

The firms also submitted supporting docu- 
ments showing the specific position qualifica- 
tions for each of the three categories. The data 
were analyzed in two groups: data submitted by 



'2 Bureau of the Census, 1990 Census of Population, Social 
and Economic Characteristics: New York, 1990 CP-2-34, sec. 
1, table 7, and Bureau of the Census, 1980 Census of Popu- 
lation, General Social and Economic Characteristics: New 
York, PC80-1-C34. N.Y., sec. 1, table 59. 



69 



the banking industry and data submitted by se- 
curities firms. Data representing the banking 
industry were more complete than data submit- 
ted by the securities firms. 

In fact, only one securities firm submitted the 
subpoenaed data on the number of job appli- 
cants. However, most firms provided hiring data. 
Many securities firms indicated that apphcant 
data were not available. ''^ As stated during the 
July 1995 New York hearings, this report will 
not identify an individual firm's submissions. 
Thus, any analysis of the apphcant and hiring 
data submitted by the one securities firm has 
been excluded. 

Of the 14 banks in the sample, 11 submitted 
data in the format requested. Further, data for 
the 36-month time period were not consistent 
among the banks, varying considerably. Some 
data reflect the period of 1992 through 1994, and 
other data reflect a 1993 through 1995 time pe- 
riod. Three banks submitted a single year of 
data. Table 3.1 displays a summary of the apph- 
cant and hiring data for the banking industry. 
The data are organized by job category and gen- 
der. 

When the data for apphcants and hires are 
considered together, they give the appearance 
that there is a significant disparity between 
males and females. In both the officials and 
managers and the professionals job categories, 
the percentage of male apphcants and hires is 
nearly double that of females. In comparison, 
table 3.2, indicates that the percentage of these 
apphcants that are hired is nearly equal be- 
tween males and females. In fact, in the officials 
and managers category, 33 percent of the female 
apphcants were hired and 29 percent of male 
apphcants were hired; an equal percentage of 
male and female apphcants in the sales workers 
category were hired; an equal percentage of male 
and female apphcants were hired in the profes- 
sionals category; and 12 percent more female 
than male apphcants in the sales workers cate- 
gory were hired. Therefore, an increase in the 
number of female apphcants could increase the 
number of female employees in the banking in- 
dustry. 



'3 The firms contend that as a matter of business practice, 
they do not keep, and thus did not have, such data to pro- 
vide to the Commission. 



The data indicate slightly higher percentages 
of female apphcants hired in the officials and 
managers job classification, the proportion of 
males to females is equal in the professional 
classification, and a greater percentage of female 
sales worker applicants were hired. The data 
seems to show that increasing the number of 
female apphcants likely results in an increase in 
the absolute number of female employees in the 
banking industry. 

As discussed above, 19 of the 20 securities 
firms did not supply data regarding apphcants, 
as they maintained that they do not keep such 
data. Many did, however, provide data on job 
hiring. Table 3.3 summarizes that data. 

There were more than 2,000 hires reported in 
the officials and managers job classification and 
more than 10,000 in the professional job classifi- 
cation. The number of hires in the sales worker 
job classification was the lowest, at just over 
1,750. While these data show that different per- 
centages of males and females were hired, it 
does not permit any specific conclusions to be 
drawn regarding the causes of these differences. 
Given that apphcant data were not provided for 
analyses, it is impossible to ascertain if the hir- 
ing pattern simply reflects the applicant pool. In 
an attempt to better understand these quantita- 
tive findings, the qualitative information re- 
garding position qualifications and recruitment 
avenues will be analyzed in a later section of this 
chapter. 

The next component of the analysis involved 
stratifying the apphcation and hiring data by 
gender and race within the job classifications. As 
part of the subpoena procedure, the sample of 
New York firms were requested to provide these 
data. Again, most of the banking peer group 
sample comphed with providing both apphcant 
and hiring data. The securities firms provided 
only hiring data by both gender and race. 

The data on gender-specific hiring were fur- 
ther subdivided into categories according to race. 
Although the banking peer group sample pro- 
vided both applicant and hiring data, the securi- 
ties firms' included only hiring information. 
However, not all banks submitted information 
further dividing the applicant and hiring data 
according to race. Table 3.4, therefore, does not 
include the same number of banks as table 3.1. 

Table 3.4 displays total applicant and hiring 
data by gender and race from the banking peer 



70 



Table 3.1 

Summary of Applicant and Hiring Data: 11 Subpoenaed Banl<s, 
Percentage of Total Applicants and Hires by Job Classification and Gender 



Job classification 

Officials and managers 
Professionals 
Sales workers 



Applicants 




Hires 




Male Female 


Male 




Female 


68% 32% 


65% 




35% 


63 37 


62 




38 


81 19 


75 




25 



Table 3.2 

Gender-specific Hiring Data: 11 Subpoenaed Banks, 
Percentage of Applicants Hired by Job Classification and Gender 



Job classification 

Officials and mangers 
Professionals 
Sales workers 



Male 

29% 
26 
30 



Female 

33% 

26 

42 



Table 3.3 

Gender-specific Hiring Data: Securities Firms, 
Percentage of Hires by Job Classification and Gender 

Job classification 

Officials and managers 
Professionals 
Sales workers 



Male 

73% 
64 
71 



Female 

27% 

36 

29 



Table 3.4 

Percentage of Total Applicants and Applicants Hired by Gender, Race, and Job Classification: 
Banking Peer Group Sample 



Gender/Race 


Officials & 


managers 


Professionals 


Sales workers 






Applicants 


Hires 


Applicants 


Hires 


Applicants 


Hires 


Males 














White 


74% 


82% 


73% 


79% 


82% 


82% 


Black 


16 


7 


9 


7 


6 


7 


Hispanic 


4 


5 


5 


5 


5 


3 


Asian American 


6 


6 


13 


9 


7 


8 


Native American/ 














Pacific Islander 


<1 


<1 


<1 


<1 








Females 














White 


73 


83 


67 


69 


73 


76 


Black 


11 


7 


14 


13 


16 


15 


Hispanic 


11 


5 


5 


5 


5 


4 


Asian American 


6 


5 


14 


12 


6 


5 


Native American/ 














Pacific Islander 








<1 


<1 









71 



Table 3.5 












Percentage of Total Hires by Gender, 


Race, and Job Classification: Securities Firms 




Gender/Race 


Officials & managers 


Professionals 


Sales workers 






Hires 


Hires 




Hires 


Males 












White 




88% 


74% 




88% 


Black 




3 


6 




4 


Hispanic 




2 


4 




3 


Asian American 




7 


16 




5 


Native American/Pacific Islander 




<1 


<1 




<1 


Females 












White 




87 


80 




83 


Black 




3 


5 




7 


Hispanic 




3 







3 


Asian American 




7 


15 




7 


Native American/Pacific Islander 




<1 


<1 




<1 



group sample. It is important to reiterate that 
not all banks submitted their appUcant and hir- 
ing data stratified by gender and race. Thus, this 
table consists of a smaller number of banks than 
does table 3.1. Further, the total number of hires 
was less than 50 percent of the applicants in all 
job classifications. 

This analysis of the banking peer group sam- 
ple provides some interesting results. Among 
most job classifications, gender, and racial divi- 
sions, the relative proportion of applicants to 
hires is similar. As can be seen, the proportion of 
appUcants and hires is heavily represented by 
white males and females. They comprise more 
than two-thirds of the apphcants and almost 70 
percent of the hires in all job classifications. Fur- 
ther, the gaps between applicants and those 
hired may indicate that whites are more likely to 
be hired over minorities. For example, although 
white males in the officials and managers classi- 
fication represented 74 percent of apphcants, 82 
percent of the hires were white male. In every 
classification, white males and white females 
were hired in higher percentages than their ap- 
plicant percentages. 

In comparison, minorities were hired in sig- 
nificantly lower percentages than those that ap- 
plied. The percentage difference between minor- 
ity applicants and hires by gender and race is 
striking. In the officials and managers job classi- 
fication, black males were 16 percent of the ap- 
plicants, yet only 7 percent of the hires. Among 
females, black females were 11 percent of the 
applicants and 7 percent of the hires. Hispanic 



females represented 11 percent of the applicants 
but only 5 percent of the hires. In the profes- 
sional job classification, Asian American and 
Pacific Islander males were 13 percent of the 
apphcants but 9 percent of the hires. At a mini- 
mum, the data suggest that these firms do not 
adequately recruit or hire minorities in relation 
to their numbers in the applicant pool. 

Table 3.5 displays hiring data from the sub- 
poenaed sample representing securities fu-ms. 
As mentioned earher, there was no analysis of 
the apphcant pool due to the failure of these 
firms to provide the requested information. The 
data show an industry that contains high per- 
centages of white hires in each and every job 
classification. We cannot infer a discriminatory 
hiring pattern because the data on the applicant 
pool were not provided by most of these firms. 
Juxtaposed with table 3.3, showing summary 
hiring data regarding gender differences by job 
classification, the proportion of white males em- 
ployed in the industry exceeds that in the popu- 
lation at large. These hiring data showed that 
the percentage of males hired far exceeded the 
percentage of females hired in each of the three 
job classifications. 

Job Qualifications 

The banks and securities firms that received 
subpoenas were asked to provide a list of job ti- 
tles and vacancy announcements or other docu- 
ments setting forth the minimum qualifications 
of those positions for jobs falling in the classifica- 
tion of officials and managers, professionals, and 



72 



sales workers."^ The job titles provide a better 
understanding of the types of jobs that are clas- 
sified as officials and managers, professionals, 
and sales workers in the finance industry. The 
request for vacancy announcements and other 
documents had two purposes. First, to identify 
the levels of skills, experience, and other job re- 
quirements of these positions, so that the quaU- 
fied labor force for these jobs could be better de- 
scribed. Second, to see if overly stringent qualifi- 
cations were required for these jobs such that 
groups whose members tend to have fewer quah- 
fications would tend to be excluded from them. 

The job titles that fall in the classifications of 
officials and managers, professionals, and sales 
workers covered a wide range. Sales workers 
included customer service representatives, chent 
service representatives, traders, personal bank- 
ers, and, simply, sales workers. Many banks did 
not have sales workers, as data in earlier sec- 
tions indicated. Thus, sales workers positions 
were typically found in securities firms. 

The professionals job classification included 
accountants, auditors, appraisers, underwriters, 
financial analysts, and credit analysts. It also 
included human resource specialists, librarians, 
and a vast array of computer technicians — 
programmer analyst, systems support speciahst, 
systems engineer, LAN administrator, for exam- 
ple. 

Positions in the officials and managers classi- 
fication included the chairman, president and 
chief executive officer, senior vice presidents, 
vice presidents, directors, managers, and super- 
visors. Not all officials and managers were in- 
volved in the substance of finance. The supervi- 



''' See the subpoena duces tecum, app. C, items 1 and 2. 
Note that the job classifications are estabhshed by the 
EEOC for employers to use in reporting employment data. 
All banks and firms in this sample are required to file an- 
nual reports with the EEOC using these job classifications. 
EEOC provides a Job Classification Guide (Washington, DC, 
1987) "to assist employers in the correct assignment of em- 
ployees according to the nine job categories. . . ." The docu- 
ments contained some evidence that job titles were not al- 
ways properly classified. For example, some firms classified 
customer service representatives as sales workers and oth- 
ers classified them as professionals [Exhibit HN]. In fact, 
the same job title sometimes appeared in more than one job 
classification within the same firm. In the document review 
performed in this study, every effort was made to abide by 
the job classifications of the bank or firm so that the results 
would correspond to the EEO-1 data that the banks or firms 
reported to EEOC. 



sor of building maintenance, director of human 
resources, supervisor of word processing, and 
mailroom manager were positions that at least 
some banks and firms included in this category. 

The wide range of job titles in these job classi- 
fications, particularly in the officials and man- 
agers category, has important implications for 
interpreting data in later sections. Some officials 
and managers are in jobs that are not related to 
finance and are not the highly skilled and high- 
paying jobs envisioned in this industry. On the 
one hand, data in the other sections suggest that 
some minorities and women do have jobs as offi- 
cials and managers in the finance industry. 
However, if they are counted as officials and 
managers because they are supervisors of 
building maintenance, word processing, and the 
mailroom, they are not gaining access to the fi- 
nance industry itself or to the highly lucrative 
jobs in the industry. 

In responding to the subpoena, the banks and 
firms provided a wide range of documents for 
these positions, including position descriptions, 
job requisitions, vacancy announcements, job 
postings, job advertisements, and recruitment 
brochures. All of these documents were reviewed 
to identify the minimum requirements of jobs in 
the three job classifications. The review looked 
for specifications with respect to the number of 
years experience, level of education, specialized 
finance education, industry certification, and 
types of computer skills. The coding scheme re- 
corded the lowest requirements of any job in the 
job classification. The nature of the documents 
and the coding scheme have a number of impli- 
cations for how the coded data are interpreted. 

First, whether the documents actually stated 
the minimum quahfications for jobs was some- 
times unclear. Some documents gave job re- 
quirements as well as optional qualifications 
that were not required but would enhance can- 
didacy. But many documents hsted require- 
ments in less detail or not at all, leaving unclear 
just what was required. Thus, the requirements 
of any one job were sometimes difficult to deter- 
mine. At the same time, companies often used 
more than one format for the same purpose. 
More than one format frequently appeared for 
the same job title. A variety of documents (e.g., 
job requisitions, vacancy announcements, and 
recruitment brochures) were often available for 
the same job title. And sometimes hundreds of 



73 



Table 3.6 

Examples of More Qualitative Job Requirements for Selected Job Titles 



Officials and managers 



Manager and vice president 



Technical qualifications: . . . Familiarity with and working knowledge of: a) Eurodollar Market and US Donnestic Money 
Market; b) Instruments of international settlement; c) Domestic settlement systems in New York; d) Various financing 
structures (particularly as they become more complex operationally); 3) Balance Sheet appraisal and credit analysis; f) US 
Economy; g) Finance of Foreign Trade; h) (domestic] Company Law; i) Structure of [the bank], both domestically and 
internationally. . , . [previous job experience]; 1) Extensive knowledge of business of [the bank or firm] and [foreign] & US 
banking industries. ... 3) Involvement with major corporate relationships. 4) Large . . [bank] Branch experience. 5) 
Background of international finance, and detailed knowledge of the bank's systems relating to Credit Risk, applications. 6) 
Comprehensive training. . . [and knowledge of] 1) New York State Banking Regulations. 2) Federal Reserve Banking 
Regulations. 3) [Certain foreign country's bank] Regulations 4) [Internal bank] Action Sheets and Procedures Manuals. 5) 
Bank policy as communicated via memorandum, circulars, etc [Exhibit AT] 



Branch manager 



5+ years retail or financial services, with 3+ years managing sales and service. Superior sales, sales mgt and coaching 
skills. Working knowledge of financial planning, ability to address financial needs of more sophisticated target customers. 
General knowledge of security policies and procedures to protect bank's and customer's assets. Knowledge of branch 
operations. Strong leadership, team-building, and people mgt Skills. BA/BS or equivalent experience. [Exhibit IK] 



Word processing supervisor 



Duties: Maintain a centralized department for typing of reports, letters, memos, and miscellaneous documents from all areas 
of the [company] through utilization of computer hardware and software. [Apart from supervisory skills,] [a] demonstrated 
knowledge of typing, word processing, and personal computer equipment [is] required, [and a] knowledge of English for sentence 
stnjcture, spelling, punctuation, and letter format [Exhibit IG] 



Professionals 



Accountant 



Technical qualifications: Knowledge of Foreign Exchange products, extensive knowledge of Lotus & Excel. Demonstrated 
skills in reconciling financial figures [Previous job experience in the] [u]se of spreadsheets, graphics and the ability to 
manipulate raw data into clear, presentable financial reports to be read by senior management. [And, knowledge of ] GAAP 
(General Accepted Accounting Principals) . . in the preparation of financials; [and] Internal [company] Audit procedures 
relating to the preparation of financial data [Exhibit AT) 



2-3 years public accounting experience. Strong accounting background Comfortable with Excel and Lotus. Strong 
interpersonal and analytical skills Strong accounting skills essential. Experience with reconcilement of accounts, financial 
statement preparation and analysis required. Detail oriented individual with the ability to manage several tasks 
simultaneously in order to meet aggressive timeframes. CPA preferred [Exhibit IK] 



Appraiser 



Review appraiser: Strong appraisal/review appraisal background. Basic knowledge of mortgage originations and undenwriting 
principals required Must be state licensed or a certified appraiser. Bachelors degree in Economics, Real Estate, Business, 
related field or equivalent experience. Some computer literacy. [Exhibit IK] 



Auditor 



1-4 years auditing or accounting experience. Basic knowledge of audit techniques, concepts and methods. Knowledge of 
banking and bank products. PC word-processing skills (spreadsheets a plus). Knowledge of retail banking a plus. Strong 
written and verbal skills. Ability to make decisions and work independently within a team structure. [Exhibit IK] 



Financial analyst 



Senior financial analyst: Strong background in accounting. Familiar with specialized industry accounting preferable (i.e., 
banking leasing). Familiarity with spreadsheet applications such as Excel and Lotus. Project management and financial 
analysis skills. Ability to communicate/interface with business transactors, all levels of management and other departments 
including Operations Flexible, independent and well organized with attention to detail, ability to handle pressure situations. 
[Exhibit IK] 



3-5 years in financial control. Accounting and financial analysis skills. Understanding of spreadsheet analysis, financial 
modeling, database reporting. Understanding of revenue dynamics for preparation of Annual Plan strategic planning 
analysis. PC proficient (preferably Mac) and familiarity with database reporting. . . . Strong verbal skills. Ability to work within 
a team structure. BA/MA in Accounting/Finance or equivalent experience. [Exhibit IK] 



Qualifications: Strong analytical/accounting skills; Knowledge of accrual based accounting entries; Knowledge of foreign 
exchange pricing; Understanding of yield analysis and valuation involving discounted cash flows; Strong interpersonal skills; 
Strong personal computer skills; [Experience:] Experience with financial reconciliations and financial reporting; Strong 
rate/volume and variance analysis; Software usage including Lotus 1-2-3 and Excel; . . . [and knowledge of General 
Accepted Accounting Principals (GAAP)]. [Exhibit AT] 



Continued 



74 



Table 3.6 (Continued) 





Knowledge of the main frame-PC experience; Lotus 123 and/or any software that is comparable; Financial Presentation 
skills; Good communications skills . . . Experience in financial services; Experience in month-end closings, preparation of 
presentations, and financial analyses; [Knowledge of] Generally Accepted Accounting Principles; Internal Audit 
recommendations. [Exhibit AT] 


Credit analyst | 




Senior credit analyst: Accounting, finance and credit analysis, PC literate with proficiency in Windows, Word and Excel. 
Work independently with good interpersonal and communication skills (verbal/written). [Exhibit IK] 


Bachelors degree (MBA and/or CFA preferred); 3 to 5 years credit analysis experience; Computer knowledge (word 
processing, spreadsheets, & database management); Exceptional oral and written communication skills; Substantial 
exposure to investment grade industrial debt is preferred. [Exhibit MY] 


Senior programmer analyst | 




In-depth knowledge of C, MS/SDK, UNIX, Gupta SQL WINDOWS programming environment, SYBASE and Client/Server 
design & implementation. Knowledge of C++, Object Orientation design and Novell Net Ware very helpful. Must have 
systems background in banking, brokerage, accounting. Experience in dealing with design and implementation of security 
components of large systems a big plus. Excellent communication skills. [Exhibit IK] 


Strong analytical and communication skills. Ability to work under pressure and manage multiple projects simultaneously. In- 
depth development knowledge of ORACLE C Programming, UNIX VAX-VMS, MS Windows. 3-5 yrs. Experience developing 
applications in a client/server environment. Knowledge of investment banking products. Experience with network protocols 
(TCP/IP, IPX, SQL, Windows, Visual Basic) a plus. [Exhibit IK] 


Minimum 4 years COBOL, JCL, VSAM and PROCS; Good knowledge of CICS and DB2; Good analytical skills [varied 
requirements). [Exhibit MY] 


Programmer | 




Knowledge of C, COBOL, UNIX, NT, CICS, BA degree in computer science or related field or equivalent experience. 2 years 
experience in application development as a programmer. Ability to pass written test demonstrating aptitude in data 
processing. [Exhibit IK] 


Sales workers 


Customer service representative 




BA/BS with equivalent exp. And 3-5 yrs. exp. In a customer service/operations capacity with a financial services institution. 
Good accounting background and familiarity with leasing and financial program documentation. Experience with the Info- 
lease system a plus. Excellent time management, analytical and interpersonal skills. PC literate with proficiency in Lotus, 
Excel, WordPerfect or Microsoft Word. [Exhibit IK] 


Good wntten and oral skills; Knowledge of financial investments preferable. [Exhibit HN] 


[A] minimum of 2 years experience within a branch banking operation and excellent communication skills as well as 
knowledge of consumer banking products and services. . . . Bachelor's degree preferred. [Exhibit HN] 


Client service representative | 




Basic knowledge of database/accounting systems. PC literate with proficiency in Lotus/Excel. Strong mathematical, 
analytical and accounting skills. Various transactions and business product knowledge. Strong verbal and written 
communication, organizational, time management and follow through skills. Strong customer relationship/interpersonal skills. 
Attention to detail and ability to work within a team structure. [Exhibit IK] 


Trader | 




[Ability to analyze] Individual bonds and credits while providing input as to overall investment strategy in a team setting, [a]ct 
as principal trader of investment grades corporates, mortgage backed and asset backed debt securities. . . , [tjrade and 
analyze fixed income credits in the context of yield curve strategy and sector allocation, [rjecommend specific swap ideas 
and sector weightings based upon Individual institutional portfolio investment guidelines and return objectives, [and 
understand] the fixed income markets and [be aware] of the interaction of both street salespeople and the portfolio 
management team; [Certified on the] Series 7, 63 and 65 [examinations;] Ability to learn new portfolio reporting system to 
create model portfolios for client proposals and to provide backup for the monthly reporting function. [Exhibit MY] 


Personal banker | 




2-5+ years retail financial service experience, including 1-2+ years sales exp[erience]. Strong sales/relationship building 
skills. Understanding of & experience with consumer money mgt. Concepts. Knowledge of consumer . . . products and local 
competition a plus. Strong knowledge of economic trends/events and their potential effect on customers' finances. Ability to 
quickly learn security policies/procedures. Proficiency with computer technology. BA/BS or equivalent experience. [Exhibit 
IK] 



75 



documents were provided. Thus, a fairly clear 
picture of the minimum requirements of fre- 
quently occurring jobs emerged along with the 
minimum requirements of the job classification. 

Second, some banks and firms moved in a 
new direction by stipulating the requirements of 
jobs. They wrote job qualifications in quahtative 
terms, listing very specific types of experience 
and skills that were necessary, rather than 
specifying college degrees or the number of years 
of experience. Table 3.6 shows some examples of 
positions with more quahtative requirements, 
including some variations within the same bank 
or firm. 

The table shows, for example, that with at 
least one bank or firm, a manager and vice 
president position requires a working knowledge 
of European and domestic money markets, expe- 
rience in a large bank branch, and knowledge of 
State and Federal banking regulations. Another 
bank's or firm's job requirements for an account- 
ant asked for knowledge of generally accepted 
accounting principles and demonstrated skills in 
reconciling financial figures. Among these and 
the many other requirements for these positions, 
an educational degree or number of years expe- 
rience are not specified. '^ 

The coding scheme used in the review of 
documents recorded the number of years experi- 
ence and level of education as "Not Specified" 
when the requirements were stated only in 
quahtative terms. Notably, "Not Specified" does 
not mean there were no minimum requirements 
for the job. Indeed, there were many stated 
qualifications. Furthermore, in most cases the 
relatively easiest way for appUcants to obtain 
these quahtative requirements is through college 
degrees or speciahzed education and years of 
experience in the industry. 



" Contrast the requirements for education and years of 
experience with one bank's or firm's "promotion criteria." To 
become a vice president, a candidate must be a "S[enio]r 
Associate with minimum 3.5 years service" and "Graduate 
degree or equivalent education/experience." To become a 
Director, a candidate must be a "VP for minimum of 2-3 
years" with "5.5 to 7 years in the business." To be a 
"Managing Director" he or she must have been a "Director 
for minimum of 2-3 years" and "8.5 to 10 years in the busi- 
ness." In addition to these service requirements, the candi- 
date must meet other criteria in the areas of "Firm Knowl- 
edge," "Product Knowledge," 'Technical Skills," "Management 
Skills," "Leadership Skills," "Client Relations," "Commercial 
Instinct," "Revenue Generation," "Diversity," and "Commit- 
ment to Firm" [Exhibit MY]. 



Third, the wide range of jobs included in the 
job classifications affected the coding of mini- 
mum requirements. The review of the docu- 
ments captured the lowest requirements of any 
job within the job classification. With jobs that 
are not related to finance included in the job 
classifications, the minimum requirements that 
were coded were often the requirements of these 
jobs and not the requirements of finance-related 
jobs. The minimum requirements thereby repre- 
sent qualifications necessary to obtain any job of 
the status of, for example, an official and man- 
ager. The minimum requirements of more typi- 
cal, finance-related jobs could be higher. 

Finally, the minimum qualifications coded re- 
flect requirements common to all jobs within the 
job classification. When the quahfications of jobs 
varied widely, the job classification was often 
coded as having no minimum requirements. For 
example, some jobs in the classification did not 
require word processing skills, some did not re- 
quire years of experience, and some did not re- 
quire educational degrees. Yet some jobs in the 
classification required very high levels of these 
or other qualifications. For example, a supervi- 
sor of building maintenance does not need word 
processing skills, and a supervisor of word proc- 
essing does not need many qualifications other 
than word processing skills. Thus, individuals 
lacking word processing skills can get jobs as 
officials and managers, and persons lacking any- 
thing but word processing skills can, too. Again, 
requirements are not imposed that restrict per- 
sons lacking these qualifications from getting 
such positions. But, the fact that there are no 
minimum requirements should not be inter- 
preted to mean there are no quahfications for 
these positions. In short, the lowest qualification 
of one type, for example, education, may apply to 
some jobs, while other low qualifications may 
apply to different jobs in the classification. 

Job Qualifications, Procedures, and 
Policies — Subpoenaed Depository 
Institutions and Securities Firms 

This section focuses on the review and analy- 
sis of the data's quahtative component. The pur- 
pose was to identify job qualifications, hiring 
practices, or pohcies that could influence the 
gender or race of the employee pool. Both posi- 
tive and negative influences were sought. 



76 



The subpoena specified that each firm pro- 
vide documents and information regarding per- 
sonnel and human resource functions. These 
documents were to include position qualifica- 
tions, job descriptions, methods for posting jobs, 
recruitment avenues, training, scholarships, and 
other employee program offerings for three clas- 
sifications of jobs. Appendix C contains a copy of 
the subpoena which details the submissions re- 
quested. 

An enormous quantity and variety of descrip- 
tive documents were provided in response to the 
subpoena. The review of these documents re- 
qviired design of two special purpose data han- 
dling techniques. First, a structured manual re- 
view of all documents was designed to organize 
the information and data. As discussed earUer, 
not all submissions were responsive to the sub- 
poena and some contained data gaps. Thus, this 
manual review was intended to determine: 

• The presence or absence of specific docu- 
ments 

• If submitted documents contained specific 
data elements 

A set of data recording forms was developed. 
One set of forms was completed for each subpoe- 
naed organization's submissions. The recording 
forms allowed one of four coded responses to 
each item. These coded responses were: 

• Yes: the data/information were submitted. 

• No: the data/information were not submit- 
ted. 

• The data/information were not submitted, 
and there is documentation that the item is 
appUcable. 

• The data/information were not submitted, 
and there is documentation that the item 
was not submitted. 

For example, job descriptions were requested 
for three job classifications so that the qualifica- 
tions could be analyzed. These job classifications 
were: 

• Officials and managers 

• Professionals 

• Sales workers 



The initial review procedure was to deter- 
mine whether or not job descriptions for the 
three job classifications were submitted. When 
this screening question was answered positively, 
the reviewers were instructed to enter one of the 
coded responses to a set of inquiries. These in- 
quiries covered elements such as: 

• Is prior work experience specified? 

• Is an educational degree requirement speci- 
fied? 

• Is speciahzed finance education specified? 

• Is industry certification specified? 

• Is any technical skill specified? 

Similar inqviiries were developed for ascer- 
taining whether the documents concerning re- 
crviitment included a description of the specific 
avenues used by an organization. A set of in- 
quiries was developed for training and career 
development programs, scholarship and intern- 
ship programs, and for human resource activi- 
ties such as EEO officers, EEO policies, and di- 
versity training. 

The second data technique involved the de- 
sign of tailored database formats and screens to 
allow use of computer technology to accomphsh 
data input. The results of the structured manual 
review of the documents were used as data input 
guides. That is, if the manual forms showed a 
"Yes" response to a data inquiry, the staff ex- 
tracted the data from the document and used 
computer screen entry to record the data. Staff 
from the Office of the General Counsel of the 
U.S. Commission on Civil Rights accomplished 
both the manual data review and computer in- 
put processes. 

Qualifications by Job Classifications 

This analysis examined actual position de- 
scriptions for the three job classifications. As 
each organization had an individuahzed scheme 
for tithng positions, the guideUnes^^ that are 
used in completing Employer Information Re- 
ports (form EEO-1) were used to compile the 
submitted position descriptions into the three job 
classifications. A few firms also provided job 
requisitions, vacancy announcements, adver- 



''6 U.S. Equal Employment Opportunity Commission, Office 
of Program Operations, Program Research and Surveys 
Division, Job Classifications Guide, 1987. 



77 



tisements, and recruiting brochures. While these 
documents provided additional insight into posi- 
tion requirements at these firms, the written 
descriptions were used to conduct this analysis. 
Following compilation, specific information was 
extracted about each bank or securities firm. 
Thus, for example, the compiled set of officials 
and managers job descriptions for an individual 
firm could include positions ranging from a 
firm's CEO to the director of human resources. 

It should be understood that the defined 
coding procedure did not require that all position 
descriptions contain all the elements of inquiry. 
If any job description within a compiled set con- 
' tained an element, the inquiry was to be coded 
as 'Tes." In addition, some job descriptions con- 
tained references to requirements without con- 
crete details. For example, a reference to "strong 
accounting background" would not be further 
quantified as meaning an accounting or finance 
degree or CPA certification. In these cases, the 
response to this data element was coded as N/S 
(not specified). This type of referential informa- 
tion was most prevalent within the officials and 
managers job descriptions. 

Further, within a job classification, if any po- 
sition description was submitted that did not 
specify an element of inquiry, the firm's data 
were input to show a "No" (not submitted) re- 
sponse to the element. Thus, the results of this 
job qualification analysis show the minimum 
position requirements to hold or to be hired into 
any job within the classification. 

For the purpose of this section, the qualita- 
tive results have been segmented into a deposi- 
tory institutions group and a securities firm 
group. The individual firm data were then ar- 
rayed to determine if any patterns existed that 
described the most frequently defined minimum 
requirements within each group by job classifica- 
tion. 

The number of firms in a group may exceed 
the number of subpoenaed firms. This is because 
some firms had an estabhshment with a Stan- 
dard Industrial Code (SIC) for a depository insti- 
tution and an estabhshment with a SIC for a 
securities firm, yet both estabhshments had a 
common headquarters number. In such cases, 
the firm is represented in both industry groups. 

Tables 3.7-3.9 show a frequency array by 
element of inquiry for the three depository insti- 
tutions job classifications. Tables 3.10-3.12 show 



similar arrays for the securities firm group. 
These arrays demonstrate that a position de- 
scription review is not a meaningful technique to 
determine if there are gender or racial factors 
influencing recruitment and hiring. There was 
no evidence that the firms included in this 
analysis use inappropriate or overly stringent 
job quahfications to influence the gender or ra- 
cial mix of their employees. Nor do position de- 
scriptions appear to be a useful tool for aspiring 
employees to use in comparing their qualifica- 
tions with a firm's qualifications. It appears that 
language such as "strong accounting back- 
ground" could allow an interviewer great lati- 
tude in assessing an applicant's skills. 

However, this finding is not isolated to the fi- 
nance industry. Most firms simply use position 
descriptions to describe job functions and re- 
sponsibilities in general terms. Job descriptions 
frequently discuss scope of responsibihties in 
general terms. Job descriptions frequently dis- 
cuss scope of responsibiUty for profit centers, 
employee supervision, communication skills, and 
relationships with others. Other job descriptions 
tend to focus on apphcants' abihties to interact 
within the corporate environment and culture. 
Position descriptions that detaU finite skills tend 
to be found within highly technical firms, re- 
search and design firms, or the computer divi- 
sions of other businesses. Most corporate human 
resource departments are wary of concretely de- 
scribing position qualifications. There may be a 
concern that an unsuccessful job apphcant could 
use a concrete specification to charge discrimina- 
tion. 

Scanning the array displayed in table 3.7 in- 
dicates that the officials and managers position 
descriptions, submitted by the depository insti- 
tution sample, do not contain factors that would 
disqualify many apphcants. First, as many insti- 
tutions require no prior experience as those that 
require 3-5 years of experience for an officials 
and managers position. Second, most of the in- 
stitutions submitted a description that did not 
specify any educational attainment. Only a few 
required at least an undergraduate college de- 
gree. Third, most of the finance institutions did 
not specify any speciahzed finance education or 
any industry certifications. Fourth, computer 
skills appear to be an unnecessary qualification 
for at least one officials and managers position 
in most of the sample institutions. 



78 



Overall, it appears that for most of these in- 
stitutions, an apphcant could meet their job 
qualifications with the following background: no 
prior experience, no formal education, no spe- 
ciahzed finance education, and no computer 
skills. An officials and managers job description 
for which this unlikely applicant qualified was 
submitted by most of the sample banks. The 
data inhibit development of a good qualified pool 
definition because the firms did not provide suf- 
ficient detail of these requirements for certain 
jobs. 

The position description review did not pro- 
vide any hard evidence to explain the high per- 
centages of white males as officials and manag- 
ers among depository institutions. However, 
considering the unrealistic job descriptions sub- 
mitted by the depository institutions and the 
wide latitude accorded employers, other factors 
must be at play here. 

The array displayed in table 3.8 shows the 
position descriptions for professional employees 
contain some factors that could disquaUfy apph- 
cants. Though at least half of the depository in- 
stitution sample do not require prior experience 
for these positions, most of the institutions sub- 
mitted a description that specified educational 
attainment. A few required at least an under- 
graduate college degree. Most only specified high 
school graduation. Most institutions did not 
specify any specialized finance education or any 
industry certifications. Computer skills appear 
to be a desirable qualification in most of the 
sample institutions. 

The position descriptions do not appear to be 
a meaningful recruitment and hiring document 
since they display the bare minimum qualifica- 
tions necessary to be hired. But in this job classi- 
fication, they may be more helpful for potential 
appHcants to use in assessing their qualifications 
for a professional position. 

Table 3.9 shows the array of qualifications 
from the position descriptions for sales workers. 
Because these employees are a new component 
in the depository institution's employee pool, the 
specific qualifications are better dehneated. 
More than half of the depository institution 
sample mentioned a prior experience quaUfica- 
tion for these positions. Almost half wanted at 
least a year of prior experience. Most of the in- 
stitutions submitted a sales worker description 
that did not specify any educational attainment. 



Less than 25 percent required high school 
graduation or greater educational attainment. 

Most institutions specified that no specialized 
finance education or any industry certifications 
were required. Computer skills did not appear to 
be a qualification in most of the sample deposi- 
tory institutions. As with the other position de- 
scriptions, these do not appear to be meaningful 
recruitment and hiring documents. 

Table 3.10 arrays the resvdts of the review of 
the submitted position descriptions for officials 
and managers positions from the subpoenaed 
securities firms. This review shows that these 
firms require more specific qualifications than do 
the depository institutions. For example, more 
than half require prior experience. Eight of the 
firms require 3 or more years of prior experi- 
ence. 

Many firms submitted a description that did 
not specify educational attainment. However, 40 
percent of the sample required an undergradu- 
ate college degree. Most firms did not specify 
that any speciahzed finance education or any 
industry certifications were required. However, 
20 percent of the sample specified both as re- 
quirements. In general, computer skills ap- 
peared to be an unnecessary qualification for 
officials and managers positions at most of the 
sample firms. 

Nonetheless, as was found among the deposi- 
tory institutions, an officials and managers ap- 
phcant in a securities firm could have the fol- 
lowing qualifications: no prior experience, a high 
school education, no speciahzed finance educa- 
tion, and no computer skills. Similarly, the lack 
of objective qualifications impHes greater em- 
phasis on subjective criteria. The position de- 
scription review did not provide any hard evi- 
dence to explain the dominance of white males 
as officials and managers among securities 
firms. As with the depository institutions, other 
factors may be at play here. 

The array displayed in table 3.11 shows a 
summary of the quahfications for professional 
employees submitted by the subpoenaed sample 
of securities firms. At least 50 percent of the se- 
curities firm sample do not require prior experi- 
ence for such positions. Most of the firms sub- 
mitted a description that did not discuss educa- 
tional attainment. Some (30 percent) required an 
undergraduate college degree. Three firms speci- 
fied that high school graduation could meet the 



79 



Table 3.7 

Array of Key Qualifications: Officials and Managers, Depository Institutions, Position Descriptions 






Number of banks with specific qualification stated 


Minimum qualification 





1-2 3-4 5-6 7-8 9-10 10+ 


Years experience 

None specified 
years 
1-2 years 
3-5 years 
6+ years 


X 


X 

X 
X 

X 


Degree requirements 

None specified 
High school 
College: BA 
College: BS 
Post-grad degree 


X 


X 
X 

X 
X 


Specialized finance education 

Not specified 

No 

Yes 




X 

X 
X 


Industry certifications 

Not applicable 
Not specified 
No 
Yes 




X 
X 

X 

X 


Computer skills 

Word processing 
Not specified 
No 
Yes 




X 

X 
X 


Spread sheet 
Not specified 
No 
Yes 




X 

X 
X 


Finance software 
Not specified 
No 
Yes 




X 

X 
X 


Programming skills 
Not specified 
No 
Yes 




X 

X 
X 


Technical skills 
Not specified 
No 
Yes 




X 

X 
X 



80 



Table 3.8 






Array of Key Qualifications: 


Professionals, Depository Institutions, Position Descriptions 

Number of banks with specific qualification stated 




Minimum qualification 


1-2 3-4 5-6 7-8 9-10 


10+ 


Years experience 






None specified 


X 




years 


X 




1-2 years 


X 




3-5 years 


X 




6+ years 


X 




Degree requirements 






None specified 


X 




High school 


X 




College: BA 


X 




College: BS 


X 




Post-grad degree 


X 




Specialized finance education 






Not specified 


X 




No 




X 


Yes 


X 




Industry certifications 






Not applicable 


X 




Not specified 


X 




No 


X 




Yes 


X 




Computer skills 






Word processing 






Not specified 


X 




No 




X 


Yes 


X 




Spread sheet 






Not specified 


X 




No 




X 


Yes 


X 




Finance software 






Not specified 


X 




No 




X 


Yes 


X 




Programming skills 






Not specified 


X 




No 




X 


Yes 


X 




Technical skills 






Not specified 


X 




No 




X 


Yes 


X 





81 



Table 3.9 






Array of Key Qualifications: 


Sales Workers, Depository Institutions, Position Descriptions 
Number of banks with specific qualification stated 




Minimum qualification 


1-2 3-4 5-6 7-8 9-10 


10+ 


Years experience 






None specified 


X 




years 


X 




1-2 years 


X 




3-5 years 


X 




6+ years 


X 




Degree requirements 






None specified 




X 


High school 


X 




College: BA 


X 




College: BS 


X 




Post-grad degree 


X 




Specialized finance education 






Not specified 


X 




No 


X 




Yes 


X 




Industry certifications 






Not applicable 


X 




Not specified 


X 




No 


X 




Yes 


X 




Computer skills 






Word processing 






Not specified 


X 




No 


X 




Yes 


X 




Spread sheet 






Not specified 


X 




No 




X 


Yes 


X 




Finance software 






Not specified 


X 




No 




X 


Yes 


X 




Programming sl<ills 






Not specified 


X 




No 




X 


Yes 


X 




Technical sl<ills 






Not specified 


X 




No 




X 


Yes 


X 





82 



Table 3.10 

Array of Key Qualifications: 


Officials and Managers, Securities Firms, Position Descriptions 
Number of banks with specific qualification stated 




Minimum qualification 


1-2 3-4 5-6 7-8 9-10 


10+ 


Years experience 

None specified 
years 
1-2 years 
3-5 years 
6+ years 


X 
X 

X 

X 

X 




Degree requirements 

None specified 
High school 
College: BA 
College: BS 
Post-grad degree 


X 
X 

X 
X 
X 




Specialized finance education 

Not specified 

No 

Yes 


X 
X 


X 


Industry certifications 

Not applicable 
Not specified 
No 
Yes 


X 

X 

X 


X 


Computer skills 

Word processing 
Not specified 
No 
Yes 


X 

X 


X 


Spread sheet 
Not specified 
No 
Yes 


X 

X 


X 


Finance software 
Not specified 
No 
Yes 


X 

X 


X 


Programming skills 
Not specified 
No 
Yes 


X 

X 


X 


Technical skills 
Not specified 
No 
Yes 


X 

X 


X 



83 



Table 3.11 

Array of Key Qualifications: 


Professionals, Securities Firms, Position Descriptions 








Number of banks with specific qualification stated 




Minimum qualification 
Years experience 

None specified 
years 
1-2 years 
3-5 years 
6+ years 




X 


1-2 3-4 5-6 7-8 9-10 

X 
X 
X 

X 


10+ 


Degree requirements 

None specified 
High school 
College: BA 
College: BS 
Post-grad degree 


X 

X 


X 
X 

X 




Specialized finance education 

Not specified 

No 

Yes 




X 

X 


X 


Industry certifications 

Not applicable 
Not specified 
No 
Yes 


X 


X 

X 


X 


Computer skills 

^ord processing 
Not specified 
No 
Yes 




X 

X 


X 


Spread sheet 
Not specified 
No 
Yes 




X 

X 


X 


Finance software 
Not specified 
No 
Yes 




X 

X 


X 


Programming sl<ills 
Not specified 
No 
Yes 




X 

X 


X 


Technical skills 
Not specified 
No 
Yes 




X 
X 


X 



84 



Table 3.12 






Array of Key Qualifications: 


Sales Workers, Securities Firms, Position Descriptions 

Number of banks with specific qualification stated 




Minimum qualification 


1-2 3-4 5-6 7-8 9-10 


10+ 


Years experience 






None specified 


X 




years 


X 




1-2 years 


X 




3-5 years 


X 




6+ years 


X 




Degree requirements 






None specified 




X 


High school 


X 




College: BA 


X 




College: BS 


X 




Post-grad degree 


X 




Specialized finance education 






Not specified 


X 




No 




X 


Yes 


X 




Industry certifications 






Not applicable 


X 




Not specified 


X 




No 


X 




Yes 


X 




Computer skills 






VJord processing 






Not specified 


X 




No 




X 


Yes 


X 




Spread sheet 






Not specified 


X 




No 




X 


Yes 


X 




Finance software 






Not specified 


X 




No 




X 


Yes 


X 




Programming skills 






Not specified 


X 




No 




X 


Yes 


X 




Technical skills 






Not specified 


X 




No 




X 


Yes 


X 





85 



firms' educational reqixirement for a professional 
position. 

Most did not specify any specialized finance 
education or any industry certifications. A few 
firms submitted descriptions that specified both 
qualifications. Computer skills appear to be more 
desirable among securities firms than among the 
depository institutions. 

Again, the submitted position descriptions do 
not appear to be a meaningful recruitment and 
hiring document. But, in this job classification, 
they do provide more details and can potentially 
provide apphcants with a method for matching 
their qualifications with the securities firms' 
qualifications. 

Table 3.12 was compiled from the information 
extracted during the review of the submitted 
position description for sales workers in securi- 
ties firms. Prior experience does not appear to be 
a necessary qualification for such positions. Most 
of the firms submitted a sales worker description 
that did not specify educational attainment. Less 
than 10 percent required college graduation or 
greater educational attainment. 

Most firms did not qualify applicants based 
on speciahzed finance education or any industry 
certification. No firm required computer skills. 
As with the other position descriptions, these do 
not appear to be a meaningful description of the 
skill inventory used by securities firms to select 
persons for sales worker positions. 

Industry Testing and Certification 

The New York Stock Exchange (NYSE) pro- 
vides a marketplace for the trade of securities. 
However, to ensure that business is conducted in 
an orderly fashion, the marketplace is available 
only to the Exchange's members. Members must 
conform to the rules and regulations of the Ex- 
change to maintain their membership. The Ex- 
change, thereby, regulates Wall Street activities 
and is known as a self-regulating organization. 

Other organizations exert some regulatory 
control over Wall Street through similar means. 
Among them are the National Association of Se- 
curities Dealers (NASD) and the Municipal Se- 
curities Rule Board (MSRB). 

The NYSE, NASD, and MSRB require their 
members to pass examinations demonstrating 
their knowledge of job functions. The NYSE rule 
states: 



(a) Every applicant for membership or aUied member- 
ship shall pass a basic examination required by the 
Exchange unless such examination is waived by the 
Exchange. 

(b) Every applicant . . . shall agree . . . that . . . the 
applicant will, within three months [after a 6-month 
conditional membership] . . . without having passed 
such examination, or upon failure to pass such ex- 
amination after . . . three attempts, . . . cease to be a 
member. . . . 

(c) No member or allied member shall undertake any 
active duties as a member or allied member until the 
appropriate examination requirement is satisfied.. . .'''' 

In fact, more than 30 examinations are used 
in the securities industry. Which examinations 
are required depend upon the job function. The 
General Securities Representative Examination 
(Series 7) qualifies "general securities represen- 
tatives for the soUcitation, purchase and/or sale 
of corporate securities, municipal securities, op- 
tions, direct participation programs, investment 
company products and variable contracts.'"'^ 
New NYSE members must pass the Floor Mem- 
ber Examination (Series 15) before they can exe- 
cute orders on the trading floor. Other NYSE 
tests qualify individuals for day-to-day compH- 
ance responsibilities and for supervisory du- 
ties.'9 The MSRB requires the Municipal Securi- 
ties Representative Examination (Series 52) and 
the Municipal Securities Principal Examination 
(Series 53).8o 



■'■' New York Stock Exchange, Constitution and Rules, Rule 
304 A, 1 2304A, p. 3040. A "member" is "a natural person 
who is a member of the Exchange." (Art. I, Sec. 3, ^1003, p. 
1052.) An "allied member" is: 

(i) a general partner in a member firm, or an employee who 
controls a member firm, who is not a member of the Ex- 
change and who has become an allied member as provided 
in the rules of the Exchange, or 

(ii) an employee of a member corporation who is not a mem- 
ber of the Exchange, who has become an allied member as 
provided in the rules of the Exchange, and who is either: 
— a principal executive officer of such corporation, or 
— a person who controls such corporation. 

(Art. I, Sec. 3, 11003, p. 1051.) 

■'8 JoEUen V. Carlson, Ph.D., director of testing standards, 
New York Stock Exchange, Inc., "Standards for Qualifica- 
tion Examinations," written testimony provided to the U.S. 
Commission on Civil Rights, July 26, 1995 (hereafter cited 
as Carlson written testimony). 

'9 Ibid. 

80 New York Stock Exchange, "Confidential Excerpts From 

Procedures Manual for the Testing Standards Section," 

(1993). 



86 



The Investment Company Products/Variable 
Contract Limited Representative Examination 
(Series 6), the General Securities Representative 
Examination (Series 7), the Uniform Securities 
Agent State Law Examination (Series 63), and 
Uniform Investment Adviser Law Examination 
(Series 65) are the most frequently taken exami- 
nations. In 1994 they were taken by 64,654, 
58,699, 93,657, and 19,538 individuals, respec- 
tively.81 The Series 6 and 65 examinations are 
required by NASD. The Series 63 is required by 
some States. The Series 7 examination is re- 
quired by both NASD and the NYSE, and is a 
prerequisite for several other tests, including 
some required by MSRB. The Series 7 examina- 
tion will be described in more detail after a gen- 
eral overview of how tests are developed and 
vahdated. 

General Test Development and Validation 

Psychological tests have been used through- 
out this century to measure knowledge, skills, 
abihties, and achievement. Concerns about the 
accuracy, fairness, and use of test results have 
led to the development of various procedures and 
standards for test development and use. Inter- 
pretations of these in case law have further re- 
fined what is regarded as accepted practice in 
test development and use today. These provide a 
background for understanding how tests in the 
securities industry are developed. 

As a professional association whose members 
include test developers, the American Psycho- 
logical Association (APA) was the first group to 
issue standards in 1954 and, as part of a joint 
committee with other professional organizations, 
has issued several revisions since then.*^ The 
Standards for Educational and Psychological 



8' Derek W. Linden, director, Member Services Operations 
and Legal Counsel, National Association of Securities Deal- 
ers, Inc., letter to Michelle N. Yu, Office of General Counsel, 
U.S. Commission on Civil Rights, July 25, 1995; Exhibit 8, 
"1994 Test Volume and Pass Rate Statistics (Monthly Can- 
didate Volume and Pass Rates for Series 2 Through 65 Ex- 
aminations)." 

82 See American Psychological Association, Technical Rec- 
ommendations for Psychological Tests and Diagnostic Tech- 
niques (Washington, DC, 1954) (providing an example of 
early standards). See also American Educational Research 
Association, American Psychological Association, and Na- 
tional Council on Measurement in Education, Standards for 
Educational and Psychological Tests and Manuals 
(Washington, DC, 1966) (providing an example of revision of 
early standard). 



Tests, in 1974, ^^ were influential because they 
became the basis of Federal regulatory code 
which has been in place since 1978.8^ Revised 
standards were issued in 1985.^5 

The pu]-pose of the APA standards was to 
provide a set of technical guidehnes for the 
evaluation of tests, testing practices, and the 
effects of test use. They addressed the topics of 
test construction, evaluation, scoring and ad- 
ministration, the rights of test takers, and spe- 
cial concerns with hnguistic minorities and those 
with handicapping conditions. The standards 
treated the topic of test vahdation, that is, 
whether a test measures what it is supposed to 
measure, and described various forms of valida- 
tion.8^ The APA standards were a summary of 
the state of knowledge in the field of psychologi- 
cal testing and were ideals of what test develop- 
ers should strive to achieve. They were not in- 
tended as a set of minimum standards that must 
be met by all tests. 

In 1978 the EEOC, Civil Service Commission, 
and the Departments of Labor and Justice is- 
sued the "Uniform Guidehnes on Employee Se- 
lection Procedures," which remain current to- 
day. s'' These guidehnes were to estabhsh a uni- 
form set of principles on selection procedures 
and the proper use of tests and to aid compliance 
with the requirements of Federal law prohibiting 
employment practices that discriminate on 
grounds of race, color, rehgion, sex, and national 
origin. ^8 Among the topics covered were defini- 
tions of discrimination and adverse impact, 
standards for vahdity studies and the acceptable 
types of vahdity, generahzing validity studies 
across race and sex, fairness, and the policy of 
affirmative action. ^^ 

The Uniform Guidelines were intended to be 
consistent with the 1974 APA standards, but 



83 American Educational Research Association, American 
Psychological Association, and National Council on Meas- 
urement in Education (Washington, DC, 1974). 

8'' Uniform Guidelines on Employee Selection Procedures 
(1978), 29 C.F.R. 1607 (1991). 

85 American Educational Research Association, American 
Psychological Association, and National Council on Meas- 
urement in Education, Standards for Educational and Psy- 
chological Testing (Washington, DC, 1985). 

86 Ibid. 

8' 29 CFR § 1607 (1997). 
88 41 CFR § 60-3.1(B) (1998). 
83 Ibid. 



87 



they treated the ideahstic procedures of the APA 
standards as though they were minimum re- 
quirements. s** Employers were troubled by their 
inability to meet these ideahstic levels, which 
revolved around several types of vahdation.^' At 
the same time, case law has been emphasizing 
primarily only one form of vaUdation for test de- 
velopment procedures in the employment area — 
job relatedness. 

In Griggs v. Duke Power Company,^- the Su- 
preme Court faced the issue of whether an em- 
ployer is prohibited by title VII of the Civil 
Rights Act of 1964 from requiring a high school 
diploma or passing of a standardized intelhgence 
test as a condition of employment or transfer of 
jobs when (a) neither standard is shown to be 
significantly related to job performance, (b) both 
requirements operate to disqualify blacks at a 
substantially higher rate than whites, and (c) 
the jobs in question had been formerly fdled by 
white employees because of longstanding prefer- 
ences given to whites. ^^ In resolving the issue, 
the Court noted that, under the act, practices, 
procedures or tests, though neutral on their face 
and neutral in terms of intent, cannot be main- 
tained if they freeze the status quo of prior dis- 
criminatory employment practices.^"* The ulti- 
mate standard enunciated in Griggs is that such 
procedures, practices, or tests for employment or 
promotion violate the act unless they are demon- 
strably a reasonable measure of job perform- 
ance.^^ A later case dehneated the burdens of 
proof placed on the plaintiff employee and de- 
fendant employer. 

In Albermarle Paper Company v. Moody, the 
Supreme Court dealt with, among other issues, 
what an employer must show to estabUsh that 
preemployment tests that are discriminatory in 
effect, but not in intent, are sufficiently job re- 
lated to survive a title VII challenge. ^^ In 
reaching its decision, the Supreme Court rehed 



90 U.S. Commission on Civil Rights, The Validity of Testing 
in Education and Employment (May 1993). 

»i Ibid. 

32 Griggs V. Duke Power Co., 401 U.S. 424 (1981). 

M Id. at 425. 

94 Id. at 430. 

95 Id. at 436. 

96 Albermarle Paper Co. v. Moody, 422 U.S. 405, 408 (1975). 



upon Griggs and EEOC guideUnes.^^ The Court 
restated the three-pronged standard now com- 
monly used in employment test htigation.^* 
First, the plaintiff must estabhsh a prima facie 
case of discrimination. Next, if the plaintiff 
meets his or her initial burden, the burden shifts 
to the defendant employer to prove that the tests 
are job related. If the employer meets its burden, 
the plaintiff must show the tests are merely a 
pretext for discrimination. ^^ Albermarle dealt 
with the second of three prongs, the job related- 
ness component. In construing this prong of the 
test, the Court noted that the message of the 
EEOC guidelines is the same as Griggs: 
"Discriminatory tests are impermissible unless 
shown by professionally acceptable methods, to 
be predictive of or significantly correlated with 
important elements of work behavior which 
comprise or are relevant to the job or jobs for 
which candidates are being evaluated.''^"*' In 
other words, the test must be sufficiently related 
to a position's work duties to be vahd. 

With the emphasis on the relationship of the 
test to the job, a series of procedures known as 
job analysis has emerged. A job analysis involves 
conducting a survey of job incumbents to identify 
job functions, their importance to performing the 
job successfully, and the amount of time spent 
performing each. Test questions are then written 
for the various functions and are incorporated 
into the test in proportion to their importance 
among the functions. 

This last procedure, known as balancing the 
content of the test, evolved from a concern with 
achievement tests some years ago.^"' Males typi- 
cally outscored females on these tests until test 
developers discovered that males perform better 
than females on test items concerned with scien- 
tific, mechanical, business, practical affairs, or 



97 Id. at 425-36. The EEOC's "Guidelines on Employee Se- 
lection Procedures," published in 1970, were a precursor to 
the current "Uniform Guidelines," jointly issued by the 
EEOC and other agencies. 

98 Id. at 425. 

99 Indeed, Congress codified the three-prong standard with 
the passage of the Civil Rights Act of 1991. Civil Rights Act 
of 1991, Pub. L. No. 102-166, 105 Stat. 1071 (1991) (burden 
of proof in disparate impact cases codified as 42 U.S.C. 
§2000e-2(k) (1994)). 

'00 Albermarle Paper Co., 422 U.S. 405 at 431 (citing 29 
C.F.R. § 1607.4(c)). 

'0' Carol A. Dwyer, "Test Content and Sex Differences in 
Reading," The Reading Teacher, May 1976, pp. 753-57. 



88 



mathematical content. The tests were then bal- 
anced with test items having human relations or 
arts and humanities content where females do 
better than males. '"^ Thus, the relation of the 
test to the job is estabhshed by linking both the 
content of the test questions and the propor- 
tional representation of various types of content 
to what persons actually do in that job. 

Whether test content is job related appears to 
be the legally accepted and widely practiced 
means of vaHdating employment tests. Yet other 
vahdation procedures exist and have been rec- 
ommended as additional procedures. Because 
some of these methods examine differences in 
performance according to race and gender, they 
seem particularly appropriate where bias and 
discrimination are concerns. 



size job relatedness. Ms. Carlson asserted, "Of 
primary concern is that each examination main- 
tain a regulatory focus and that its content and 
passing standards reflect the basic knowledge 
required to perform the job function and to pro- 
tect the investing public." '"^ 

A study booklet sent to persons taking the 
Series 7 examination emphasizes the job relat- 
edness of the test. "[The Series 7 exam] poses 
one and only one question about you: Do you 
have the competence to be a Registered Repre- 
sentative in the securities industry?" '"'^ The 
test's content, questions, and passing standards 
are determined by industry professionals who 
are either successful incumbents of the job for 
which the test is required or trainers of job in- 
cumbents: 



Test Development and Validation of 
Securities Industry Examinations 

The General Securities Registered Represen- 
tative Examination (Series 7) is an industrywide 
qualification examination for persons seeking 
registration as general securities representa- 
tives. '"3 The Series 7 qualification is required 
under the rules of the self-regulatory organiza- 
tions for persons who are engaged in the solicita- 
tion, purchase, and/or sale of securities for the 
accounts of customers. First created in 1974, its 
content was last revised in 1993. The test is 6 
hours long and has 250 midtiple choice ques- 
tions, i"* 

The NYSE has a number of procedures in 
place to develop and maintain this test and en- 
sure that it is related to the job. In fact, the test 
development procedures are the same for many 
of the securities industry examinations. The di- 
rector of testing standards of the NYSE, JoEllen 
V. Carlson, stated, "In the development, admini- 
stration and evaluation of its examinations, the 
NYSE aims to reflect the Standards for Educa- 
tional and Psychological Testing . . . and other 
professionally accepted psychometric standards 
and practices."'°5 Every effort is made to empha- 



"02 Ibid. 

'"■' James E. Buck, senior vice president and secretary, New 
York Stock Exchange, to Sandra Sciole, special counsel, 
Division of Market Regulation, Securities and Exchange 
Commission, June 29, 1994. 

'0'' Ibid. 

">5 Carlson written testimony, p. 2. 



In the initial development of a qualification examina- 
tion, the NYSE establishes a committee of incum- 
bents who currently perform the job function and 
other experts on the function and its requirements. 
This committee works with NYSE staff to oversee and 
participate in (1) a job/task analysis to identify the 
specific tasks of a person performing the function, and 
to determine the knowledge, skills, and abilities re- 
quired to carry out those tasks; (2) the development of 
an outline of the domain of knowledge required to 
perform the tasks (examination content outline); and 
(3) the determination of the emphasis to be placed on 
each aspect of the knowledge domain (examination 
specifications).'"* 

For example, the Series 7 examination covers 
three broad subject areas: securities instruments 
(84 questions), markets and regulation (53 ques- 
tions), and account management (113 ques- 
tions). '"^ Each of these areas is broken into 
about a dozen other categories covered by the 
test questions. To name a few, securities instru- 
ments includes questions on equities, U.S. 
treasuries, government agencies, corporate 
bonds, municipal securities, mutual funds, and 
money market instruments. Markets and regula- 



'06 Ibid. 

><" New York Stock Exchange, The Series 7 Study System, 
Booklet One, 1987, "Purpose." 

108 Carlson written testimony, p. 2. 

">9 New York Stock Exchange, The Series 7 Study System, 
Booklet One, 1987, "Content." See also James E. Buck, sen- 
ior vice president and secretary. New York Stock Exchange, 
to Sandra Sciole, special counsel, Division of Market Regula- 
tion, Securities and Exchange Commission, June 29, 1994. 



89 



tion has questions about underwriting stocks 
and corporate bonds. State regulations, major 
Federal securities acts, the Security Exchange 
Commission's regulations, and rules of the self- 
regulatory organizations. Account management 
has questions on opening and closing accounts, 
margin accounts, short sales, securities analysis, 
portfoUo management, and taxation."" 
As the NYSE explains to test takers: 

Some categories mentioned above get allotted more 
questions than others. For instance, you'll find more 
questions on options strategies than on preferred se- 
curities. This difference in emphasis reflects the 
findings of our research into what kind of knowledge 
is more important than other kinds for performing 
effectively as [a registered representative]."^ 

A job analysis survey was used to balance the 
test content in a way that is related to the job. A 
1993 siarvey for the Series 7 examination had 
two sections. The first section asked respondents 
to rate 36 job tasks according to (1) how much 
time a typical entry-level registered representa- 
tive spends performing the task and (2) how im- 
portant it is for an entry-level registered repre- 
sentative to be able to perform the task compe- 
tently at the time of registration or how serious 
the outcome would be for the client or firm if the 
registered representative did not perform the 
task competently. The second section hsted 50 
tjT)es of knowledge and asked how important an 
understanding of this knowledge was for an en- 
try-level registered representative in order to 
serve and protect the best interests of the cUent. 
NYSE obtained responses from a sample of 523 
entry-level registered representatives (i.e., those 
who were within the first 3 years of registration) 
who were identified through broker-dealer or- 
ganizations. Of the survey's respondents, 91.8 
percent were white, 0.8 percent were black, 3.1 
percent were Hispanic, 2.7 percent were Asian 
American and Pacific Islander, and 13.2 percent 
were women. "^ 



With respect to developing test questions: 

[T]he NYSE estabhshes committees to develop ques- 
tions for the examinations. The members of these 
committees are familiar with the requirements of the 
function because they have performed or have super- 
vised and/or trained individuals performing the func- 
tion. These question-writing and review committees 
are given orientation regarding sound question- 
writing principles, guidance as to appropriate types of 
questions, and assignments of topic areas for which to 
write questions. They then write and review ques- 
tions, from which forms of the examination are drawn 
to meet the specifications. "^ 

For the Series 7 examination, committee 
members hold the Series 7 registration and fill a 
variety of related functions."'* They represent 
firms of various sizes and types, and they meet 
three or four times a year."^ Three committees 
write and review questions, and questions go 
through at least two reviews. Questions are pre- 
tested on examinations 850 times where they do 
not contribute to candidates' scores, then ana- 
lyzed for their measurement and statistical 
properties and subjected to another content re- 
view before being scored on examinations."^ 
Certified staff continuously monitor questions to 
ensure that they remain current in the face of 
regulatory changes, recent financial pubhca- 
tions, sales practices, and so forth."'' Industry 
committees also determine the passing standard 
for the test. They are instructed to set passing 
standards at the minimum acceptable compe- 
tency to perform the functions of the job."^ 

For the Series 7 test, the NYSE draws upon 
professional expertise through various self- 
regulating organizations. The American Stock 
Exchange, the Chicago Board Options Exchange 
(CBOE), the MSRB, NASD, and the Philadelphia 
Exchange participated in the development of the 
test's content outUne and other specifications. 
The CBOE, the MSRB, and NASD participate in 



110 Ibid. 

1 1 1 New York Stock Exchange, The Series 7 Study System, 
Booklet One, 1987, "Content." 

112 New York Stock Exchange, General Securities Registered 
Representative Job Analysis Survey, August 1993. See also 
New York Stock Exchange, General Securities Registered 
Representative Job Analysis Survey, August 1993, Sum- 
mary of Responses (1993). 



113 Carlson written testimony, p. 2. 

114 Ibid. 

115 Ibid., p. 3. 

116 Ibid. 

117 Ibid. 

118 Ibid., p. 2. See also "Distribution of Knowledge and Skill," 
a page "used in standard-setting" that the NYSE submitted 
to the U.S. Commission on Civil Rights. 



90 



writing and reviewing questions for the Series 7 
examination. "9 

Provision is also made for public review of 
test content.''^" The NYSE submits examination 
content outlines and specifications to the U.S. 
Securities and Exchange Commission (SEC), 
which solicits public review and comment on 
them. Test questions are also submitted, but be- 
cause they must remain confidential, they are 
reviewed only by SEC. The NYSE makes any 
necessary adjustments based upon this review 
process.'-' 

Table 3.13 

Percentages Passing the Series 7 Examination 
by Race and Gender 



Race 

White 
Black 
Hispanic 
Asian American 
American Indian 

Gender 

Male 
Female 



73.4% 
44.8 
54.5 
67.0 
49.3 



73.9 
60.2 



Source: National Association of Securities Delears, "EEO Survey 
Results" (for the period Nov. 1, 1994-July 20, 1995, including 
partial results for October 1994), July 21, 1995 

Finally, test takers can obtain a study booklet 
with a sample test to prepare for the examina- 
tion. The test's purpose and how it was devel- 
oped are clearly explained. The brief explanation 
reads: 

The Series 7 Exam is developed by trained profes- 
sionals at the New York Stock Exchange with the 
active assistance of many industry professionals. . . . 

In order to make sure that the exam's definition of a 
competent [registered representative] is entirely job- 
related, the New York Stock Exchange has taken the 
following steps in its development: 



"8 Carlson written testimony, p. 1. 

'2" Ibid., pp. 2-3. See also James E. Buck, senior vice presi- 
dent and secretary. New York Stock Exchange, to Sandra 
Sciole, special counsel, Division of Market Regulation, Secu- 
rities and Exchange Commission, June 29, 1994. 

1^1 Ibid. 



Conducted extensive interviews with professionals 
working at many different locations and for many 
types of securities firms; Prepared a report on the 
basis of these interviews that set forth the [registered 
representativej's most critical functions and responsi- 
bilities: Presented the findings from this report before 
a committee of securities industry specialists: • • • Set 
up a system in which all questions are written either 
by experienced [registered representatives] or by per- 
sonnel involved in the actual training of [registered 
representatives]. '-- 

Thus, the NYSE gave every indication that 
their procedures tried to ensure the job related- 
ness of their examinations and followed gener- 
ally accepted psychometric standards and prac- 
tices. Yet there was Uttle sign that the Series 7 
test, or any of the others, had been examined for 
adverse impact on minorities and women and 
ways to reduce that effect. Pass rates appear to 
be routinely collected and reported for tests, '^3 
and even for test questions. '-'' However, they 
had apparently not been analyzed by race or 
gender before the U.S. Commission on Civil 
Rights' inquiries. Table 3.13 shows the percent- 
age of persons passing the Series 7'25 examina- 
tion by race and gender. Seventy-three percent 
of whites who take the test pass it. Only 45 per- 
cent of blacks, 49 percent of American Indians, 
and 54 percent of Hispanics pass. Asian Ameri- 



'22 New York Stock Exchange, The Series 7 Study System, 
Booklet One, 1987, "Purpose." 

'-^ Derek W. Linden, director. Member Services Operations 
and Legal Counsel, National Association of Securities Deal- 
ers, Inc., letter to Michelle N. Yu, Office of General Counsel, 
U.S. Commission on Civil Rights, July 25, 1995, Exhibit 8, 
"1994 Test Volume and Pass Rate Statistics." Note that al- 
though the NYSE develops the Series 7 examination, NASD 
handles much of the test administration including arranging 
appointments for individuals to take the examination, ad- 
ministering the test, and scoring and reporting test results 
(see Carlson written testimony, p. 1). Therefore, information 
on the Series 7 examination's results was provided by 
NASD. 

121 New York Stock Exchange, The Series 7 Study System, 
Booklet Two, 1987. 

'2'i Apart from the Series 7 examination, the only other test 
for which pass rates were available by race or gender was 
the Series 17 test, an examination that qualifies general 
registered representatives from the United Kingdom to sell 
securities in the United States. The Series 17 test questions 
are drawn from the Series 7 examination. See NASD, "EEO 
Survey Results" (for the period Nov. I. 1994 to July 20, 
1995, including partial results for October 1994). July 21, 
1995: New York Stock Exchange, "Confidential Excerpts 
From Procedures Manual for the Testing Standards Sec- 
tion," 199;!. 



91 



can and Pacific Islanders come closest to the 
white passage rate at 67 percent. Seventy-four 
percent of men pass but only 60 percent of 
women. The stark differences in the pass rates 
suggest that, despite the efforts to ensure that 
the test is job related, some additional analyses 
should be performed by the NYSE to determine 
whether the test contains biases against minori- 
ties and women that can be removed. 

Policies, Programs, and Activities Promoting 
Opportunities for Minorities and Women 

The banks and securities firms were asked to 
provide documents relating to their procedures 
for obtaining job applicants, any efforts to in- 
crease the number of minority and female appli- 
cants, and any efforts to increase retention and 
advancement of minorities and women. These 
documents are used to give some examples of the 
procedures these companies use for recruiting, 
hiring, and promoting staff. Some companies 
had written policies for equal employment op- 
portunities and affirmative action programs, 
training programs, career development strate- 
gies, mentoring programs, and scholarship pro- 
grams. Some of these are described, too. A more 
comprehensive summary of the recruitment 
practices, training, and scholarship programs of 
these banks and securities firms follows the ex- 
amples. 

Recruiting, Hiring, and Promoting Staff 

One company's system for recruiting, hiring, 
and promoting staff is described below. The 
company in the example was chosen because it 
was large, had a structured hiring system, and 
provided extensive documentation about its sys- 
tem, ^^e Although other companies did not have 
the amount of documentation of the one used in 
this example, the documents they did provide 
showed that other companies had at least some 
similarities to the one below. 

In the hiring and promotion system of the 
company used here as an example, several as- 
pects are of interest. First, the company has 
three different recruitment schemes depending 
upon the level of the position. Second, except for 
entry-level and executive positions, the system is 
designed to fill vacancies and promote candi- 
dates strictly from within the company. Third, 



executive positions were exempt from the proce- 
dures that applied to lower level positions, such 
as the job-posting system and the promotion of 
internal candidates. The three recruitment 
schemes included a set of guidelines for execu- 
tive recruiting, an internal job-posting system 
for jobs other than executive and entry-level po- 
sitions, and a division in charge of entry-level 
recruiting. 

Guidelines for executive recruiting are out- 
hned in the company's human resources manual. 
The manual hsts five alternative sources for 
seeking external candidates for executive posi- 
tions: (1) an executive search firm (used for the 
most senior positions, such as vice presidents); 
(2) an employment agency (used to fill high-level 
manager positions); (3) research or market in- 
teUigence conducted by a recruitment unit; (4) 
advertising; and (5) referrals or other nonfee 
sources generated by the unit with the va- 
cancy. '^^ 

The internal job-posting system is "designed 
to communicate job openings to employees and 
to provide them with an opportunity to bid di- 
rectly for those jobs for which they are qualified 
and in which they are interested." '^^ This system 
is for officers (mostly supervisory and manage- 
rial positions) as well as nonofficer (i.e., profes- 
sional, technical, and secretarial) jobs above en- 
try-level grades. However, vacancy postings for 
officer and nonofficer positions are maintained 
by different subdivisions of the company's hu- 
man resources division and are shghtly different 
systems. For nonofficers, the posting system Usts 
vacant positions in the greater New York area. 
For officers, however, it lists them in different 
subsidiaries and locations across the United 
States. With respect to the nonofficer system, 
the human resources manual notes that employ- 
ees who have been in their present position for 
at least a year and who have good performance, 
attendance, and punctuahty records may have 
up to two active bids on posted jobs.^^g 

Company poUcy calls for filling vacancies 
with internal candidates when possible. i^o Va- 
cancies in existing positions are filled by select- 



126 Exhibit HN. 



'2' Exhibit HN, Human Resources Guide, sec. 102, pp. 3-4. 
'28 Exhibit HN, Human Resources Guide, sec. 105, p. 1. 

129 Ibid., pp. 1-2. 

130 Exhibit HN, Human Resources Guide, sec. 102, p. 1; sec. 
105, p. 1. 



92 



ing "someone from within the unit who quahfies 
for promotion to the job/'^^i jf there is no quah- 
fied candidate within the unit, an employee req- 
uisition form is completed, and the human re- 
sources division tries to identify and refer poten- 
tial candidates from elsewhere in the company. 
The human resources division typically accom- 
plishes its mission by -entering information from 
the Employee Requisition Form into the internal 
job-posting system. Only if there are no suitable 
internal candidates does the human resources 
division begin an external search. 1^2 

External searches for candidates to fill jobs 
above the entry level are conducted by the hu- 
man resources division. But, the human re- 
sources guide does not describe any procedures 
for such a search. i^^ Furthermore, the point at 
which the search for an internal candidate is 
exhausted is unclear. At least some vacancies 
were hsted in the internal job-posting system for 
close to a year.i^* Thus, external searches for 
candidates do not appear to be a much used 
strategy for vacancies above the entry level. The 
primary way for outsiders to gain employment in 
this company is, therefore, through entry-level 
positions which are obtained by entering a 
training program. 

Most of the companies examined strongly re- 
lied on internal recruitment for all but entry- 
level and executive jobs and generally provided 
internal employees with an advantage in the 
hiring process. For example, one company posted 
jobs internally for 5 days prior to being posted 
externally. However, this company relied largely 
on an employee referral system '^s — a method 
critics claim reproduces the status quo in terms 
of the racial and gender composition of the work 
force. 



Training Programs 

Most of the external hiring by banks and se- 
curities firms occurs at entry level by recruiting 
job candidates into training programs. Many 
banks and securities firms offer training pro- 
grams. The training programs target job candi- 
dates with different levels of education, but gen- 
erally at a bachelor's degree or above. •3'' For ex- 
ample, there are programs for recent business 
school graduates with master's degrees (MBAs), 
summer programs for graduate students who 
have completed 1 or 2 years of business school, 
programs for persons with bachelors degrees 
(BAs), and in some cases, summer or school year 
programs for undergraduate students. One com- 
pany's programs, and its success in recruiting 
minorities and women into them, is examined 
below. 

This company's programs are comprehensive, 
as suggested above. It has five programs for per- 
sons who have completed their MBAs, for exam- 
ple, in corporate finance, real estate finance, in- 
vestment banking, sales, and trading. '^7 Train- 
ees who complete the 4-month MBA programs 
are offered a job or an assignment in the com- 
pany. Parallel 10-week long summer programs 
are available for students enrolled in graduate 
business programs. Other programs are for col- 
lege graduates, for example, the financial ana- 
lyst, credit audit, and human resources associate 
programs. The program duration of these ranges 
from 15 months (all training) to nearly 3 years (9 
months training and a 2-year assignment). 

The company recruits trainees through a va- 
riety of sources, including qualified internal 
candidates identified during a company career 
fair, offers to return to the previous year's sum- 
mer interns, a college and university recruit- 
ment program, and referrals and inquiries. The 



•" Exhibit HN, Human Resources Guide, sec. 105, p. 1. 

'32 Ibid. 

'33 Ibid. 

'3'< See Exhibit HN, job postings. The set of job postings re- 
ceived is not complete. Therefore, one cannot always deter- 
mine the full length of time that jobs were posted. However, 
as examples, one job (#90025, request #000099) was in the 
listing from sometime before Dec. 29, 1993, until Aug. 30, 
1994; another job (#90028, request #0000SD) was listed from 
June 8, 1994, until May 12, 1995, or later. These were two 
randomly selected jobs, not necessarily the ones posted for 
the longest time. 

"35 Exhibit RS. 



'36 See Minority MBA, 1994/1995 Edition, for example, the 
Employment Profiles of "J.P. Morgan," p. 110, "Salomon 
Brothers," p. 138, and "Smith Barney," p. 140. See also Ex- 
hibit HN, "Entry-level Training Programs." In at least one 
instance, the subpoenaed documents may have described 
more training programs than were actually operational. 
Although the documents included a wide array of training 
programs, a recruitment report on them presented enroll- 
ment statistics for only three MBA programs and two BA 
programs. See Exhibit HN, "Entry-level Training Programs," 
and "Entry Level Recruitment Report." 

'3' Exhibit HN, "Entry-level Training Programs," and ". . . 
Entry Level Recruitment Report." See also Flyers and mis- 
cellaneous other documents. 



93 



majority of offers to potential trainees for the 
MBA programs are made through campus re- 
cruitment. Offers to potential trainees for the BA 
programs may result either from campus re- 
cruitment or from referrals or inquiries. '^^ 

The company's campus efforts included re- 
cruitment at some women's colleges (including 
Wellesley and Bryn Mawr) and some historically 
black schools (including Howard University, 
Morehouse College, and Spelman College) 
among other outstanding colleges and business 
schools. '39 

The company had not been successfvd at re- 
cruiting minorities and women into its pro- 
grams. ""• In 1993 to 1994, only 8 percent of the 
people accepting offers to enter MBA programs 
were black or Hispanic and only 21 percent were 
female. Seventeen percent of persons who ac- 
cepted offers to enroll in the BA programs were 
black or Hispanic. Thirty-three percent of the BA 
program enrollees were women.''*' Yet the com- 
pany was trying to increase the numbers of mi- 
norities and women in its programs. A company 
report states, "[I]n general we want an aggres- 
sive mix of male, female and ethnicities based on 
availabihty in the college population."'''^ It had 
set goals for recrviiting women, African Ameri- 
cans, and Hispanics'-'^ and was recruiting at his- 
torically black and female colleges. The company 
made only five offers to students from histori- 
cally black colleges and three to six offers to stu- 
dents at female colleges.'*''' The effort to recruit 
from historically black colleges should not be 
discounted. Trainees recruited from historically 
black colleges doubled the number of the African 
American acceptances in the BA programs (i.e.. 



'38 Exhibit HN, ". . . Entry Level Recruitment Report," pp. 
3-6, 9, 12, 15, 19, 21. 

'38 Exhibit HN, ". . . Entry Level Recruitment Report," pp. 5, 

17-19. 

I'*" Exhibit HN, ". . . Entry Level Recruitment Report," pp. 3, 

9, 12, 15, 19, 21. Percentages were recalculated and differ 

slightly from those in the original. 

i"" Exhibit HN, ". . . Entry Level Recruitment Report," pp. 3, 
9, 12, 15, 19, 21. Percentages were recalculated and differ 
slightly from those in the original. 

'"•2 Exhibit HN, ". . . Entry Level Recruitment Report," p. 1. 

'■•s Exhibit HN, ". . . Entry Level Recruitment Report," p. 3. 

1^4 Exhibit HN, ". . . Entry Level Recruitment Report," pp. 5, 
17-19, 12, 15, 19, 21. Percentages were recalculated and 
differ slightly from those in the original. 



four out of eight enrollees were from these 
schools). '■'^ 

Recruiting Diversity 

A number of the banks and firms do have 
certain special procedures in place to aid in the 
recruitment of minorities and women. Recruiting 
at women's colleges and historically black 
schools was one method used by the sample 
company above. Involvement with national or- 
ganizations (e.g., the National Society of His- 
panic MBA's and the National Black MBA Asso- 
ciation), participation in career fairs or forums 
through the campus organizations of minorities 
and women, and sponsoring fellowships and 
scholarships for minorities and women were 
other ways that this company encouraged mi- 
norities and women to seek employment in the 
finance industry.'''^ 

Advertising targeted to minorities and 
women is another method used to raise interest 
among minorities and women. Advertising no 
doubt results in many of the candidates who 
write in to apply for entry-level positions in the 
finance industry. A number of banks and securi- 
ties firms advertise in two magazines with a 
large minority readership of people pursuing 
business as a career: Minority MBA and Black 
Enterprise. 

Minority MBA is "the career magazine for Af- 
rican American and Hispanic graduate business 
students." The annual publication features pro- 
files of corporations seeking minority MBAs. The 
magazine also offers a free resume service 
sending a respondent's resume to as many as 15 
of the featured companies.''''' 

The 1994/1995 issue oi Minority MBA profiled 
73 companies including several banks and secu- 
rities firms, for example. Chase Manhattan 
Bank, Chemical Banking Corp., J.P. Morgan, 
Kidder, Peabody & Co., Salomon Brothers, and 
Smith Barney.'''* Although each of these compa- 
nies carried profiles and full-page advertise- 
ments in this magazine, their emphases differed 
tremendously. Some could be characterized as 
company profiles, i.e., reporting the company's 
size, age, stabihty, worldwide presence, and 



"5 Ibid. 

'■"^ Exhibit HN, "Action Oriented Programs." 
'■f' Minority MBA, 1994-1995 Edition, p. 16. 
'■fs Ibid. 



94 



number of employees;'''^ other profiles were em- 
ployment-related profiles, either stating charac- 
teristics the employer wants in its employees 
(e.g., "the best and brightest," "soUd analytical 
thinking," "smart, energetic," and/or "leaders")i50 
or describing the office environment (e.g., client- 
oriented, teamwork, empowerment, nonbureauc- 
ratic, and entrepreneurial). '^i The profiles and 
advertisements also differed in how much space 
they allotted to describing training programs'52 
and career opportunities. ^^3 Finally, the profiles 
and advertisements differed in their appeal to 
minorities. 

In a magazine with a minority audience, the 
extent and types of appeals made to minorities 
ran the gamut. One firm made no special appeal 
to minorities in its advertisements. '^^ Four of the 
six firms used popular catch phrases to encour- 
age minority appHcants (e.g., "equal opportunity 
employer"'^^ or "diversity'^^^). Three firms had 
photographs of a minority employee '57 g^d two 
included quotes from the person who was pic- 
tured. In one of these instances, the quote sug- 



■'" The Chemical Banking Corp. profile contains many of 
these indicia, as well as the number of stockholders and 
number and location of U.S. and international branches, 
subsidiaries, and major divisions. Minority MBA, 1994-1995 
Edition, p. 82. 

'5" See, e.g., the profiles and advertisements of J.P. Morgan, 
Kidder, Peabody, and Smith Barney. Minority MBA, 1994— 
95 Edition, pp. 110-11, 114-15, 140-41. 

'5' See the profiles and advertisements of Chemical Banking 
Co., J.P. Morgan, and Smith Barney. Minority MBA, 1994— 
95 Edition, pp. 82-83, 110-11, 140-41. 

'*2 For example, the Salomon Brothers' profile is entirely 
devoted to describing its training programs and the experi- 
ences gained through them. More typically, references to 
training programs are brief Minority MBA, 1994-95 Edi- 
tion, p. 138. 

'53 Chase Manhattan has a company profile, but the adver- 
tisement accompanying it is fully devoted to portraying a 
wide range of career options. Most of the profiles have only a 
short paragraph about career opportunities. Minority MBA, 
1994-95 Edition, p. 138. 

•5'' Minority MBA, 1994-1995 Edition, pp. 80-81 (discussing 
Chase Manhattan's advertising policies). 

•55 Ibid., pp. 82, 114 (discussing Chemical Banking Corp. 
and Kidder, Peabody & Co.). Kidder, Peabody also included 
the language, "We invite inquiries from minorities, women, 
. . . disabled individuals and members of other protected 
group." 

'56 Ibid., pp. 82, 139, 141 (discussing Kidder, Peabody & Co., 
Salomon Brothers, Smith Barney). 

157 Ibid., pp. 83, 110, 139 (discussing Chemical Banking 
Ck)rp., J.P. Morgan, and Salomon Brothers). 



gested that the pictured African American found 
the working environment hospitable; '58 in the 
other, the quote — a half-page in length — 
demonstrated that a person who is a minority 
can be successful. This African American found 
"significant opportunities for personal develop- 
ment." He "moved from analyst to project man- 
ager" in "six years." He became "responsible for 
managing approximately 30 analysts" and for 
"staffing projects, developing the analysts' skill 
base, and analyzing their performance. "i^^ 

Black Enterprise is a monthly pubhcation 
targeted to African American businessmen. It 
has an annual careers and business opportuni- 
ties issue. A number of banks and securities 
firms have run advertisements in this issue. i^" 

The advertisements range in size from a full 
page to an eighth of a page. Of the seven banks 
and firms examined more closely, three had full- 
page advertisements, two had half-page adver- 
tisements, and two had quarter-page or smaDer 
advertisements. 1^1 But even in this reduced for- 
mat, the advertisements varied from those em- 
phasizing the company and career opportunities 
to those stressing the employment environ- 



'58 Ibid., p. 83 (discussing Chemical Banking Corp.) ("At 
Chemical, senior managers take an active role in developing 
and nurturing Associates. They want to make sure that 
every opportunity is afforded you to grow with the organiza- 
tion. They involve themselves and really take an interest in 
your needs"). 

'59 Ibid., p. 110 (discussing J.P. Morgan). 

'60 See Black Enterprise, Careers & Business Opportunities 
Issue, February 1995, pp. 63, 143, 147, 201, 205, 208, 217 
(printing job advertisements from Dean Witter, Prudential, 
J.P. Morgan & Co., Merrill Lynch & Co., Inc., Citibank, 
Chase Manhattan Bank, and the Securities and Exchange 
Commission). 

'6' Dean Witter, the Prudential, J.P. Morgan & Co., Merrill 
Lynch & Co., Inc., Citibank, Chase Manhattan Bank, and 
the Securities and Exchange Commission advertised job 
opportunities in Black Enterprise's Careers & Business Op- 
portunities Issue. Ibid. 

Note that in addition to its half-page ad for recruiting em- 
ployees. Chase Manhattan had a full-page ad for financing 
black-owned businesses. Ibid., p. 87. The financial services 
ad features the photograph of an African American busi- 
nessman who was financed by Chase, along with his very 
successful business — Black Enterprise, itself Only the half- 
page ad on career opportunities has been examined in the 
analysis herein. The financial services ad, however, may 
create the positive image of minorities succeeding with 
Chase, even though that image is lacking in the career op- 
portunities ad. 



95 



merit. '^2 All of the advertisements used language 
such as "equal opportunity employer," or 
"diversity," or both. Two of the full-page adver- 
tisements had photographs of successful minor- 
ity group members; none of the half-page or 
smaller advertisements had photographs, al- 
though one had a multiracial graphic. Both ad- 
vertisements with photographs portrayed suc- 
cessful minority employees. '^^ Certain aspects 
made some profiles and advertisements in these 
magazines more appeahng than others. For ex- 
ample, advertisements that described the work 
environment gave the impression of a company 
more interested in fulfilhng its employees than 
advertisements that had a company profile or 
hsted traits of desirable job candidates. 

Some finance industry employers had become 
concerned about increasing the numbers of mi- 
norities and women in their companies. They 
were developing comprehensive plans for pro- 
moting diversity. The targeted recruiting meth- 
ods described above, recruiting at historically 
black colleges and advertising in minority media, 
were only two of the many strategies that were 
being incorporated into these diversity plans. A 
diversity plan developed by the company used as 
an example here calls for (1) increasing the mi- 
nority representation in the entry-level profes- 
sional recruitment programs, (2) increasing the 
participation of minorities in the recruitment 
process both on campuses and with interviews at 
the headquarters office, (3) estabhshing partner- 
ships with historically black colleges, (4) creating 
and expanding existing affihations with profes- 
sional organizations such as the National Society 
of Hispanic MBAs, (5) increasing the company's 
presence at expositions and special events tar- 
geted toward minorities, and (6) continuing and 
increasing participation in summer internship 
programs through charitable organizations with 
a minority focus. i^'' 



"■2 Chase Manhattan's ad is an example of one emphasizing 
the employment environment. Its ad stresses showing 
"respect for our colleagues" and recognition of their unique 
talents and contributions. Ibid., p. 217. 

163 Dean Witter's ad showed a black woman who had ad- 
vanced from account executive to vice president in 7 years. 
Prudential's ad showed an African American male who had 
received "several promotions" and earnings increases. Ibid., 
pp. 63, 143. 

'^-i Exhibit HN, "Diversity Advisory Council Update," chart, 
pp. 4-5. 



Although this company may have been one of 
the most advanced in developing a comprehen- 
sive diversity plan, the plan will have had little 
effect on the employment statistics in this re- 
port. New strategies were only being imple- 
mented in 1994 and 1995, and, of course, a num- 
ber of the strategies, including a minority schol- 
arship program, 165 were preexisting to the devel- 
opment of the plan. 

Not aU of the banks and firms had made such 
an effort to target minorities and women. One 
notable exception was a company that did not 
have programs targeted to hiring minorities and 
women, but it had them for people with disabili- 
ties, the aging, welfare recipients, and youth. '^^ 

A company's work force is shaped not just 
through its hiring procedures but also through 
the environment it provides in the workplace. 
The next topic is how equal employment oppor- 
tunity and affirmative action are instituted and 
implemented within the company. It is followed 
by a discussion on diversity training. 

Equal Employment Opportunity and 
Affirmative Action 

As private companies, banks and securities 
firms are not required to have written pohcies or 
any other measures directed toward increasing 
the numbers of minorities and women they em- 
ploy. '^'^ Nonetheless, at least some firms have 
written equal employment opportunity and af- 
firmative action poUcies as well as other meas- 
ures intended to encourage the presence and 
advancement of minorities and women. Diver- 
sity training, designed to make a more hospita- 
ble work environment, and career development 
and mentoring programs are some of the strate- 
gies used. 

An example of a written equal employment 
opportunity and affirmative action pohcy is 
found in one company's human resources guide. 
It states the following: 



'<>5 Exhibit HN, "Media Activity Reports." 
'6G Exhibit RS. 



"''' Of course, companies must comply with antidiscrimina- 
tion laws and may have implemented procedures to ensure 
that they are not the subject of discrimination suits. Fur- 
thermore, companies that have been the subject of a dis- 
crimination complaint filed with the EEOC may have, as a 
condition of settlement of the complaint, implemented and 
posted an equal employment opportunity policy or practice. 



96 



It is [this company's] policy to: 

• Provide equal opportunity in all areas of human 
resources management, including recruitment, 
employment, promotion, transfer, compensation, 
benefits, training, education and any other em- 
ployee programs. No employee shaU be discrimi- 
nated against or harassed because of age, color, 
disability . . . national origin, . . . race, . . . sex .... 

• Act affirmatively to increase the participation of 
women, minorities, . . . and persons with disabili- 
ties at aU levels and in all segments of our work- 
force and to establish goals as appropriate. '^^ 

Furthermore, the manual holds all employees 
accountable for abiding by this pohcy, speUing 
out the role of managers and identifying the 
point at which the human resources division be- 
comes involved. For example, it charges all em- 
ployees with the responsibility for treating their 
coworkers and all other company employees with 
respect.1^8 In addition, managers must under- 
take to support the company's equal opportunity 
and affirmative action poUcy; continually inform 
their subordinates about the pohcy; "consider 
women, minorities, persons with disabihties . . . 
when making hiring, promotional or transfer 
decisions to help meet . . . affirmative action 
goals"; assure that employees are not harassed 
because of their age, color, disability, national 
origin, race, or sex; be alert to potential problems 
that may occur in their units; and appropriately 
refer inquiries and complaints about equal op- 
portunity and affirmative action principles. i™ 
The human resources division is responsible for 
preparing any required afiirmative action plans 
and for monitoring their implementation and 
effectiveness. 1^^ 

Another company has an extensive written 
instruction on disseminating their equal em- 
ployment opportunity poUcy and affirmative ac- 
tion program. The instruction directs the equal 
employment opportunity administrator of steps 
to be taken "in order to inform all employees, 
including management and supervisory staff as 
well as apphcants for employment and others. 



that the [company] is an Equal Opportunity 
Employer and to apprise them of its official pol- 
icy. . . ."'■'2 

Steps for internal and external dissemination 
are shown in table 3.14. The president's policy 
statement, meetings of supervisory and manage- 
rial staff, meetings between supervisors and 
managers and their underlings, and company 
posters are some of the mechanisms through 
which these poUcies are communicated inter- 
nally. Recruiters, employment agencies, con- 
tracts, and consumer advertising are external 
channels. 

Diversity Training 

A diversity training program was one means 
that at least one company was using both to help 
its employees get along better with one another 
and to make a stronger, broader appeal to its 
chents.i''^ The program began with a forum for 
executives lasting over a week. During the fo- 
rum, the executives were to develop a common 
understanding of the value of effectively man- 
aging diversity. This common understanding 
was then used to develop curricula and conduct 
diversity training workshops for managers and 
lower level employees. Workshops for managers 
and the employee base were 3 days and 1 day, 
respectively. The curricula sought to help pro- 
gram participants recognize diversity, value it as 
an enrichment, and for managers, take advan- 
tage of a diverse work force to enhance company 
competitiveness, i'''* 

Career Development Strategies 

Two career development strategies and a 
mentoring program are among the strategies 
some companies developed to help minorities 
and women advance in their careers. One of the 
career development strategies is a formalized 
system for identifying career paths and advanc- 
ing minorities through them; the other is a 
training program. 

One company formed an "Employee Devel- 
opment and Mobility Department" to formahze 
companywide access to developmental opportu- 



'68 Exhibit HN, Human Resources Guide, "Equal Opportu- 
nity and Affirmative Action," sec. 101, p. 1. 

'03 Ibid., sec. 101, pp. 1-2. 

"™ Ibid. 

I" Ibid. 



'■'^ Exhibit NG, "Dissemination of Policy." 

"3 Exhibit HN, "Diversity Advisory Council Update," p. 1. 

"•' Exhibit HN, "Valuing Diversity" workbook. 



97 



nities for employees. ^''^ The department was to 
establish career paths that target specific posi- 
tions as developmental assignments. It would 
also identify the developmental needs of minor- 
ity employees and develop and maintain a data- 
base of "high-potential" minority employees. 
This department was also responsible for man- 
aging support programs for minority employees 
such as the mentoring program discussed be- 
low. I's 

In another career development program, sev- 
eral corporations formed a consortium to design 
a cost-effective, but high-quahty, management 
training program for women to be offered at a 
local college. The stated program objectives were 
to develop skills, broaden perspectives, prepare 
participants to assume greater responsibility 
within their organizations, and provide net- 
working opportunities with other professional 
women. '''^ 

The core of the training program was a 2- 
week classroom curriculum.''* This curriculum 
was preceded by a preparatory session and fol- 
lowed by a debriefing session. During the pre- 
paratory session, the trainee meets with her 
immediate manager and a human resovu-ces pro- 
fessional to develop learning goals related to 
business issues and her performance, skills, 
knowledge, and career plans. The proposed 
classroom training includes 12 days of curricula 
primarily on corporate, marketing, and global 
strategies. A 1-day session on managing diver- 
sity, and a half-day on career planning, occur 
midway through the curricvda. During the de- 
briefing, the trainee meets again with her im- 
mediate manager and a human resources profes- 
sional to discuss how the information learned in 
the training session influenced the participant's 
personal learning goals and action plan.i'^ 

Program participants were nominated by 
senior human resovu-ce executives. The ideal 



"5 Exhibit HN, "Diversity Advisory Council Update," chart, 
pp. 2-3. Note that these activities were scheduled for the 
winter of 1994-95 and therefore were too recent to affect the 
racial and gender data on employees used here. 

'''* See Exhibit HN, "Diversity Plan" and the "John memo- 
randum," which refers to the "Employee Development and 
Mobility Group." 

'■''' Exhibit HN, "Smith College Consortium Program, Pro- 
posal — January 25, 1995" ("Consortium Proposal," p. 1). 

"8 Exhibit HN, "Consortium Proposal." 

'79 Ibid. 



candidates were described as high potential sec- 
ond vice presidents or vice presidents who had 
been in a role of significant responsibility, did 
not have an MBA, and were strong candidates 
for a senior management position within the 
next 5 years.'*" One of the participating corpora- 
tions anticipated having six to eight employees 
in the consortium program each year,'*' and ex- 
pected that the second year of participation 
would result in a "significant advancement in 
reaching our goal of breaking the 'glass ceil- 



ing. 



'182 



Mentoring Program 

At least one company began a 12-month long 
mentoring program, although it is too recent to 
influence the representation of minorities and 
women in the data here.'** The mentoring pro- 
gram is highly structured, from its stated pvir- 
pose to the ways in which mentors and mentees 
were selected and assigned and the activities in 
which they were required to engage. The pro- 
gram's details, therefore, merit a full under- 
standing. 

The stated purpose of the program is "to in- 
crease retention and mobiHty of our highly val- 
ued employees"; to "[c]reate a network of con- 
tacts . . . that will facilitate individual growth"; 
to "[fjoster communication and collaboration 
among . . . employees"; and to "[b]roaden indi- 
vidual and organizational perspective through 
cross-cultviral, cross-gender, and cross-generational 
interaction."'*'* 

The program was to focus on racial minorities 
but not exclude nonminority males and fe- 
males. '*5 It began with 55 mentees and a goal 
that about 65 percent of them were to be minor- 
ity candidates. Mentees were to be selected from 



'80 Exhibit HN, "1995 Smith College Consortium Program," 
Mar. 8, 1995 (hereafter cited as "Consortium Memo"). 

•*' Exhibit HN, "Consortium Memo." The first pilot of this 
program took place in 1994; a second pilot was scheduled for 
July 16-28, 1995, concurrent with the U.S. (Commission on 
Rights' hearing that subpoenaed documents on the program. 

'82 Exhibit HN, "Consortium Memo." 

'83 It began in January 1995. Exhibit HN, "Regional Bank 
Mentoring Program Plan Roll-Out." 

'8'" Exhibit HN, "Regional Bank Mentee Guidebook," p. 2, 
and the "Regional Bank Mentor Guidebook," p. 2 (hereafter 
cited as "Mentee Guidebook" and "Mentor Guidebook"). 

'85 Exhibit HN, "Dec. 16, 1995 [sic "1994"], Memorandum 
Re: Mentoring Program Roll-Out." 



98 



Table 3.14 

Example of a Written Procedure for Disseminating Equal Employment Opportunity 
and Affirmative Action Policies 

Steps for Internal dissemination 

1 The President's Policy Statement ... is included In any policy manual and is made available to all present and 
future employees. 

2 Special meetings with management and supervisory staff are held to outline and explain Equal Employment 
Opportunity and Affirmative Action and the [companyj's responsibility for effective implementation of the Af- 
firmative Action Program. 

3 Managers and supervisors communicate to those under their supervision information regarding the [com- 
panyj's policy and program on Equal Employment Opportunity. 

4 The [companyj's status as an Equal Opportunity Employer is communicated to all prospective employees. 

5 Articles and pictures related to minority and non-minority men and women ... are included from time to time in 
any [company] publication. 

6 Copies of the Policy Statement and copies of Equal Employment Opportunity posters are posted prominently 
on bulletin boards at all work sites and at places where employees naturally congregate within the [company]. 

7 

8 Suitable portions of the Affirmative Action Program are made available for inspection by applicants and em- 
ployees on request in the Human Resources Department during working hours. 

Steps for external dissemination 

1 Recruitment sources are informed, orally and in writing, of the [company]'s official policy on Equal Employment 
Opportunity. A letter is mailed to each recruitment source annually. In this letter ... it is stipulated that recruit- 
ment sources are requested to actively recruit and refer females, minorities, ... for all positions listed. 

2 When recruiting through employment agencies, the [company] informs such sources that it is committed to 
using referral sources that refer applicants on a non-discriminatory basis and that referrals of minority and non- 
minority males and females ... are expected for jobs at all levels. . . . 

3 Notices of the [company]'s Equal Employment Opportunity Policy are sent to potential sources for employment 
of females and minorities. 

6 Written purchase orders include the [company]'s affirmation that it is an equal opportunity employer and state: 
"The Equal Opportunity and Affirmative Action Clauses, as set forth by the Department of Labor. . . are hereby 
incorporated. ..." 

7 An appropriate Equal Employment Clause is incorporated in all contracts covered by or subject to Executive 
Order 11246. ... All vendors, suppliers and subcontractors covered as above are notified in writing of the 
[company]'s Equal Employment Opportunity Policies and are requested to provide appropriate supportive ac- 
tion. . . . 

8 Should the [company] engage in any consumer advertising calling for the use of pictures, both minority and 
non-minority men and women . . . will be featured in varied higher-level and non-traditional jobs, wherever 
possible. 

Source: Exhibit NG 



99 



graduates of the entry-level professional training 
programs, high-potential and "well-functioning" 
officers and nonofficers, newly hired minorities 
in mid-career, and candidates from outlying 
branches. i^s Mentors were nominated by human 
resource managers. They were to be "solid" per- 
formers who had at least 3 years of experience 
with the company, strong knowledge of the com- 
pany and its branches, and well developed net- 
works within it.'*'' 

Not only were mentors and mentees carefully 
selected, but they were also carefully matched to 
each other because research had shown that 
matching increased the success of such a pro- 
gram. '** The information used for matching was 
mostly provided by the mentees. It included the 
mentees' developmental needs; the mentors' 
strengths; the mentees' views of their ideal men- 
tor in terms of his or her functional area and 
personal characteristics, such as gender and job 
level, and the role the mentor would play in the 
relationship (e.g., role model, counselor, and 
friend); and personal interests.'*^ A mentee 
could suggest a person to be his or her mentor. 

The program included a variety of activities 
for mentees, mentors, and mentee supervisors 
(e.g., orientation programs, an informal intro- 
duction of mentee and mentor and an opening 
reception, bimonthly mentee luncheons to en- 
covirage networking among mentees, a mentor 
luncheon 6 months into the program, and, at the 
end of the program, a closing reception and pro- 
gram evaluations by both mentors and men- 
tees). '^o In addition, mentees were offered the 
opportunity to attend training sessions on topics 
in which they expressed an interest during ori- 
entation.'^' 

Guide books and orientation exercises defined 
the roles and responsibilities of mentees and 
mentors. '32 Both mentors and mentees were 



'88 Exhibit HN, "Regional Bank Mentoring Program," p. 3; 
"Regional Bank Mentoring Program Plan Roll-Out," p. 1. 

'*' Exhibit HN, "Regional Bank Mentoring Program," p. 4; 
"Regional Bank Mentoring Program Plan Roll-Out," p. 1. 

'88 Exhibit HN, Mentee Guide, p. 2. 

'89 Exhibit HN, "John Memorandum." 

'9" Exhibit HN, "Regional Bank Mentoring Program Plan 
Roll-Out," pp. 2^. 

"" Exhibit HN, Memorandum: "Dedicated Managing Your 
Career Session for Mentees," Mar. 9, 1995. 

'92 Exhibit HN, Mentor Guide, pp. 3—4; Mentee Guide, pp. 
3-4. 



asked to clarify expectations for the relationship 
(i.e., what the mentor could and would do for the 
mentee). '3^ Orientation sessions used team exer- 
cises to help do this. During these exercises, 
mentees were asked to define a mentoring rela- 
tionship and identify the most important actions 
or behaviors mentors and mentees could do to 
ensure the success of the mentoring relation- 
ship. '^^ Similarly, mentors were asked to iden- 
tify potential career development activities that 
could be initiated with the mentee. '^^ In another 
exercise, mentees assessed their career interests, 
developmental needs and strengths, then sug- 
gested developmental activities with which men- 
toring programs and mentor relationships could 
help them to enhance their career develop- 
ment. '^^ Finally, the guides recommended that 
mentor and mentee set a meeting schedule of at 
least every 3 weeks for the first 3 months and 
monthly thereafter'^' and provided pages for 
both to keep a journal of the meetings and the 
issues they discussed. The issues to be discussed 
at the first meeting were specified in the exer- 
cises of the orientation session. '^^ 

After 8 weeks of the program, a survey 
showed that 98 percent of the responding men- 
tees reported having face-to-face meetings with 
their mentors. '^^ The mentees averaged 2.5 such 
meetings. Telephone contact was more frequent, 

3.4 times on average, but used by only 72 per- 
cent of the mentor-mentee pairs. A small num- 
ber of mentees, all of whom were male, reported 
contact with their mentor via e-mail, fax, or 
memo, with a frequency of 2 to 3 times for each 
type. Twenty-five percent of the responding 
mentees had put together a formal development 
plan; 76 percent set relationship objectives. Mi- 
norities rated their relationship high, averaging 

8.5 on 10-point scale, and higher than the rat- 
ings nonminorities gave their relationship (7.8). 
The formal program had only reached its 6- 



'93 Exhibit HN, Mentor Guide, p. 5; Mentee Guide, p. 5. 

'9'' Exhibit HN, Mentee Guide, pp. 6-7. 

'95 Ibid. 

'96 Exhibit HN, Mentee Guide, pp. 10-12; see also "1995 
Regional Bank Orientation Meeting for Mentees, Annotated 
Outline." 

'9' Exhibit HN, Mentor Guide, p. 5; Mentee Guide, p. 5. 
'98 Ibid. 

'99 Exhibit HN, See "Mentoring Program Check-In, Eight- 
week Mark" 



100 



month mark when the Commission subpoenaed 
the documents. Thus, no further evaluation was 
available at that time.^oo 

At least some of the banks and securities 
firms in New York City's finance industry have 
measures in place to encourage the presence of 
minorities and women among their employees. 
Written equal employment opportunity and af- 
firmative action policies, recruitment targeted to 
minorities and women, career development, and 
other support programs targeted to the ad- 
vancement of minorities and women were some 
of the mechanisms used. Unfortunately, not all 
of the banks and securities firms had policies 
and programs hke the ones described here. The 
next analysis will examine the extent of such 
practices. 

The documents were examined for evidence 
of written procedures and policies for hiring and 
promoting staff, whether the procedures varied 
for different levels of staff, whether job candi- 
dates were recruited externally or from within 
the organization, when and how the company 
advertises job vacancies, and whether recruit- 
ment procediares target minorities and women 
(e.g., recruitment at historically black colleges 
and universities or advertisements in media 
with large minority audiences). 

Recruitment, Hiring, and Promotion Techniques 

In this section, the focus is on the methods 
used to recruit applicants for the three job classi- 
fications. After recruitment, it focuses on the 
methods used to offer promotion and advance- 
ment opportunities. Lastly, it examines any pro- 
grams offered to provide job training or training 
oriented toward job advancement opportunities. 
The mechanisms related to provision of opportu- 
nities are typically initiated by development of 
poHcy statements. These statements formalize 
goals and objectives as "guideposts." Then, struc- 
tural components, referred to as procedures and 
program offerings, are designed to detail how 
pohcy-related goals will be achieved and how 
achievement will be measured. 

In response to subpoena items 4, 5, and 6, the 
firms were requested to submit any and all 
documents that defined the procedures for re- 
cruitment, hiring, and promotion. These items 



200 The orientation appears to have been scheduled for mid- 
February 1995. Exhibit HN. See "John memorandum," 



were intended to elicit evidence that the firms 
provided opportunities for employment, ad- 
vancement, and job growth. In response, firms 
provided a wide variety of material; copies of 
internal job-posting lists, advertising copy for 
newspaper classified sections, brochures for dis- 
tribution on campuses, announcements for re- 
ceptions at meetings, invitations to hospitality 
rooms at trade shows, and other similar materi- 
als. During the review of the submissions, it was 
convenient to define recruitment as the process 
for locating potential employees. Hiring was de- 
fined as any pohcy or procedural technique that 
could influence appUcants or recruits to join a 
particular Una.. Promotion was defined to in- 
clude methods oriented toward providing job ad- 
vancement opportunities. 

Recruiting Personnel 

The review demonstrated that techniques for 
recruitment vary, as expected, by position type. 
Tables 3.15 and 3.16 show a summary of the 
avenues used to recruit employees by job classi- 
fication and firm type. Five of the sample of 20 
securities firms having establishments with SIC 
621 or 628 did not provide this information. One 
of the 14 depository institutions having estab- 
Ushments with SIC 602 or 603 did not submit 
the data for the sales worker job classification. 
But this job classification may not have been a 
valid job classification for this institution. 

The data show that depository institutions 
use multiple avenues in their recruitment ef- 
forts. The use of internal recruiters was reported 
as a frequently used personnel functional area. 
More than half of the institutions documented 
use of internal promotion to fill positions. The 
principal avenues for recruiting officials and 
managers are internal promotion and local 
newspaper advertising. More than half of the 
institutions reported using these sources. 

In the professional job category, college 
placement services and job fairs were reported 
most frequently (10 firms) as a recruitment 
source. This was somewhat surprising given that 
prior data showed only 30 percent of the firms 
reported a college degree as a job requirement. 

The majority of the firms' documents showed 
that coUege placement services are used most 
frequently to recruit sales workers. Although 
other submitted data did not show a college de- 
gree as a positional requirement, the firms may 



101 



initially try to fill positions with coUege-educated 
persons. Local newspaper advertising and job 
fairs are also used with frequency. 

Electronic media were not reported as poten- 
tial recruitment sources. These media forms in- 
cluded Web sites/services and television and ra- 
dio advertising. There is a current proliferation 
of Web service providers for resume distribution. 
It will be interesting to watch and see if these 
types of services become recruitment sources in 
the finance industry. 

While the use of internal promotion provides 
advancement opportunity to the current em- 
ployee pool, it does not open depository institu- 
tions to changes in gender or racial mix. 

Hiring and Promoting Personnel 

Hiring was defined as any policy or proce- 
dural technique that could influence apphcants 
or recruits to join a particular firm. Such influ- 
ences included training, mentoring or career de- 
velopment programs, and internships or scholar- 
ships. Influences such as salary scales and bene- 
fit packages were beyond the scope of this project. 

The firms were requested to submit docu- 
ments that described the type of training and 
scholarship offerings. These documents were 
organized by types of job classifications wher- 
ever possible. There were programs for recent 
business school graduates with MBAs and asso- 
ciate programs for undergraduate students. The 
purpose was to identify candidates quahfied to 
join firms following completion of degree pro- 
grams. These program offerings were discussed 
in brochure-type submissions; however, no detail 
was provided on how many or what types of stu- 
dents participate in such training programs. 

Tables 3.17 and 3.18 show summary informa- 
tion regarding training programs. As with other 
request documents, not all of the subpoenaed 
firms provided information. Five of the sample of 
20 securities firms having establishments with 
SIC 621 or 628 did not provide information re- 
garding training programs. 

Although the information has been shown by 
firm type, the patterns are similar. The major 
difference is seen in the general job-related pro- 
gram offerings. The majority of the depository 
institutions do provide general job-related 



training programs in all job classifications. Such 
training programs are not as prevalent within 
the securities firm group. Typically such pro- 
grams are considered as new employee orienta- 
tion programs rather than as programs designed 
to allow personal growth and career advance- 
ment. 

Based on the documents submitted, mentor- 
ing is not seen as particularly important in any 
of the job classifications in either group of firms. 
Only in the depository institution group and the 
professional job classification do 50 percent of 
the firms offer mentoring programs. 

Career development programs are also not a 
common recruitment or retention technique in 
most of the subpoenaed firms. The professional 
job classification in depository institutions has 
the greatest number of such programs, and these 
programs are offered by less than 40 percent of 
the institutions. The officials and managers job 
classification has more total program opportuni- 
ties than does the sales workers job classifica- 
tion. 

In many industries, employer-based mentor- 
ing and career development programs are a 
standard technique for increasing the employ- 
ment of women and minorities in upper level 
positions. Such programs are seen as a way to 
both recruit and retain personnel through pro- 
motional opportunities. The submitted docu- 
ments do not show high use of this technique by 
the finance industry. 

Another significant recruitment program can 
be internships and corporate-sponsored scholar- 
ships. The firms were requested to submit in- 
formation that discussed their efforts in this 
area. Information regarding specific internship/ 
scholarship programs and any targeted popula- 
tion was requested. Information was requested 
on the number of programs rather than on the 
number of program participants. Very little in- 
formation was provided in response to this re- 
quest. Thus, the data are not presented by in- 
dustry group. And, as with other requests, not 
all firms provided information. 

Table 3.19 summarizes these data for the 
firms responding to the subpoena request. As 
these data show, internship and scholarship 
programs are not prevalent within the subpoe- 
naed firms. 



102 



Table 3.15 

Summary of Techniques for Recruiting Employees by Job Classification, 
14* Depository Institutions with SIC 602 or 603 





Officials 


& managers 


Professionals 


Sales workers 


Recruitment technique used 


Yes 


No 


Yes 


No 


Yes 


No 


External recruiters 


7 


7 


5 


9 


4 


9 


Internal recruiters 


7 


7 


7 


7 


4 


9 


Internal promotion 


8 


6 


9 


5 


7 


6 


Web sites/services 





14 





14 





13 


Local newspapers 


8 


6 


7 


7 


7 


6 


National newspapers 


5 


9 


5 


9 


5 


8 


Trade journals 


3 


11 


2 


12 


1 


12 


Trade associations 


4 


10 


5 


9 


2 


11 


Magazines 





14 


1 


13 





13 


Job fairs 


8 


6 


10 


4 


8 


5 


College placement service 


4 


10 


10 


4 


10 


3 


Television advertising 





14 





14 





13 


Radio advertising 





14 





14 





13 


Temporary staffing agency 


3 


11 


3 


11 


2 


11 



* One firm reported that sales worker job classification was not applicable to ttie firm. Thus, the total equals 1 3 firms for this job classification. 
Source: Compiled from documents submitted July 1995 



Table 3.16 

Summary of Techniques for Recruiting Employees by Job Classification, 
15 Securities Firms with SIC 621 or 628 



Officials & 


managers 


Professionals 


Sales workers 


Yes 


No 


Yes 


No 


Yes 


No 


2 


13 


7 


8 


5 


10 


5 


10 


1 


14 





15 


11 


4 


7 


8 


4 


11 





15 





15 





15 


7 


8 


8 


7 


7 


8 


8 


7 


8 


7 


7 


8 


3 


12 


3 


12 


3 


12 


2 


13 


2 


13 


2 


13 


1 


14 


1 


14 


1 


14 


3 


12 


9 


6 


5 


10 


3 


12 


11 


4 


6 


9 





15 





15 





15 





15 





15 





15 


2 


13 


4 


11 


2 


13 



Recruitment technique used 

External recruiters 

Internal recruiters 

Internal promotion 

Web sites/services 

Local newspapers 

National newspapers 

Trade journals 

Trade associations 

Magazines 

Job fairs 

College placement service 

Television advertising 

Radio advertising 

Temporary staffing agency 

* One firm reported that sales worker job classification was not applicable to the firm. Thus, the total equals 1 3 firms for this job classification. 
Source: Compiled from documents submitted July 1995 



103 



Table 3.17 

Summai7 of Training Programs by Job Classification, 14* Depository Institutions with SIC 602 or 603 





Officials & 


manaqers 


Professionals 


Sales workers 


Type of training program 


Yes 


No 


Yes 


No 


Yes No 


General job related 

Mentoring 

Career development 


12 
3 
3 


2 
11 
11 


11 
7 
5 


3 

7 
9 


9 4 

2 11 

3 10 



* One firm reported that sales wor1<er job classification was not applicable to the firm. Thus, tJie total equals 1 3 firms for this job classification. 
Source: Compiled from documents submitted July 1995 



Table 3.18 

Summary of Training Programs by Job Classification, 15 Securities Firms with SIC 621 or 628 





Officials & 


manaqers 


Professionals 


Sales workers 


Type of training program 


Yes 


No 


Yes 


No 


Yes No 


General job related 

Mentoring 

Career development 


7 
4 
4 


8 
11 
11 


10 
5 
3 


5 
10 
12 


5 10 
3 12 
2 13 



Source: Compiled from documents submitted July 1995 



Table 3.19 

Summary of Internship and Scholarship Programs, 23 Firms with Programs 







Internships 






Scholarships 




Number of 














programs 


General 


Women 


Minority 


General 


Women 


Minority 


None 


6 


10 


6 


9 


10 


8 


1-5 


3 


1 


5 


1 


1 


3 


6-10 








1 











1 1 or more 


1 


















Source: Compiled from documents submitted July 1995 



104 



Policy-related Documents 

The firms responding to the request for 
documents either provided copies of key pages 
from their "pohcy and procedure" manuals or 
submitted entire "human resources guides." 
These submissions were intended to demon- 
strate evidence of employment and advancement 
opportunity for all. A few firms also provided 
copies of their management meeting minutes to 
show that the firm saw provision of opportunity 
as an important corporate responsibility and goal. 

The following summary shows the key types 
of policies submitted by the firms. This summary 
shows that the firms have installed the "guide- 
posts" to support opportunity for all. 

PoUcy types submitted: 



EEO pohcy in place 
EEO officer named 
Affirmative action plan in place 
Diversity initiatives prepared 
Targeted recruitment pohcy developed 
Hiring policy documented 
Promotion policy designed 



Given that all the firms are well recognized 
within the finance industry and are major em- 
ployers, it would have been surprising if any re- 
sponded that they did not have such written 
poUcies or plans. 

However, the efficacy of these documents or 
adherence to the language could not be assessed. 
The pohcies that are more associated with statu- 
tory issues (EEO and affirmative action) specifi- 
cally addressed the hiring of women, minorities, 
and persons with disabihties. The documents 
reviewed indicated that the responding institu- 
tions and firms have measures in place to en- 
courage the presence of women and minorities 
among their employee pool. However, the exten- 
sive quantitative data displayed in the graphs do 
not show that these pohcy-related measures are 
having a positive effect on increasing the propor- 
tions of women and minorities employed in the 
New York finance industry. 

Section IV. Dynamics within Banks 
and Firms 

Employment Patterns within Depository 
Institutions and Securities Firms 

This section will focus on the quantitative 
data obtained by subpoena from the sample of 



New York depository institutions and securities 
firms. A peer group sample of New York deposi- 
tory institutions and securities firms was con- 
structed to allow comparisons of actual employee 
data by gender and race. 

The primary purpose of the first part of this 
section is to discern if the subpoenaed data show 
any trends with regard to the gender and race of 
applicants for or those hired into key positions. 
Then in the second part, trend analyses using 
actual employment data from EEOC form EEO— 
1201 were conducted for the peer group sample 
and for the subpoenaed sample. These trend 
analyses also considered gender and race ac- 
cording to four job classifications. Multiple fig- 
ures have been prepared to display the trends. 
And finally, the last part of the section examines 
whether establishment size influences gender or 
race. EstabUshment size was based on the total 
number of employees for both the peer group 
and the subpoenaed samples. 

The Employee Pool: How Does the 
Subpoenaed Sample Compare with Its Peers? 

The data regarding applicants and hires 
submitted in response to the subpoena did show 
some imbalances. This elicited interest in ascer- 
taining how the actual employee data for the 
subpoenaed sample of banks and securities firms 
compared with a peer group from the New York 
finance industry. 

To conduct this study, EEOC employment 
data^o^ as reported on Employer Form EEO-1 
were reviewed. These data were provided by the 
EEOC in machine-readable format for the period 
1991 to 1996 and for New York PMSA 5600. For 
the purposes of this analysis, EEOC employment 
data for the 5-year period 1991 to 1995 were ex- 
tracted. In this way, the time period would be 
more consistent with the periodic data requested 
by subpoena. This analysis of employee data was 
expanded to include an office and clerical work- 
ers classification. 

The EEOC employee data were further strati- 
fied to construct a peer group database con- 
taining only the types of banks and securities 
firms included in the subpoenaed sample. This 



20'The EEOC data as reported to the Equal Employment 
Opportunity Commission (EEOC) on Standard Form 100, 
the Employer Information Report (EEO-1). 

202 Ibid. 



105 



Table 3.20 

Description of Banks and Securities Firms Included in Peer Group Sample 

Number in sample by year 



SIC 

602 

603 
621 
628 



Description 


1991 


Commercial banks 




Establishments 


217 


Firms 


98 


Savings institutions 




Establishments 


50 


Firms 


32 


Security brokers, dealers & flotation co. 




Establishments 


130 


Firms 


67 


Services allied witti exchange of 




securities or commodities 




Establishments 


15 


Firms 


12 



1992 

203 
104 

35 
25 

127 
69 



14 
12 



1993 

201 
101 

40 
28 

141 
70 



20 
17 



1994 

163 
73 

35 

26 

150 
77 



21 
18 



1995 

148 
69 

40 
27 

153 
77 



27 
23 



Source: EEOC data 1991-95 



Table 3.21 

Description of Banks and Securities Firms Included in Subpoena Sample 



SIC 

602 

603 
621 
628 



Description 


1991 


Commercial banks 




Establishments 


87 


Firms 


10 


Savings institutions 




Establishments 


6 


Firms 


5 


Security brokers, dealers & flotation co. 




Establishments 


56 


Firms 


18 


Services allied with exchange of 




securities or commodities 




Establishments 





Firms 






Number in sample by year 



1992 

88 
11 

7 
5 

56 
18 



1993 

89 
11 

7 
4 

77 

19 



1994 

81 
12 

4 
4 

51 
20 



7 
5 



1995 

76 
12 

5 
5 

54 
21 



Source: EEOC data 1991-95 



106 



stratification was accomplished by use of Stan- 
dard Industrial Codes. ^o^ in constructing the two 
peer group and two subpoenaed firm databases, 
it was found that an individual firm could be 
represented in more than one descriptive group. 
Some firms had establishments with a commer- 
cial bank SIC (SIC 602), and also had estabhsh- 
ments with a security firm SIC (SIC 628). In 
these cases, the firm is represented in both de- 
scriptive groups in the appropriate database. 
Table 3.20 shows by year, SIC, and description, 
the number of establishments and firms con- 
tained in the peer group sample. 

Table 3.21 displays the number of estabhsh- 
ments and firms reported to EEOC by the banks 
and securities firms included in the subpoenaed 
sample. As discussed earlier, a firm could be di- 
vided in more than one descriptive group. An 
interesting difference between the two samples 
is the 30 percent decrease (267 to 188) in the 
number of depository estabhshments (SIC 602 
and 603) in the peer group sample between 1991 
and 1995. The subpoenaed sample only showed a 
13 percent decrease in the number of depository 
estabhshments over the same time period. What 
influence do these decreases have on the number 
of employees by job classification? 

In the peer group sample, there has been an 
18 percent increase from 1991 to 1995 in the 
number of estabhshments coded as securities 
brokers, dealers, and flotation companies. In the 
subpoenaed sample, tnere was a 37 percent in- 
crease in the number of estabhshments between 
1991 and 1993, and in 1995 the number of es- 
tabhshments decreased to the 1991 level. This 
most hkely reflects the period of mergers and 
acquisitions by firms represented in the subpoe- 
naed sample. 

In each of the yearly EEOC data files, each 
estabhshment carried both a numeric SIC and a 
unique alphanumeric EEOC identifier titled 
"Headquarters Number." These two data fields 
were used to sum employee data for firms with 
multiple estabhshments to a single year-specific 
database record. Using the two peer group and 
two subpoenaed group databases, the EEOC 
employment data were examined by job classifi- 
cation and year. 



203 Office of Management and Budget, Standard Industrial 
Classification Manual (Springfield, VA: National Technical 
Information Service, No. PB 87-100012) (1987). 



Figure 3.5 displays graphical data from the 
peer group sample of depository institutions. The 
figure shows a decrease in the total number of 
employees in the officials and managers job clas- 
sification from 1991 to 1994. Then, in 1995 the 
numbers started to increase. In 1991 the total 
exceeded 38,000 employees, and in 1995 the 
number was slightly over 27,700 employees. 

However, in all years, this job classification 
was over 33 percent of the total number of em- 
ployees. The data for office and clerical workers 
also show a consistent decrease without any 
years of increase. There were almost 44,000 em- 
ployees in 1991. Yet the 1995 data show 28,000 
office and clerical worker employees. This 
equates with a 36 percent decrease in the num- 
ber of jobs in this classification. If this decrease 
is related to the 30 percent decrease in the num- 
ber of depository institutions between 1991 and 
1995, we would have expected decreases in all 
job classifications, unless there is some reason 
the decrease would disparately affect office and 
clerical workers. Nonetheless, this job decrease 
is a reason for concern because office and clerical 
worker positions frequently provide entry-level 
opportunity in any industry. 

In the professionals job classification, the 
number of jobs has not shown much change over 
the 5-year period. In 1995 there were 1,000 more 
jobs reported than in 1991. However, as the 
number of office and clerical workers has fallen, 
the professionals job classification has become a 
greater proportion of this industry's employee 
pool. In 1991 professionals were 15 percent of 
the total pool; this percentage rose to 22 percent 
in 1995. Sales workers are a smaU component of 
the employee pool, and in 1995 totaled less than 
3,200 persons. While the figure shows this num- 
ber increasing, additional years of data are re- 
quired to ascertain if this is a growth position 
within the industry. 

The major trend seen in figure 3.6 is a de- 
crease in the number of office and clerical work- 
ers. In 1991 office and clerical workers were 42 
percent of the employees in the four job classifi- 
cations. In 1995 they accounted for 35 percent of 
the employees. Further research should be un- 
dertaken to determine why the 12 percent de- 
crease in the number of estabhshments has had 
a greater impact on this job classification than 
on others. 



107 



The number of sales workers is increasing. In 
1991 this job classification was a small (1 per- 
cent) component of the employee pool. Although 
there is an increase seen over time, sales work- 
ers in 1995 only accounted for 4 percent of the 
employees. Is it logical to assume that as deposi- 
tory institutions expand service offerings, this 
increase will continue? And, if so, can office and 
clerical workers aspire to these positions? 

The number of officials and managers de- 
creased shghtly between 1991 and 1994 (41 to 37 
percent); but the 1995 data show an increase to 
the 1991 level. The professionals employee per- 
centage has remained relatively constant since 
1992, approximating 20 percent of the examined 
job classifications. 

In summary, these two figures^O'* demon- 
strate that the subpoenaed sample of depository 
institutions is reasonably representative of the 
peer group component of the New York finance 
industry. This fact will become more important 
as the quahtative review of the subpoenaed in- 
formation is presented. 

Figures 3.7 and 3.8 show increases in each of 
the four job classifications over the period 1991 
to 1995. In the peer group sample, figure 3.7, the 
most dramatic increase is seen in the profes- 
sional job classification. The number of these 
employees increased from 17,000 in 1991 to just 
over 32,000 in 1995. But, as all job classifications 
have increased, the professional job classification 
has only increased its numbers in the total em- 
ployee pool by 6 percent. Office and clerical 
workers have shown an increase of approxi- 
mately 6,000 positions between 1991 and 1995. 
However, this job classification has decreased 
from 40 to 33 percent of the total employee pool. 

Figure 3.8, the subpoenaed sample, shows in- 
creases in the number of employees in all four 
job classifications over the years. And, as ex- 
pected, the number of employees in all classifica- 
tions peaked in 1993. The largest employee clas- 
sification among this subpoenaed sample of se- 
curities firms consists of professionals, which 
includes accountants, auditors, and computer 
system personnel. Within the professionals cate- 



20'' In reviewing these figures, note that depository and 
banking institutions are shrinking with respect to numbers 
of employees while the labor force in securities firms is 
growing. Moreover, some sales people, who for the first time 
have to take the Series 7 test, have moved from the deposi- 
tory or banking institutions to securities firms. 



gory there was a substantial increase from 1992 
to 1993. 

The sales worker classification, which in- 
cludes stockbrokers, is the smallest proportion of 
these employees. In 1995 this job classification 
was only 10 percent of the total. The data do 
show an increase in the number of office and 
clerical workers between 1991 and 1995. There 
was a sharp increase in 1993, but as a percent- 
age of the total number of employees this classi- 
fication has decreased during this time period 
from 38 to 31 percent of the total. Officials and 
managers were approximately 20 percent of the 
total in each of the years 1991 to 1994. In 1995 
this classification increased to 24 percent of the 
total. 

In summary, figures 3.7 and 3.8 demonstrate 
that the subpoenaed sample of securities firms 
only reflects some of the peer group sample ac- 
curately, in terms of the distribution of employ- 
ees by job classification. 

The following set of figures further stratifies 
these job classification data by gender and race. 
Figures showing identical inclusions are pre- 
sented sequentially to foster comparison be- 
tween the peer group sample and the subpoe- 
naed sample. 

Figure 3.9 demonstrates that, in the deposi- 
tory institutions peer group sample, officials and 
managers positions are predominantly held by 
white males, with the percentage of minorities in 
these jobs at less than 20 percent in any year. 
The total number of depository institution offi- 
cials and managers jobs held by males has de- 
creased fairly steadily over the 5-year period, 
with a sUght increase in 1995. This decrease has 
affected all racial groups equally. Therefore, 
there has been no change in any racial groups' 
representation in the total. 

Figure 3.10 shows dramatically that in the 
subpoenaed sample, male officials and managers 
in depository institutions are rarely minorities. 
The 1995 EEOC data showed more than 13,000 
males employed in this job classification, more 
than 11,000 of whom were white. These numbers 
show that all four minority groups comprise less 
than 2,000 positions. 

The total minority employment has not ex- 
ceeded 17 percent of the total in any year. 
Among the minority population, black and Asian 
American and Pacific Islander males each ac- 
counts for less than 7 percent of this classifica- 



108 



tion's total employees in any year. American In- 
dians account for none of these positions in ei- 
ther the peer group or subpoenaed sample. 

Figure 3.11 shows that the vast majority of 
official and manger positions in the peer group 
sample securities firms are held by white males, 
and their percentage of the total has remained in 
the 90 percent range each year. There has been 
no shift in the percentages of the jobs among the 
minority groups.- Although the percentages in 
figure 3.11 are similar to those seen in the de- 
pository institutions, the percentages of minori- 
ties are lower. The total numbers of employees 
in the peer group sample of the officials and 
managers classification in securities firms has 
increased over the 5-year period covered by 
these data. 

Figure 3.12 shows that the officials and man- 
agers classification of securities firms in the 
subpoena sample is substantially dominated by 
white males, much the same as with the deposi- 
tory institution data. Among these subpoena 
sample securities firms, as with the peer group 
securities firms, some minorities are showing a 
minimal percentage increase in representation. 
These changes, however, have not significantly 
altered the makeup of this employee group. 

Figiore 3.13 demonstrates that in the deposi- 
tory institution peer group sample female offi- 
cials and managers classification, white females 
hold more than 70 percent of the positions. The 
distribution among minority groups does not 
show a significant variance in the proportions. 
Although 70 percent is a very high percentage, it 
is interesting that the percentage of white 
women in this category is significantly lower 
than the percentage of white males. Therefore, 
the percentage of minority representation in the 
depository institution is significantly higher 
than the percentage of minorities among the 
males. 

The numbers of females in the officials and 
managers classification have decreased by more 
than 25 percent since 1991; there was a sUght 
increase beginning to show in 1995. A similar 
decrease was also evident in the male officials 
and managers classification (figure 3.9). 

Figure 3.14 shows the subpoena sample of 
female officials and managers in depository in- 
stitutions. The figure shows a job classification 
consisting largely of white female employees. In 
1995 in the subpoena sample, there were more 



than 7,000 females employed m this job classifi- 
cation, 74 percent of whom were white. Although 
this percentage of white female employees is 
high, it is lower than the percentage of white 
male employees in the subpoena sample deposi- 
tory institutions officials and managers classifi- 
cation. Correspondingly, the percentage of mi- 
nority employees in the subpoena sample, much 
hke in the peer sample, is greater among the 
female officials and managers than among the 
male officials and managers. Minority females 
account for 26 percent of this job classification's 
employees. Continuing the contrast between 
males and females in this category, a comparison 
of figures 3.14 and 3.10 shows that there are al- 
most twice as many male officials and managers 
as there are females in this job classification. 

Figure 3.15 shows that white females hold 
more than 80 percent of all the peer group fe- 
male officials and managers positions in securi- 
ties firms. Over the 5-year period there has been 
a slight increase in minority representation 
among female officials and managers, and a cor- 
responding decrease in the percentage of white 
female officials and managers. Although these 
numbers show an increase in the total number of 
jobs, females remain one-third of the total num- 
bers of officials and managers positions in secu- 
rities firms in the peer group. Further, the num- 
bers of females in both the subpoena and the 
peer group securities firms officials and manag- 
ers classification are substantially smaller than 
those found in the depository institutions. 

Figure 3.16 shows that among female officials 
and managers in the subpoena sample of securi- 
ties firms, employees are 82 percent white. A 
comparison of figure 3.16 and figure 3.14 shows 
that there are far fewer female officials and 
managers in securities firms than in depository 
institutions. As was found in the peer sample, 
the percentage of minority employees is greater 
among females in the officials and managers 
category than for males in officials and manag- 
ers group. Minority females account for 18 per- 
cent of this job classification's female employees 
and are showing a slight increase in percentages 
over the 5-year period. 

Figure 3.17 shows the peer group sample for 
the male professionals category in depository 
institutions. It is a category composed of 75 per- 
cent white males. In the peer group sample the 
number of males in the depository institutions 



109 



professionals category increased from 1991 to 
1993 and then decreased through 1995, winding 
up higher than the initial 1991 numbers. From 
1991 to 1995, there has been an increase in per- 
centages of certain minority groups, but the 
overall ratios of minority employees to white 
employees has remained fairly constant. 

The data in figiore 3.18 show that about 75 
percent of males in the peer group sample of the 
depository institutions professionals classifica- 
tion are white. The data also indicate an in- 
crease in the total number of males in the pro- 
fessionals classification of the subpoena sample 
depository institutions. The number increased 
from 4,200 in 1991 to more than 5,700 in 1995. 
There has been a corresponding increase in mi- 
nority representation, but the percentages have 
still remained within the 25 percent range each 
year from 1991 to 1995. 

Figure 3.19 shows that in the peer group 
sample securities firms professionals category, 
positions have predominantly been held by white 
males. There has also been an almost 85 percent 
increase since 1991 in the number of males, 
during which time the number of white males 
has decreased by 8 percent. There has been an 
increase among most minority groups' percent- 
ages, with Asian American and Pacific Islanders 
showing the largest percentage gain and Ameri- 
can Indians not represented at all. 

Figure 3.20 shows that the male professionals 
category of subpoena sample securities firms is 
also dominated by white males who constituted 
88 percent of the group in 1991 and 78 percent 
in 1995. Correspondingly, these data show a 
positive trend of increases in the percentages of 
minorities from 12 percent in 1991 to 22 percent 
in 1995. The data also show that the total num- 
ber of employees in this job classification has 
increased by almost 100 percent from 1991 to 
1995. 

Figure 3.21 shows the numbers of females in 
the professionals classification of depository in- 
stitutions in the peer group sample. Although 
this classification is also dominated by white fe- 
males, it shows a substantial divergence be- 
tween the number of white female employees 
and the total number of positions. Minorities 
make up one of the highest percentages of the 
total number of positions among all analyzed 
classifications. The total number of jobs has re- 



mained approximately the same, with a slight 
peak in 1993, and then a decrease. 

Figure 3.22 shows the numbers of females 
employed in the professionals category of deposi- 
tory institutions in the subpoena sample. As has 
been the case in all categories, white females 
substantially outnumber minority females. How- 
ever, there is a significant divergence between 
the numbers of white females and the total 
number of female employees. Correspondingly, 
there is a higher percentage of minority women 
in this category than in most others. The per- 
centage of minority females employed in this 
category is also significantly higher than that of 
minority males employed in the males profes- 
sionals category of depository institutions in the 
subpoena sample. 

Figure 3.23 shows the numbers of females in 
the professionals category of the securities firms 
in the peer group sample. Although white fe- 
males comprise a substantial majority of this 
classification, their numbers decreased from 82 
percent in 1991 to 75 percent in 1995. Minority 
women made a corresponding increase in per- 
centages of the total number of professionals in 
securities firms. The data also show a consider- 
able increase in the total number of female em- 
ployees from 1991 to 1993 and a lesser increase 
into 1995. A similar decline in total numbers can 
be seen in figure 3.19 among white male profes- 
sionals in the peer group securities firms. 

Figure 3.24 shows the numbers of females in 
the professionals category within the subpoena 
sample securities firms. Again the percentage of 
white females far outnumbers the percentages of 
the minority women. There was a substantial 
increase in the total number of female employees 
in this job classification between 1991 and 1993, 
ending in 1995 with approximately 85 percent 
more employees than in 1991 despite the decline 
after 1993. These increases were also reflected in 
the percentages of minority females. 

In each year since 1992, the number of female 
securities professionals has exceeded the num- 
ber of females in the professionals category of 
depository institutions. In 1995 seciorities firms 
had 14 percent more females in the professionals 
classification than did depository institutions. 

Figure 3.25 shows the numbers of males in 
the sales workers classification of the peer group 
depository institutions. The percentage of white 
males represented in this category is signifi- 



110 



cantly higher than that of the minority males, 
with whites outnumbering minorities by four to 
one. However, minority males show continued 
increasing percentages throughout the 5 years of 
data. The data also show a 100 percent increase 
in the total number of male employees in this job 
classification from 1991 to 1993; the 1995 total 
was a nearly 300 percent increase over the 1991 
numbers. Of the minority groups, Hispanics 
were the most reflective of this increase. 

Figure 3.26 shows the numbers of males in 
the subpoena sample depository institutions 
sales workers classification. As has been seen in 
every other category, the employee pool consists 
of predominantly white males. Between 1991 
and 1995, the data show a dramatic increase in 
the total numbers in this job classification. In 
1991 there were 168 males in the sales workers 
category; in 1995 there were 1,150. Over the 5 
years as the numbers increased, the percentages 
of minorities also increased, with a parallel de- 
crease in the percentage of white males. The 
change in services offered by this segment of the 
finance industry may be a factor contributing to 
this increase in jobs. Many depository institu- 
tions are now providing investment services and 
using the broker job classification. 

Figure 3.27 shows the numbers of male em- 
ployees in the sales workers classification of the 
peer group sample securities firms. White males 
account for at least 93 percent of the total em- 
ployees each year, and no minority group ac- 
counts for more than 3 percent of the total jobs 
in any year. The total number of employees in 
this job classification has steadily increased 
since 1991. The peer group securities firms have 
shown an increase of more than 3,000 positions 
between 1991 and 1995. The percentages of mi- 
nority employees have increased only sKghtly as 
the overall number of positions increased. 

Figure 3.28 shows the numbers of males in 
the subpoena sample securities firms sales 
workers classification. White males account for 
at least 90 percent of the total employees in each 
year. The number of employees increased from 
1991 to 1993, at which point there was a peak. 
From 1993 to 1994, the numbers decreased and 
then increased in 1995 to end sUghtly higher 
than the starting point in 1991. The percentages 
of minorities showed corresponding increases 
and decreases but have not changed significantly 
over the 5-year period. 



Figure 3.29 shows the numbers of females in 
the sales workers category of depository institu- 
tions in the peer group sample. White females 
make up a majority of the employees in this 
classification; however, most minority females 
have been steadily increasing their numbers 
from 1991 to 1995. The data also show increases 
in the total number of female employees in this 
job classification between 1991 and 1995, which 
has affected the percentage changes among mi- 
nority females. As the total numbers continue to 
increase, the number of white women appears to 
have remained nearly constant since 1993. Asian 
American and Pacific Islander females show a 
steady increase in their percentages, and the 
number of Hispanic females increased by 10 per- 
cent between 1991 and 1995. Black females 
showed a 5 percent decrease between 1991 and 
1993 but have shown a 3 percent increase since 
1993. In 1995 the percentage of black female 
employees is actually lower than in 1991, but 
minority employees account for 43 percent of the 
total. Percentages of American Indian females 
are the only ones that have not changed over the 
5-year period. 

Figure 3.30 shows the number of females in 
the sales workers classification in the depository 
institutions of the subpoena sample. Although 
white women remain the group with the highest 
percentage representation, the minority per- 
centage is 41 percent of the total. The data show 
increases in the total number of female employ- 
ees in this job classification between 1991 and 
1995. Percentages of minority females have cor- 
respondingly increased, and the percentage of 
white females has begun to decrease since 1994. 
Asian American and Pacific Islander and His- 
panic females have shown the greatest in- 
creases. 

Figxure 3.31 shows the numbers of females in 
the peer group sample securities firms sales 
workers classification. White females account for 
at least 88 percent of the total employees in each 
year. The data show a slow upward trend in the 
total number of female employees in this job 
classification, with the percentage of white fe- 
males matching the increase nearly exactly. In 
other words, the increased number of positions 
are being filled by mostly white females. Among 
the minority groups each year, the proportion of 
each group has remained small and nearly con- 
stant. 



Ill 



Figure 3.32 shows the numbers of females in 
the sales workers category of securities firms in 
the subpoena sample. White females in this clas- 
sification account for at least 85 percent of all 
employees in each year. The numbers of employ- 
ees continue to increase from 1991 to 1993, 
reaching a peak in 1993. From 1993 to 1994, the 
numbers decreased and then began an upward 
trend through 1995 to end higher than the ini- 
tial numbers in 1991. However, the difference 
between 1991 and the peak year of 1993 is less 
than 450 employees, and the total increase from 

1991 to 1995 is less than 150 employees. Al- 
though the numbers of minorities have kept pace 
with overall changes in the number of employees 
in this category, there has been Uttle change in 
the percentages of minority representation. 

Figure 3.33 shows the numbers of males in 
the office and clerical workers classification for 
the peer group sample depository institutions. 
This is the first peer group sample job classifica- 
tion in which the sum of the minority percent- 
ages exceeds the white percentage, by 57 to 43 
percent. American Indians remain the only 
group representing less than 1 percent of this 
classification. The data also show a decrease in 
the total number of employees in this job classi- 
fication since 1991. The decreasing numbers are 
equally distributed such that the percentage of 
each racial group remains consistent over the 5- 
year period. 

Figure 3.34 shows the numbers of males in 
the subpoena sample depository institutions of- 
fice and clerical workers classification. As with 
the peer group sample firms, the sum of the mi- 
nority percentages exceeds the percentage of 
white employees by 57 to 43 percent. Further, 
the percentages of white and black male employ- 
ees are substantially closer than in any other 
classification that was analyzed; only 10 percent 
separates these two groups. The total number of 
employees in this job classification has been de- 
creasing since 1991 with a sUght increase from 

1992 to 1993. The decrease in numbers has been 
occurring equally in all racial groups. The per- 
centages that each racial group contributes to 
the total number of employees have not changed 
markedly in any year. 

Figure 3.35 shows the numbers of males in 
the office and clerical workers category of the 
peer group sample securities firms. White males 
have the highest percentage representation in 



this classification, but the numbers are much 
closer than in many of the other classifications. 
White males make up 62 percent of the total 
employees while minorities are 38 percent. The 
total number of employees in this job classifica- 
tion has slowly increased since 1991, with the 
increase distributed reasonably equally among 
all racial groups. However, there are 20 percent 
fewer minority males in this peer group sample 
of securities firms than there were in the deposi- 
tory institutions peer group sample. 

Figure 3.36 shows the numbers of males em- 
ployed in the subpoena sample securities firms 
office and clerical workers classification. From 
1991 to 1993, office and clerical workers in the 
subpoena sample securities firms were 61 per- 
cent white and 39 percent minority; in 1995 the 
numbers were 63 percent white to 37 percent 
minority. The total number of employees in this 
job classification increased from 1991 to 1993, 
peaking in 1993 before decreasing through 1995. 
These fluctuations were evenly reflected among 
the different minority groups, except American 
Indians whose numbers have remained constant 
at approximately percent. As was seen in the 
peer group sample, this subpoenaed sample of 
securities firms has a smaller percentage of mi- 
nority males than did the depository institutions 
in the subpoena sample. 

FigTore 3.37 shows the numbers of females 
employed in the office and clerical workers cate- 
gory of the depository institutions in the peer 
group sample. These data are the first to show 
minority employees with a substantially higher 
percentage than white employees. The numbers 
and percentages of black and white females em- 
ployed as office and clerical workers in the peer 
group sample depository institutions are nearly 
identical. There was, however, a decrease of 
more than 11,000 in the total number of jobs in 
this category between 1991 and 1995; this is a 35 
percent decrease since 1991. The data show that 
this decrease has been proportionally distributed 
among aU racial groups as no racial group's per- 
centage has changed significantly. 

The peer group sample for depository institu- 
tions for males in the office and clerical workers 
classification (figure 3.34) also showed a de- 
crease in the total number of jobs. That decrease 
was 16 percent. These decreases create concern 
because office and clerical worker positions fre- 



112 



quently provide entry-level opportunity in an 
industry. 

Figure 3.38 shows the numbers of female em- 
ployees in the office and clerical workers classifi- 
cation of the depository institutions in the peer 
group sample. Among female office and clerical 
workers in the subpoena sample depository in- 
stitutions, black females are a higher percentage 
of the total number of employees than are white 
females. This is the first job classification in 
which one minority percentage exceeds the 
white percentage in every year. 

The total number of employees in this job 
classification has shown a slight general de- 
crease since 1991. Although there was a shght 
increase in 1993, the total numbers in 1995 re- 
mained lower than those in 1991. These de- 
creases have been equally distributed among all 
racial groups. Among the subpoenaed sample of 
depository institutions, the number of female 
office and clerical workers is more than twice the 
number of male office and clerical workers 
(figure 3.34). Therefore, changes in the total 
number of employees hired as office and clerical 
workers would have a disparate impact on fe- 
males. 

Figvu-e 3.39 shows the numbers of female em- 
ployees in the office and clerical workers cate- 
gory of securities firms in the peer group sample. 
For each year, white females comprise 60 per- 
cent of the total employees in this classification 
while minorities are 40 percent. The total num- 
ber of employees in this peer group sample has 
generally increased since 1991, with a slight de- 
crease between 1994 and 1995. The increase in 
numbers is fairly equally distributed among aU 
racial groups, with a 2 percent increase in the 
percentage of Hispanic females between 1991 
and 1995. Compared with the depository institu- 
tions peer group sample of females in the office 
and clerical workers classification (figure 3.37), 
the percentage of white women in this peer 
group sample is 21 percent greater. 

Figure 3.40 shows the numbers of female em- 
ployees in the office and clerical workers classifi- 
cation of the subpoena sample securities firms. 
Although white females make up a majority of 
the employees in this category, minority females 
constitute a significant percentage of the total 
number of employees. The total number of em- 
ployees in this job classification has slowly in- 
creased since 1991, peaking in 1993 followed by 



a decrease from 1994 to 1995, but ending up 
with greater numbers of employees than in 1991. 
The increases and decreases were fairly equally 
distributed among all racial groups. Compared 
with female office and clerical workers in the 
depository institutions subpoena sample (figure 
3.38), this category has a greater percentage of 
white female employees. 

Establishment Size: Does It Influence Gender 
or Race of the Employee Pool? 

The trend analysis was conducted to display 
any difference in gender and race as related to 
the total number of employees. The databases 
for this inquiry used 1993 through 1995 EEOC 
employment data segregated by estabhshment 
rather than total employment by firm. The es- 
tabhshment databases were more sensitive to 
size-related differences in gender or race. 

As with prior trend analyses, the figures are 
organized by peer group estabUshments and 
subpoenaed estabUshments. Each figure displays 
gender and race in four employee-size classifica- 
tions. These classifications were based on a fire- 
quency analysis that separated the estabUsh- 
ments into quartiles. In the peer group database, 
there were 1,139 estabUshments. The subpoe- 
naed sample consisted of 458 estabUshments. 

The results of this trend analysis showed that 
females are the greater percentage of total em- 
ployees among depository estabUshments. Moreo- 
ver, the smaUer the establishment, the higher 
the percentage of female employees. Among the 
securities estabUshments, males have much 
higher percentage representation, particularly 
among smaUer establishments. Racial trends 
showed aU estabUshments, regardless of group, 
to consist primarily of white employees. Minority 
employment did not exceed 25 percent among 
depository estabUshments or 18 percent among 
securities estabUshments. 

The trend by gender shows that in depository 
estabUshments in our peer group sample smaller 
estabUshments employ a greater percentage of 
females. As estabUshment size increases, the gap 
between females and males begins to narrow. 

Regardless of establishment size, the greatest 
percentage of employees are white. Although 
minority distributions did vary depending on 
firm size, such gains or losses were minor and 
never significantly changed the proportional dis- 
tribution of whites versus minorities. As estab- 



113 



lishment size increased, the percentage of black 
employees showed a minor increase. The largest 
percentages of Asian American and Pacific Is- 
lander employees are found in establishments of 
150 to 324 total employees, but decreased as the 
establishment size grew. Hispanic numbers grew 
slightly as the estabUshment size grew. Ameri- 
can Indians were virtually nonexistent in this 
sample. 

Unlike the peer group sample, the percentage 
of female to male employees in depository estab- 
Hshments does not appear to be estabhshment- 
size sensitive until the total is greater than 325 
employees. At that point, the percentage of fe- 
male employees begins to increase with a corre- 
sponding decrease in the percentage of male em- 
ployees. 

The disparity between white and minority 
employment percentages was significantly 
greater in the subpoena sample than in the peer 
group sample as seen in figure 3.41. This indi- 
cates an overwhelming predominance of whites, 
particularly white men, in these estabhshments. 
Particularly troubhng are the numbers with re- 
gard to American Indians who are seemingly 
nonexistent in both samples. It does not appear 
that the size of securities estabhshments in ovir 
peer group sample affected the proportion of 
employees based on gender. However, the secu- 
rities establishments appear to employ more fe- 
males than males. This is the converse of the 
trend seen among the depository estabhshments 
as shown in figure 3.42. 



Among racial groups, whites comprised the 
majority in the securities estabhshments, as 
they did in depository estabhshments, by a wide 
margin. The closest racial group, blacks, re- 
mained flat and then decreased as size in- 
creased, recovering slightly at establishments 
with 325 or more employees. Asian American 
and Pacific Islanders experienced a modest in- 
crease at estabhshments size 150 to 324 but sub- 
sequently decreased as firm size increased. Few 
American Indians were employed in the securi- 
ties estabhshments. In this sample, gender dif- 
ferences by estabhshment size are evident. As 
estabhshments increase the total employee pool, 
the percentage of female employees also in- 
creases. 

As seen in the peer group sample, the sub- 
poena sample showed that white males pre- 
dominated in the industry by a wide margin. 
The largest gender and racial disparity occurs in 
estabhshments having between 80 and 149 em- 
ployees. As the estabhshment size increases, the 
percentages of whites, blacks, and Asian Ameri- 
can and Pacific Islanders vary. The percentage 
of whites increases until the estabhshment 
range of 80 to 149 employees, then decreases in 
larger firms. Conversely, the percentage of 
blacks and Asian American and Pacific Islanders 
decreases until the estabhshment range of 80 to 
149, then subsequently increases in larger firms. 
Again, the percentages of American Indians in 
these firms were virtually zero. 



114 



Figure 3.5 

Peer Group Sample, Depository Institutions, Number of Employees by Job Classification 



50000 



4)000 



30000 



20000 • 



0) 

o 

a. 

e 

LU 

o 
d 



10000 




Officials / lubnagers 



Professionals 



Sales WotVers 



^ Office and Clerical 
Workers 



1991 



1992 



1993 



1994 



1995 



Data Year 
source: EEOC data 1991-95 



Figure 3.6 

Subpoena Sample, Depository Institutions, Number of Employees by Job Classification 



30000 




Officials/K/bnagers 

* Professionals 

■''■ Sales Wori<ers 

^ Office and Clerical 
Wori<ers 



1991 



1992 



1993 



1004 



1005 



Data Year 
source: EEOC data 1991-95 



115 



Figure 3.7 

Peer Group Sample, Securities Firms, Number of Employees by Job Classification 



40000 




Officials / Iktenagers 

Professionals 

* Sales WoiVers 

^ Office and Clerical 
Workers 



1995 



Data Year 



source: EEOCdata 1991-95 



Figure 3.8 

Subpoena Sample, Securities Firms, Number of Employees by Job Classification 



30000 1 




Officials/lubnagens 

Professionals 

Sales Workers 

^ Office and Clerical 
Workers 



Data Year 

source: EEOC data 1991-95 



116 



Figure 3.9 

Peer Group Sample, Depository Institutions, Officials and Managers: Males by Race 



30000 




A Hispanic 



* Asian American 



♦ American indian 



Data Year 
source: EEOC data 1991-95 



Figure 3.10 

Subpoena Sample, Depository Institutions, Officials and Managers: Males by Race 



16000 




A Hispanic 



Asian American 



American Indian 



Data Year 
source: EEOC data 1991-95 



117 



Figure 3.11 

Peer Group Sample, Securities Firms, Officials and Managers: Males by Race 



20000 



10000 



to 
a> 
o 

Q. 

E 

LU 



o 

Z 




A Hispanic 



* Asian American 



^ American Indian 



1995 



Data Year 
source: EEOC data 1991-95 



Figure 3.12 

Subpoena Sample, Securities Firms, Officials and Managers: Males by Race 



12000 



10000 




+ Asian American 



^ American Indian 



1995 



Data Year 

source: EEOC data 1991-95 



118 



Figure 3.13 

Peer Group Sample, Depository Institutions, Officials and Managers: Females by Race 



teooo 



14000 



12000 




A Hispanic 



■f Asian Amehcan 



r > American Indian 



199S 



Data Year 
source: EEOC data 1991-95 



Figure 3.14 

Subpoena Sample, Depository Institutions, Officials and Managers: Females by Race 



10000 




A Hispanic 



+ Asian Amehcan 



▼ ♦ American Indian 



Data Year 



source: EEOC data 1991-95 



119 



Figure 3.15 

Peer Group Sample, Securities Firms, Officials and Managers: Females by Race 



6000' 








5D00" 






^^ ^ ^ 


4000- 




A 




3000- 


__^^-— -;^;^^ 






CO 


— — 






>, 2000- 

o 

a. 

£ 

LU tOOD- 
b 


y 


JL 


' « )! 


2 oj 


1 1 


i 


♦ * 



A Hispanic 



♦ Asian American 



♦ American Indian 



1991 



1992 



1993 



1994 



1995 



Data Year 

source: EEOC data 1991-95 



Figure 3.16 

Subpoena Sample, Securities Firms, Officials and Managers: Females by Race 



4000 




Hispanic 



-f Asian Amencan 



American inrjian 



Data Year 
source; EEOC data 1991-95 



120 



Figure 3.17 

Peer Group Sample, Depository Institutions, Professionals: Males by Race 



12000 



10000 ■ 



8000 



6000 



>L 4000 ■ 
o 



LU 2000 ■ 




k Hispanic 



+ Asian American 



■i , ♦ American Indian 



1995 



Data Year 
source: EEOCdata 1991-95 



Figure 3.18 

Subpoena Sample, Depository Institutions, Professionals: Males by Race 



7000 




A Hispanic 



♦ Asian American 



# Amencan Indian 



1991 



1992 



1993 



1994 



1995 



Data Year 
source: EEOCdata 1991-95 



121 



Figure 3.19 

Peer Group Sample, Securities Firms, Professionals: Males by Race 



30000 




Data Year 

source: EEOC data 1991-95 



Figure 3.20 

Subpoena Sample, Securities Firms, Professionals: Males by Race 



16000 



14000 




▲ Hispanic 



♦ Asian American 



« American Indian 



1995 



Data Year 

source: EEOC data 1991-95 



122 



Figure 3.21 

Peer Group Sample, Depository Institutions, Professionals: Females by Race 



10000 



8000" 



6000 



CO 
O) 
<D 

o 



■woo 



2000 




▲ Hispanic 



+ Asian American 



Amencan Indian 



Data Year 
source: EEOC data 1991-95 



Figure 3.22 

Subpoena Sample, Depository Institutions, Professionals: Females by Race 



6000 




▲ Hispanic 



-f Asian American 



# Amencan Indian 



1995 



Data Year 
source: EEOC data 1991-95 



123 



Figure 3.23 

Peer Group Sample, Securities Firms, Professionals: Females by Race 



12000 



10000 




▲ Hispanic 



> Asian Amencan 



# Amencan Indian 



Data Year 

source: EEOC data 1991-95 



Figure 3.24 

Subpoena Sample, Securities Firms, Professionals: Females by Race 



10000 




Data Year 



source; EEOC data 1991-95 



124 



Figure 3.25 

Peer Group Sample, Depository Institutions, Sales Workers: Males by Race 



2D00 



1000 



0) 
0) 
0) 

>^ 
o 

£2. 

E 

LU 

"•— 
o 

d 




▲ Hispanic 



+ Asian Amencan 



^ American Indian 



1995 



Data Year 
source: EEOCdata 1991-95 



Figure 3.26 

Subpoena Sample, Depository Institutions, Sales Workers: Males by Race 



1400 



1200 



1000 



(A 
0) 

o 



LU 




■ Total 



A Hispanic 



♦ Asian American 



j ; ^ Amencan Indian 



1995 



Data Year 

source: EEOCdata 1991-95 



125 



Figure 3.27 

Peer Group Sample, Securities Firms, Sales Workers: Males by Race 



12000 



10000 




♦ Asian Afnencan 



« Amencan i' n 



Data Year 
source: EEOC data 1991-95 



Figure 3.28 

Subpoena Sample, Securities Firms, Sales Workers: Males by Race 



6000 




Hispanic 



+ Asian American 



^American Indian 



Data Year 

source: EEOC data 1991-95 



126 



Figure 3.29 

Peer Group Sample, Depository Institutions, Sales Workers: Females by Race 



1600 



1400 



1200 



1000 



800 < 



600 < 



to 
o 



g. 400 ■ 



LU 

o 
d 



200 




Hispanic 



Asian American 



♦ American Indian 



Data Year 

source: EEOC data 1991-95 



Figure 3.30 

Subpoena Sample, Depository Institutions, Sales Workers: Females by Race 



1200 




▲ Hispanic 



K Asian Amencan 



♦ Amencan Indian 



1995 



Data Year 

source; EEOC data 1991-95 



127 



Figure 3.31 

Peer Group Sample, Securities Firms, Sales Workers: Females by Race 



3000 



2000 



a> 

>~ 
o 

a. 

E 
m 

"o 

d 



1000 




A Hispanic 



+ Asian Amencan 



Amencan Indian 



Data Year 

source: EEOCdata 1991-95 



Figure 3.32 

Subpoena Sample, Securities Firms, Sales Workers: Females by Race 



1600 




A Hispanic 



♦ Asian American 



♦ Amencan Indian 



1995 



Data Year 

source: EEOC data 1991-95 



128 



Figure 3.33 

Peer Group Sample, Depository Institutions, Office and Clerical Workers: Males by Race 



14000 




A Hispanic 



■f Asian Amencan 



♦ American Indian 



1991 



1992 



1993 



1994 



1995 



Data Year 

source: EEOC data 1991-95 



Figure 3.34 

Subpoena Sample, Depository Institutions, Office and Clerical Workers: Males by Race 



7000 




■ Total 



▲ Hispanic 



■f Asian American 



# American Indian 



1991 



1992 



1993 



1994 



1995 



Data Year 

source: EEOC data 1991-95 



129 



Figure 3.35 

Peer Group Sample, Securities Firms, Office and Clerical Workers: Males by Race 



to 

(U 

<x> 

>~ 
o 

a. 

e 

LU 
O 
d 



12000 ■ 




^^ 


— •- . 


H 


10000 < 










8000- 


A 


.^— - 


9 




6000 J 




i 


4000- 




-M 


H 




2000 ^ 


f ^ -— 


' 


i. 




/ 


* — . . 1 


o; 


I i 


♦ 


♦ 


4 



L Hispanic 



+ Asian Amencan 



♦ American Indian 



1991 



1992 



1993 



1994 



199S 



Data Year 

source: EEOC data 1991-95 



Figure 3.36 

Subpoena Sample, Securities Firms, Office and Clerical Workers: Males by Race 



10000 




♦ Asian Amencan 



1 i ♦ Amencan Indian 



1992 



1993 



1994 



1995 



Data Year 

source: EEOC data 1991-95 



130 



Figure 3.37 

Peer Group Sample, Depository Institutions, Office and Clerical Workers: Females by Race 



40000 



30000 



20DDD 



05 
CD 



2- IDOOO ■ 



o 
d 




* Asian American 



American Indian 



Data Year 
source: EEOC data 1991-95 



Figure 3.38 

Subpoena Sample, Depository Institutions, Office and Clerical Workers: Females by Race 



20000 



10000 



10 
0) 

o 

E 
in 




1991 



1992 



1993 



1994 



* Asian American 



American Indian 



1995 



Data Year 
source: EEOC data 1991-95 



131 



Figure 3.39 

Peer Group Sample, Securities Firms, Office and Clerical Workers: Females by Race 



300D0 



20000 



o 



m 



1DD0DU 




•f Asian Amencan 



# American Indian 



1991 



1992 



1993 



1994 



1995 



Data Year 

source: EEOC data 1991-95 



Figure 3.40 

Subpoena Sample, Securities Firms, Office and Clerical Workers: Females by Race 



16000 



14000- 




♦ Asian Amencan 



# Amencan Indian 



1992 



1993 



1994 



1995 



Data Year 
source: EEOC data 1991-95 



132 



Figure 3.41 

Peer Group Sample, Depository Establishments 




rthan 80 



80 to \4& 



No. of Employees 



source: EEOCdata 1991-95 



150 to 324 



325 or more 



Figure 3.42 

Subpoena Sample, Depository Establishments 



100 



80 -ir 



60 < 



(A 




<1> 


40 


>- 




o 




Q. 




E 




03 


20 


C 




0) 




o 








Q) 




Q. 






FeiuerthanSO 80 to 140 

No. of Employees 
source: EEOC data 1991-95 



150 to 324 



133 




"Black 



▲ Hispanic 
♦ Asian Amencan 
^ ^ Amencan Indian 



325 or more 



Figure 3.43 

Peer Group Sample, Securities Establishments 







■ X ■ 








fr 






—)f 




60 ' 
















< 
1 


► 


^ 


^ 










• i 

_ ■ 


■ Total 




1 


M 


~ 










40 1 












• White 


1 


30' 
20 1 


( 


A- 


"^ — —^ ■ 




■ 


♦alack 


£ 

0) 










A Hispanic 




10J 




+ 


# 






•f Asian Amencan 


(J 


i 


1 


* 






i 


a> 
Q. 


0^ 


1 










♦ Amencan Indian 












^ 


Feiuerthan 


80 


80 to 148 


150 to 324 


325 


or more 



No. of Employees 



source: EEOC data 1991-95 



Figure 3.44 

Subpoena Sample, Securities Establishments 




▲ Hispanic 



+ Asian Amencan 



♦ Amencan Indian 



Feuierthan 80 



80 to 148 



150 to 324 



325 or more 



No. of Employees 

source: EEOC data 1991-95 



134 



Section V. Determining Representation 

This section will address the difficult ques- 
tion of whether the proportional representation 
of minorities and women is greater or less than 
one would expect given the qualified work force 
for these jobs. We will do so despite the absence 
of data from the firms that describe the qualifi- 
cations needed for the jobs. We will examine the 
proportional representation of minorities and 
women using a variety of criteria that may re- 
late to the skills required by jobs in the finance 
industry. This examination acknowledges a defi- 
ciency in that the data do not permit a conclu- 
sion that legal discrimination exists in the fi- 
nance industry or in the securities firms. The 
criteria examined include general demographic 
characteristics of the New York City population 
as well as various degrees and types of educa- 
tion. These criteria provide a new perspective for 
judging whether or not protected groups are 
adequately represented in the finance industry. 
The last part of this section then tries to relate 
the level or type of education required by differ- 
ent jobs to these various degrees of education. 

Identifying the qualified labor pool for a job 
has always been difficult. Skills, geographic loca- 
tion, and age of the work force have been perti- 
nent factors in determining whether a measure 
of the qualified labor pool represents the actual 
qualified labor pool. 

First, the qualified work force must possess 
the level of skills required by a job. The level of 
skills may be reflected in the level of education, 
speciahzed education, or even Ucensing or certi- 
fication requirements. Generally, clerical jobs 
require fewer skills than technical, professional, 
or managerial jobs.^os 

Second, the geographic area from which job 
candidates are recruited can have an enormous 
effect on the racial composition of the qualified 
labor pool. Because of the concentration of mi- 
nority groups in inner cities, jobs that are lo- 
cated in and recruit from central cities should 
show a larger representation of members of mi- 
nority groups in their qualified labor pool than 
jobs that recruit from broader areas that include 



the whiter suburbs or rural areas. But the size of 
the geographic area from which job candidates 
are recruited varies according to the nature of 
the job. For low-level, low-paid jobs, candidates 
may be recruited only from the local commuting 
area. However, the salaries of higher paid jobs 
often compensate for a relocation or a longer 
commute, with the result that job candidates are 
recruited from a broader area, perhaps even na- 
tionwide. 

A range of geographic areas are used for some 
measures of the racial and gender composition of 
the qualified labor pool presented below. First is 
New York City, which includes the five bor- 
oughs — Manhattan (also known as New York 
County), Bronx (Bronx County), Brooklyn (Kings 
County), Queens (Queens County), and Staten 
Island (Richmond County). Two geographic ar- 
eas based upon 1990 census definitions are also 
used. They are the New York City Primary Met- 
ropolitan Statistical Area (New York PMSA), 
which in addition to the city includes Rockland, 
Westchester, and Putnam Counties in New York, 
and the New York Consohdated Metropolitan 
Statistical Area (New York CMSA), which in- 
cludes the New York PMSA, Long Island 
(Nassau and Suffolk Counties), Orange County, 
northern New Jersey, and the southwestern part 
of Connecticut.206 Finally, the United States as a 
whole is included. 

The New York PMSA corresponds to the area 
of the financial institutions for which the em- 
ployment data were presented earlier. Measures 
based upon the PMSA would best represent the 
qualified labor pool if these banks and firms 
draw their employees solely or mainly from their 
local areas. If they target their recruitment to 
the city, the city's residents may better represent 
the qualified pool. If they draw from a larger 
commuting area, the CMSA would serve better. 
And the United States may be the best measure 
to represent the qualified labor pool for a na- 
tionwide job search. Using these measures, the 
racial and gender composition of the qualified 
work force might be best estimated from the lo- 



'^^•' The increasing levels of education required of higher 
paid, higher status jobs is well documented in a classic so- 
ciological work. Peter M. Blau and Tois Dudley Duncan, The 
American Occupational Structure (New York: Wiley, 1967). 
Data in a later section will show the relationship between 
education levels and the job classifications used herein. 



-"'" See U.S. Department of Commerce, Bureau of the Cen- 
sus, 1990 Census of Population, Social and Economic Char- 
acteristics, Metropolitan Areas, 1990 CP-2-1B, sec. 4 of 6, 
pp. 2766-75. Note that Dutchess County, NY, and Pike 
County, PA, are not included in the New York, NY-NJ-CT 
CMSA. 



135 



cal community for lower paid jobs and from na- 
tionwide data for higher level jobs. 

Third, because the education and skills of 
workers have increased in recent generations, 2"'' 
the age and stability of the work force is rele- 
vant. If, on the one hand, a firm or industry has 
been long established with little turnover in its 
employees, the general population with the ap- 
propriate educational attainment provides a use- 
ful estimate of the qualified work force because 
people of all ages — from those approaching re- 
tirement to those who have attended school re- 
cently — are included. On the other hand, recent 
graduates may provide a better comparison of 
the racial and gender composition of the quali- 
fied work force when employees are newly hired 
or when a firm is recently established or has a 
rapid turnover in employees. Recent graduates 
also provide a sense of how the racial and gender 
composition can be changed in the future by af- 
firmative action or other programs directed to- 
ward achieving diversity. 

Benchmarks for the Racial and Gender 
Composition of the Qualified Work Force 

A variety of measures of the qualified work 
force are presented below. Because of factors 
such as skill levels, geography, and age ranges, 
each measure has advantages and disadvan- 
tages in representing the actual qualified work 
force for various jobs. 

The Civilian Labor Force 

Table 3.22 shows the racial and gender com- 
position of the civilian labor force (aged 16 and 
over) taken from the 1990 census. The civilian 
labor force is the most broadly based measure 
given here. It does not address skill levels but 
assumes that employees in the finance industry 
have the same skill levels as workers more gen- 
erally. On the other hand, the civihan work force 
is more specific than a measure based upon 
population figures which would include children, 
students, and retired and institutionahzed per- 



sons 



208 



207 National Center for Education Statistics, "Digest of Edu- 
cation Statistics 1997," table 8. Also at <http://www.nces.ed. 
gov/pubs/digest97/d97t008.html>. 

^"8 According to the 1990 census definitions, the civilian 
labor force consists of persons classified as "employed" or 
"unemployed." Employed persons are "[a]ll civilians 16 years 
old and over who were either (1) 'at work' — those who did 



The 1990 civilian labor force in New York 
City was 55 percent minority and 47 percent fe- 
male (see table 3.22). According to these figures, 
26.5 percent, roughly 1 in 4, of participants in 
the city's labor force were black; 20.1 percent, 1 
in 5, were Hispanic; and 7.6 percent, 1 in 13, 
were Asian/Pacific Islander. 

The concentration of minorities in the city is 
obvious from table 3.22. The percentages of 
blacks, Hispanics, and Asian American and Pa- 
cific Islanders are all higher in New York City's 
civilian labor force than among the civilian labor 
forces of the PMSA, the CMSA, or the Nation. 
Indeed, the percentages of blacks, Hispanics, 
and Asian American and Pacific Islanders in 
New York City are about 2'/2 times what they are 
in the United States as a whole. The Nation's 
civihan labor force is only 10.6 percent black, 8.1 
percent Hispanic, and 2.9 percent Asian Ameri- 
can and Pacific Islander. 

Education 

Education in varying levels is a requirement 
of many jobs. Indeed, because the educational 
attainment of many minority groups has been 
below that of whites, the proportional represen- 
tation of these groups differs according to level of 
education. Tables 3.23 and 3.24 show the racial 
and gender composition of persons achieving 



any work at all during the reference week as paid employ- 
ees, worked in their own business or profession, worked on 
their own farm, or worked 15 hours or more as unpaid 
workers on a family farm or in a family business; or (2) were 
'with a job but not at work' — those who did not work during 
the reference week but had jobs or businesses from which 
they were temporarily absent due to illness, bad weather, 
industrial dispute, vacation, or other personal reasons. Ex- 
cluded from the employed are persons whose only activity 
consisted of work around the house or unpaid volunteer 
work for religious, charitable, and similar organizations; 
also excluded are persons on active duty in the United 
States Armed Forces." Unemployed persons are "[a]ll civil- 
ians 16 years old and over ... if they (1) were neither 'at 
work' nor 'with a job but not at work' during the reference 
week, and (2) were looking for work during the last 4 weeks, 
and (3) were available to accept a job " Civilians who did not 
work at all during the reference week and were waiting to 
be called back to a job from which they had been laid off 
were included as "unemployed." "[SJtudents, housewives, 
retired workers, seasonal workers enumerated in an off 
season who were not looking for work, institutionalized per- 
sons, and persons doing only incidental unpaid family work 
fless than 15 hours during the reference week)" were classi- 
fied as not in the labor force. See 1990 Census of Population, 
Social and Economic Characteristics: New York, 1990 CP-2- 
34, sec. 3, p. B-5. 



136 



various levels of education. Table 3.23 shows 
educational attainment for persons aged 25 and 
over, in other words, the population as a whole; 
table 3.24 shows recent graduates. 

In table 3.23, part A shows the racial and 
gender composition of the population surpassing 
certain levels of education — high school, bache- 
lor's, and graduate or professional degrees. 
These measures may represent the work force 
meeting minimum educational qualifications at 
each level but also include overqualified persons 
who may not regard themselves as part of the 
applicant pool for such jobs. Part B shows the 
composition for the highest level of education 
achieved, that is, the population attaining one 
level of education but not the next higher level. 
Both the measures in the table capture educa- 
tional attainment of persons of all ages and 
therefore are best compared to the existing long- 
term work force. 

Table 3.23 also shows the sensitivity of the 
racial and gender composition to the geographic 
area. It shows that, as with the civilian labor 
force, the representation of minorities, including 
blacks, Hispanics, and Asian American and Pa- 
cific Islanders, is greater in New York City than 
in the PMSA, the CMSA, and the United States 
for every level of education. 209 This reflects the 
increasing number of white suburbs that are 
added in as the size of the geographic area is 
increased. Thus, the representation of minorities 
and women in the city and the Nation generally 
spans the values shown for the PMSA and the 
CMSA. Also like the civihan labor force, the 
prevalence of minorities in the city is about 2^2 
times what it is in the Nation and is sometimes 
even greater among groups with higher educa- 
tion levels. 

The contrast between the New York City and 
the United States figures illustrates the impor- 
tance of choosing an appropriate geographic area 
for the qualified labor pool. If job candidates are 
recruited only from the local area, then a work 



^"9 In part A, for example, 23.7 percent of blacks in New 
York City have a high school degree, or more, compared 
with 21.3 percent in PMSA, 14 percent in CMSA, and 8.8 
percent in the Nation. In part B, 27.4 percent of blacks in 
New^'ork city have, as their highest level of education, a 
high school degree or GED, compared with only 9.8 percent 
in the Nation as a whole. Similar trends occur for Hispanics, 
Asian Americans, and women. However, American Indians 
are more prevalent in the Nation than in the New York City 
metropolitan area in both parts A and B. 



force hired without bias should reflect the racial 
and gender profile for the appropriate education 
or skill level of New York City residents. Yet be- 
cause of the city's vast transit system, many 
suburban communities inhabited largely by 
highly educated whites become part of the labor 
pool, too. Furthermore, high-paying jobs justify 
nationwide recruitment, where minority groups 
are far less concentrated than in urban areas. A 
discussion of which of the four geographic areas 
best describes the labor pool for particular types 
of jobs will be held until later. The general range 
of values for the city and the Nation will be 
pointed out below. 

In part A, the proportion of minorities and 
women generally dwindles the higher the educa- 
tion level. Asian American and Pacific Islanders, 
however, do not follow the trend of other minor- 
ity groups, and are often more prevalent among 
persons with higher levels of education than 
among those with lower educational attainment. 
For example, for New York City residents aged 
25 and over with a high school degree or more 
education, 44.7 percent were minority — about 24 
percent were black, 14 percent were Hispanic, 
and 7 percent were Asian American and Pacific 
Islanders. More than half, 54.2 percent, were 
women. 

Of New York City residents aged 25 and over 
with a bachelor's degree or more education, 31.1 
percent were minori*'^. They included a larger 
proportion of Asian American and Pacific Is- 
landers, 10 percert, out smaller proportions of 
blacks and Hispanics, about 14 and 7 percent, 
respectively. Almost half 49.5 percent, were 
women. Of New York City residents aged 25 and 
over with a graduate or professional degree, 26 
percent were minority — about 11 percent were 
black, 6 percent Hispanic, and 9 percent Asian 
American and Pacific Islander. Less than half, 
about 47 percent, were women. 

Among U.S. citizens aged 25 and older, blacks 
are only about 9 percent of those with high 
school degrees or more, about 8 percent of those 
with some college or more, about 6 percent of 
those with bachelor's degrees or more, 5.6 per- 
cent of those with master's degrees or more, and 
4 percent of those with doctorate or professional 
degrees. 

Among U.S. citizens aged 25 or older, His- 
panics are only about 5 percent of those with 
high school degrees or more, 4.4 percent of those 



137 



with some college or more, about 3 percent of 
those with a bachelor's degree or more or of 
those with a master's degree or more, and 4 per- 
cent of those with a doctorate or professional 
degree. Only about 29 percent of U.S. citizens 
aged 25 and over with doctorate or professional 
degrees are women. 

Assuming that persons who are overeducated 
for a position are not part of the labor pool, part 
B of table 3.23 shows the highest level of educa- 
tional attainment, a measure that excludes per- 
sons with too much education as well as too lit- 
tle. The table shows the racial and gender com- 
position of persons whose highest level of educa- 
tion is a high school degree or GED, an associ- 
ate's degree or some college without a degree, 
and a bachelor's degree. The figures for those 
whose highest level of education is a graduate or 
professional degree are not shown because they 
are the same as those in part A. 

If one identifies the qualified labor pool using 
minimal education levels as shown in part A, 
then the representation of blacks and Hispanics 
is underestimated for jobs requiring lower levels 
of education. Part B shows that if the qualified 
labor pool includes only persons with an appro- 
priate level of education and not those with more 
education, the representation of blacks and His- 
panics will be shghtly greater than the figures in 
part A, at least for jobs requiring no more than a 
bachelor's degree. ^'o For the higher levels of edu- 
cation, fewer persons with more education are 
added into the minimal education attainment 
measure, thus creating less of a difference be- 
tween using a measure of minimal education 
versus highest level of education. 

Part B also shows trends similar to those in 
part A; the proportions of blacks and Hispanics 
are generally smaller for higher levels of educa- 
tion while the proportions of Asian American 
and Pacific Islanders are larger. However, in an 
exception to this general trend, blacks and His- 



-'"Thus, for example, part A showed that for New York City 
residents with a high school degree or more, 23.7 percent 
were black. Part B shows that for New York City residents 
with a high school degree but no more education, slightly 
more, 27.4 percent, were black. But blacks are proportion- 
ally the most prevalent minority group that has had some 
college or an associate's degree. Among this group of people 
with more than a high school degree but less than a bache- 
lor's degree, about 31 percent are black, approximately 17 
percent are Hispanic, 5.7 percent are Asian, and 54 percent 
are women (table 3.23, pt. B). 



panics are most prevalent among persons with 
associate's degrees or some college without a de- 
gree. Blacks are 30.6 percent of New York City 
residents with associate's degrees or some col- 
lege while Hispanics make up 17.4 percent. To- 
gether minorities are 54 percent of New York 
City residents with associate's degrees. For U.S. 
citizens, blacks and Hispanics are also more 
prevalent among those with associate's degrees 
than among persons with other levels of educa- 
tion, although the effect is not nearly so pro- 
nounced. Blacks are 10.1 percent of U.S. citizens 
with associate's degrees and Hispanics are 5.4 
percent. 

Table 3.24 shows the racial and gender com- 
position for recent graduates at different levels 
of education. These numbers best describe re- 
cently hired employees or younger work forces, 
and help project changes in the future. The fig- 
ures are nationwide in scope and report degrees 
conferred on U.S. citizens for four recent school 
years from 1990-91 to 1993-94. 

First, the table shows consistent but small in- 
creases in the representation of minorities and 
women among graduates receiving associate's, 
bachelor's, master's, and doctorate degrees 
across these recent years. Some of the largest 
increases were for those receiving bachelor's de- 
grees. Of those receiving bachelor's degrees, the 
proportion who were black increased from 6.2 
percent in 1990-91 to 7.4 percent in 1993-94; 
the proportion who were Hispanic increased 
from 3.5 to 4.4 percent; and the proportion who 
were Asian American and Pacific Islander in- 
creased from 4 to 4.9 percent. 

For minorities, table 3.24 shows the same 
tendency as was evident with the measures of 
education in table 3.23: the representation of 
blacks and Hispanics dwindles for higher educa- 
tion degrees while the representation of Asian 
American and Pacific Islanders increases. For 
example, in 1993-94, 8.8 percent of persons re- 
ceiving associate's degrees were black; 7.4 per- 
cent of persons receiving bachelor's degrees were 
black; 6.5 percent of persons receiving master's 
degrees were black; and 4.4 percent of persons 
receiving doctorate degrees were black. Simi- 
larly, in that year 6.1 percent of persons receiv- 
ing associate's degrees were Hispanic; 4.4 per- 
cent of persons receiving bachelor's degrees were 
Hispanic; 3.5 percent of persons receiving mas- 
ter's degrees were; and 2.9 percent of those re- 



138 



ceiving doctorate degrees were Hispanic. How- 
ever, 3.5 percent of persons receiving associate's 
degrees in 1993-94 were Asian American and 
Pacific Islander; 4.9 percent of persons receiving 
bachelor's degrees were; and 6.4 percent of per- 
sons receiving doctorate degrees were Asian 
American and Pacific Islander. 21 ' 

Differences in the figures in tables 3.23 and 
3.24 can largely be attributed to differences in 
the ages and generations of the populations rep- 
resented therein. The majority of recent gradu- 
ates are young people, attempting to complete 
their schooling before beginning their careers. 
For example, in 1992-93, 55 percent of under- 
graduates were aged 15 to 23, and 46 percent of 
graduate students and students earning their 
first professional degrees were under age 30. 212 
The populations in table 3.23, however, include 
not only recent graduates but older persons. The 
average age of the U.S. residents upon which the 
table is based is at least 42. 213 Many older people 
likely completed their education decades ago 
when attitudes about education were very dif- 
ferent from today. And the figures in the table 
reflect that. 

According to the percentages in tables 3.23 
and 3.24, there is no consistent trend showing 
better representation of minorities among recent 
graduates than among the older, more general 
population. 21-* The magnitude of the minority 
group figures for recent graduates is fairly con- 
sistent with those for U.S. citizens, that is, the 



^" Asians are slightly less well represented among persons 
who receive master's degrees than they are among persons 
who receive bachelor's and doctorate degrees (table 3.24). 

212 Thomas D. Snyder and Charlene M. Hoffman, Digest of 
Education Statistics 1995 (U.S. Department of Education, 
National Center for Education Statistics, NCES 95-029), 
table 204 — Percent of students enrolled in postsecondary 
institutions, by disability status and selected student char- 
acteristics: 1992-93, p. 212. 

^'■^ Computed from U.S. Department of Commerce, Statisti- 
cal Abstract of the United States 199.5, table 16. Resident 
Population, by Sex and Age; 1994, p. 16. The figure was 
computed as the average age of residents between the ages 
of 25 and 65. Including persons over age 65, as the educa- 
tional attainment tables herein do, raises the average age of 
the population of residents over the age of 25. 

■■^''' In the largest difference between these figures, Asians 
are better represented among persons with doctorate de- 
grees than among recent graduates receiving these degrees. 
They are 7.6 percent of U.S. citizens holding these degi'ees, 
but only 6.4 percent of doctorate recipients in the most re- 
cent year shown — 1993-94. See table 3.24 and U.S. citizens 
in part B, table 3.23. 



population as a whole, in part B of table 3.23. 
The similarity of these figures suggests that, at 
least with respect to the four recent school years 
shown here, little change has occurred in the 
proportions of minority groups receiving degrees. 

The story for women, however, is somewhat 
different. The percentages of women among 
those who were conferred with degrees in recent 
years also dwindles with higher levels of educa- 
tion. However, women represent larger percent- 
ages of the persons receiving degrees than they 
have in the past, judged by the educational at- 
tainment of the Nation's generally older popu- 
lace. Whereas table 3.23, part B, shows that 53.1 
percent of U.S. citizens with associate's degrees 
are women, in table 3.24 about 59 percent of re- 
cent graduates with associate's degrees are 
women. While 48.1 percent of U.S. citizens with 
bachelor's degrees are women, about 55 percent 
of recent recipients of bachelor's degrees are. 
Further, 47.6 percent of U.S. citizens with mas- 
ter's degrees are women, compared with roughly 
57 percent of recent recipients of master's de- 
grees; and 25 percent of citizens with doctorate 
degrees are women, compared with 43 or 44 per- 
cent of recently conferred doctorates. 

The difference in representation of women 
among new graduates versus the older, general 
population means that one must take gi'eater 
care in identifying the qualified labor pool. 
Newer, younger industries are likely to have 
newer and younger employees that reflect the 
racial and gender composition of recent degree 
recipients rather than the population as a whole. 
Thus, in some industries, the use of the educa- 
tional attainment of U.S. citizens may underes- 
timate the percentage of women in the qualified 
labor pool particularly for jobs requiring the 
highest levels of education. At the same time, 
the larger pools of women among recent gradu- 
ates mean that women should be better repre- 
sented among recently hired employees than 
they have been in the past. 

Three different measures of education were 
presented in this section, each of them showing 
generally declining proportions of minorities, 
particularly blacks and Hispanics, and women 
for increasingly higher levels of education. Asian 
American and Pacific Islanders, however, are 
often better represented among those with 
higher education than among those with lower 
education. For all levels of education, the repre- 



139 



sentation of minorities is much greater for New 
York City, and even its metropolitan area than 
for the Nation as a whole. The age of the work 
force appears to be relevant for women because 
women are much better represented among re- 
cent degree recipients (at all levels of education) 
than among the same education levels for the 
older, more general population. 

Specialized Education, Certification, and 
Experience 

Apart from general education, skills may be 
an important criteria for identifying the quali- 
fied labor pool for jobs. Skills are measured here 
using specialized education, certification, and 
experience related to the finance industry. The 
racial and gender compositions of the pool of 
persons receiving degrees in two fields related to 
the finance industry are shown in table 3.25. 
The same breakdowns among persons taking 
and passing the Series 7, a major examination 
required for certain occupations in the finance 
industry, are shown in table 3.26. Those of per- 
sons who work as officials and mangers in the 
finance industry are shown in table 3.27. 

Table 3.25 shows the racial and gender com- 
position of graduates of programs in business 
management and administrative services and in 
computer and information science, two fields 
that offer good preparation for jobs in the fi- 
nance industry. 2'5 The information provided cov- 
ers two academic years: 1991-92 and 1992-93. 



2'5 Of the 34 fields for which the Department of Education 
reports the race and gender of degree earners, business 
management and administrative services, and computer and 
information sciences appear to be the most relevant to fi- 
nance industry jobs. The other fields are: agriculture and 
natural resources; architecture and related programs; area, 
racial, and cultural studies; biological science/life sciences; 
communications; communications technologies; construction 
trades; education; engineering; engineering-related tech- 
nologies; English language and literature/letters; foreign 
languages and literature; health professions and related 
sciences; home economics and vocational home economics; 
law and legal studies; liberal arts and sciences, general 
studies, and humanities; library science; mathematics; me- 
chanics and repairers; multi-interdisciplinary studies; parks, 
recreation, leisure and fitness studies; philosophy and re- 
ligion; physical sciences and science technologies; precision 
production trades; protective services; psychology; public 
administration and services; R.O.T.C. and military tech- 
nologies; social sciences and history; theological stud- 
ies/religious vocations; transportation and material moving; 
and visual and performing arts. See Thomas D. Snyder and 
Charlene M. Hoffman, Digest of Education Statistics 1995 
(U.S. Department of Education, National Center for Educa- 



Table 3.24 contains statistics on recent 
graduates in all fields. The table shows that the 
percentages of minorities and women dwindled 
with each successive level of education from as- 
sociate's to doctoral degrees. Table 3.25 shows a 
similar trend, but with more pronounced effects. 
A greater percentage of blacks and Hispanics in 
the business management and administrative 
services, and computer and information science 
fields received associate's and bachelor's degrees 
than among the general population of people 
receiving these degrees. Blacks and Hispanics in 
these two fields also have a smaller percentage 
of master's and doctoral degrees than among 
recipients of these degrees in all fields. As a re- 
sult, the dwindling numbers of African Ameri- 
cans and Hispanics in the two higher degree 
categories are more pronounced. For example, 
while 8.5 percent of the persons receiving associ- 
ate's degrees in 1992-93 were black (table 3.24), 
10.9 percent of those receiving associate's de- 
grees in business management and administra- 
tive services and 11.8 percent of those receiving 
associate's degrees in computer information sci- 
ence were black (table 3.25). On the other hand, 
blacks, who comprised 4.4 percent of all persons 
receiving doctoral degrees in 1992-93 (table 
3.24), were only 3.2 percent of business man- 
agement and administrative services doctoral 
recipients, and only 1.4 percent of those receiv- 
ing computer and information science doctor- 
ates. 

There is also a greater percentage of female 
higher education degree recipients within the 
business management and administrative serv- 
ices, and computer and information science 
fields than among the general population of de- 
gree earners. For example, from 1992 to 1993, 
women received approximately 59 percent of as- 
sociate's degrees and 44 percent of doctoral de- 
grees (table 3.24). During the same period, how- 
ever, women in the business management and 
administrative services comprised 68.1 percent 
of recipients of associate's degrees, 47.5 percent 
of recipients of bachelor's degrees, 36.2 percent 
of recipients of master's degrees, and 35.6 per- 
cent of recipients of doctoral degrees (table 3.25). 
In the computer science area, women were about 



tion Statistics, NCES 95-029), tables 254, 255. 257, 258, 260, 
261, 263, 264, pp. 281-82, 284-85, 287-88, 290-91. 



140 



Table 3.22 

Benchmarks of Racial and Gender Composition, Civilian Labor Force (Percentages) 

Persons in the labor force (employed or unemployed) who are age 16 and over 



New York City 
New York PMSa' 
New York CMSA^ 

4 

United States 







Asian/Pacific 


American 




Black 


Hispanic 


Islander 


Indian 


Minority' 


26.5 


20.1 


7.6 


0.3 


54.6 


24.2 


18.3 


7.0 


0.3 


49.8 


16.6 


13.2 


4.9 


0.2 


35.0 


10.6 


8.1 


2.9 


0.7 


22.3 



Women 
47.3 
47.2 
46.2 
45.8 



Blacks, Hispanics, Asian/Pacific Islanders, and American Indians are Included in the category "Minorities." 

' Compiled from 1990 Census of Population, Social and Economic Charactehstics: New York, 1990, CP-2-34, sec. 2, table 183. Figures here 
and below are for persons 1 6 years and older. 

Compiled from 1990 Census of Population, Social and Economic Characteristics: Metropolitan Areas. 1990, CP-2-1B, sec. 4, table 43, pp. 
3234, 3240. 

4 

Compiled from 1 990 Census of Population, Social and Economic Characteristics: United States, 1990, CP-2-1 , table 42, p. 44. 



Table 3.23 

Benchmarks of Racial and Gender Composition, Levels of Education (Percentages) 



Black Hispanic 



Asian/ 

Pacific American 
Islander Indian Minority' 



Women 



Part A. Minimal educational attainment 



New York City residents aged 25 and over 

High school degree or more 23.7 14.0 

Some college or more 21.4 11.9 

Bachelor's degree or more 13.7 7.2 

Graduate or professional degree 10.9 6.4 

3 

New York PMSA residents aged 25 and over 

High school degree or more 21.3 12.5 

Some college or more 19.0 10.5 

Bachelor's degree or more 12.0 6.4 
Graduate or professional degree 

New York CMSA (NY-NJ-CT) residents aged 25 and over 

High school degree or more 14.0 8.6 

Some college or more 12.5 7.4 

Bachelor's degree or more 7.6 4.4 

Graduate or professional degree 7.0 4.3 

4 

U.S. citizens aged 25 and over 

High school degree or more . 8.8 4.7 

Some college or more 8.2 4.4 

Bachelor's degree or more 5.9 3.2 

Master's degree or more 5.6 3.2 

Doctorate or professional degree 4.0 4.0 



6.8 
8.0 

10.0 
8.6 

6.2 
7.3 
9.1 



4.6 
5.8 
7.1 
7.4 

2.8 
3.5 
4.9 
5.2 
5.9 



0.3 


44.7 


54.2 


0.3 


41.6 


51.3 


0.2 


31.1 


49.5 


0.2 


26.0 


46.9 


0.2 


40.3 


54.0 


0.2 


37.1 


51.1 


0.2 


27.7 


49.0 


0.2 


27.4 


53.1 


0,2 


25.8 


49.6 


0.1 


19.1 


43.5 


0.1 


18.9 


43.8 


0.6 


16.9 


52.4 


0.5 


16.7 


49.8 


0.3 


14.3 


45.7 


0.3 


14.4 


41.3 


0.3 


14.3 


29.3 
Continued 



141 



Table 3.23 (Continued) 



Black Hispanic 



Asian/ 

Pacific American 
Islander Indian Minority^ 



Women 



Part B. Highest level of education 



New York City residents aged 25 and over 

High school degree or GED 27.4 17.3 

Associate's degree or some college 
without a degree 
Bachelor's degree 

3 

New York PMSA Residents Aged 25 and over 

High school degree or GED 25.1 

Associate's degree or some college 
without a degree 27.7 

Bachelor's degree 13.9 

New York CMSA (NY-NJ-CT) residents aged 25 and over^ 



15.8 

15.7 
7.0 



High school degree or GED 
Associate's degree or some college 
without a degree 
Bachelor's degree 

4 

U.S. citizens aged 25 and over 

High school degree or GED 
Associate's degree or some college 
without a degree 
Associate's degree 
Bachelor's degree 
Master's degree 
Doctorate degree 



16.4 



10.7 



9.8 



5.1 



4.8 



4.4 

5.2 
10.1 

2.7 



1.7 



0.2 



0.2 

0.3 
0.2 

0.2 



0.7 



49.7 



45.5 

48.9 
31.2 

29.9 



17.2 



58.7 



30.6 


17.4 


5.7 


0.3 


54.0 


53.5 


15.9 


7.8 


11.0 


0.3 


35.0 


51.5 



58.9 

53.8 
51.0 

59.0 



17.8 


10.6 


3.5 


0.2 


32.2 


53.1 


9.0 


4.9 


7.7 


0.1 


21.8 


48.9 



56.3 



10.1 


5.4 


2.4 


0.7 


18.7 


53.1 


9.0 


5.5 


3.4 


0.7 


18.7 


55.7 


6.0 


3.2 


4.7 


0.3 


14.2 


48.1 


6.5 


2.8 


4.9 


0.3 


14.4 


47.6 


4.3 


3.2 


7.6 


0.3 


15.4 


25.0 



Blacks. Hispanics. Asian/Pacific Islanders, and American Indians are included in the category "Minorities." 

2 

Compiled from 1990 Census of Population, Social and Economic Characteristics: New York. 1990. CP-2-34, sec. 2, table 181. Note: For 
these and other figures based on the census, those with a high school degree or more include high school graduates, those with high school 
equivalencies, some college and associate degrees, and those with bachelor's, graduate, or professional degrees. Those with some college 
or more include those who attended college without obtaining a degree, those who obtained associate degrees, and those with bachelor's, 
graduate, or professional degrees Those with a bachelor's degree or more include those with a bachelor's, master's, professional, or 
doctorate degree. 

3 

Compiled from 1 990 Census of Population, Social and Economic Characteristics: Metropolitan Areas. 1990 CP-2-1 B, sec. 4, table 41 . 

4 

Compiled from 1990 Census of Population, Social and Economic Characteristics: United States. 1990. CP-2-1, table 42. p. 42. Note: 
Figures compiled from the census differ slightly from 1993 figures derived from the Current Population Survey. However, the largest 
differences are only a little more than 1 percent. See National Center for Education Statistics, Digest of Education Statistics, 1995 (U.S. 
Department of Education, Office of Educational Research and Improvement, NCES 95-029), table 9, p. 18. Original source: U.S. Department 
of Commerce, Bureau of the Census, Current Population Survey. 



142 



Table 3.24 

Benchmarks of Racial and Gender Composition, Levels of Education, 
Graduates in Four Recent School Years (Percentages) 



Degrees conferred on U.S. citizens 



Associate's degrees 

1 990-91 ' 

1991-92' 

1992-93' 

1993-94' 
Bachelor's degrees 

1990-91^ 

1991-92' 

1992-93' 

1993-94' 
Master's degrees 

1990-91' 

1991-92' 

1992-93^ 

1993-94' 
Doctorate degrees 

1990-91^ 

1991-92^ 

1992-93® 

1993-94' 









American 






ack 


Hispanic 


Asian 


Indian 


Minority^ 


Women 


8.3 


5.3 


3.0 


0.8 


17.4 


58.9 


8.1 


5.5 


3.2 


0.8 


17.7 


59.0 


8.5 


6.0 


3.3 


0.9 


18.7 


58.9 


8.8 


6.1 


3.5 


0.9 


19.3 


59.3 


6.2 


3.5 


4.0 


0.4 


14.1 


54.5 


6.6 


3.7 


4.2 


0.5 


15.0 


54.6 


6.9 


4.0 


4.6 


0.5 


16.0 


54.6 


7.4 


4.4 


4.9 


0.5 


17.3 


54.8 


5.5 


2.9 


3.8 


0.4 


12.6 


56.4 


5.8 


3.0 


4.1 


0.4 


13.4 


56.8 


6.1 


3.3 


4.3 


0.4 


14.1 


56.9 


6.5 


3.5 


4.5 


0.5 


15.0 


57.2 


4.2 


2.5 


5.1 


0.4 


12.2 


. 42.5 


4.1 


2.7 


5.3 


0.4 


12.6 


43.0 


4.4 


2.7 


5.2 


0.3 


12.7 


44.2 


4.4 


2.9 


6.4 


0.4 


14.1 


44.1 



Blacks, Hispanics, Asians, and American Indians are included in the category "Minorities." 

2 
Computed from "Degrees Conferred by Racial and Ethnic Group. 1990-91," p. 17 in The Chronicle of Higher Education Almanac, Aug. 25, 

1993. Original source: U.S. Department of Education. Percentages are calculated excluding nonresident aliens and persons of unknown 

race. 

3 

Calculated from Thomas D. Snyder and Chariene M. Hoffman, Digest of Education Statistics 1995 (U.S. Department of Education, National 
Center for Education Statistics, NCES 95-029), table 254 — Associate's degrees confen-ed by institutions of higher education, by racial/ethnic 
group, major field of study, and sex of student: 1992-93 and table 255 — Associate's degrees confen-ed by institutions of higher education, by 
racial/ethnic group, major field of study, and sex of student: 1991-92, pp. 281-82. Percentages are calculated excluding nonresident aliens. 

4 

Ibid. Table 257 — Bachelor's degrees conferred by institutions of higher education, by racial/ethnic group, major field of study, and sex of 
student: 1992-93. Table 258 — Bachelor's degrees conferred by institutions of higher education, by racial/ethnic group, major field of study, 
and sex of student: 1991-92, pp. 284-85. Percentages are calculated excluding nonresident aliens. 

5 

Ibid. Table 260 — Master's degrees conferred by institutions of higher education, by racial/ethnic group, major field of study, and sex of 
student: 1992-93 and table 261 — Master's degrees confen^ed by institutions of higher education, by racial/ethnic group, major field of study, 
and sex of student: 1991-92. pp. 287-88. Percentages are calculated excluding nonresident aliens and persons of unknown race. 

6 

Ibid. Table 263 — Doctor's degrees conferred by institutions of higher education, by racial/ethnic group, major field of study, and sex of 
student: 1992-93 and table 264 — Doctor's degrees confen-ed by institutions of higher education, by racial/ethnic group, major field of study, 
and sex of student: 1991-92, pp. 290-91. Percentages are calculated excluding nonresident aliens. 

7 

Computed from "Degrees Confen-ed by Racial and Ethnic Group, 1993-94," p. 22, in The Chronicle of Higher Education Almanac. Sept. 2, 
1996. Original source: U.S. Department of Education. Percentages are calculated excluding nonresident aliens and persons of unknown 
race. 



143 



Table 3.25 

Benchmarks of Racial and Gender Composition, Specialized Education, Degrees Conferred by 
Selected Field of Study and Year (Percentages) 



Black Hispanic 



Asian 



American 

Indian Minority^ 



Women 



Part A. Business management and administrative services 



Associate's degrees 

1991-92 
1992-93 

3 

Bachelor's degrees 

1991-92 
1992-93 

4 

Master's degrees 

1991-92 
1992-93 

5 

Doctorate degrees 

1991-92 
1992-93 



10.2 


5.7 


3.6 


0.8 


20.3 


69.0 


10.9 


6.5 


3.6 


0.8 


21.8 


68.1 


7.4 


3.4 


4.3 


0.4 


15.4 


47.5 


7.8 


3.9 


4.8 


0.4 


16.9 


47.5 


5.3 


2.6 


4.8 


0.3 


13.0 


36.0 


5.7 


2.9 


5.5 


0.3 


14.5 


36.2 


3.4 


1.4 


7.8 


0.2 


12.8 


29.6 


3.2 


1.1 


5.0 


0.3 


9.6 


35.6 



Part B. Computer and information science 



Associate's degrees 

1991-92 
1992-93 

3 

Bachelor's degrees 

1991-92 
1992-93 

4 

Master's degrees 

1991-92 
1992-93 

5 

Doctorate degrees 

1991-92 
1992-93 



12.8 


6.9 


5.6 


0.7 


26,0 


50.9 


11.8 


8.8 


5.4 


1.2 


27.2 


50.8 


9.5 


4.0 


9.5 


0.4 


23.3 


28.7 


10.3 


3.9 


10.4 


0.4 


25.0 


28.2 


5.3 


2.5 


18.4 


0.3 


26.4 


29.2 


5.1 


2.6 


18.3 


0.2 


26.2 


28.0 


1.2 


1.4 


10.6 


0.2 


13.5 


17.0 


1.3 


1.5 


12.4 


0.2 


15.5 


19.6 



Blacks. Hispanics, Asians, and American Indians are included in the category "Minorities " "Blacks" are non-Hispanic blacks. Percentages 
are calculated excluding nonresident "aliens." 

Calculated from Thomas D. Snyder and Chariene M. Hoffman, Digest of Education Statistics 1995 (U.S. Department of Education, National 
Center for Education Statistics, NCES 95-029), table 254— Associate degrees confened by institutions of higher education, by racial/ethnic 
group, major field of study, and sex of student: 1992-93 and table 255 — Associate degrees conferred by institutions of higher education, by 
racial/ethnic group, major field of study, and sex of student: 1991-92, pp. 281-82. 

Ibid. Table 257 — Bachelor's degrees confen-ed by institutions of higher education, by racial/ethnic group, major field of study, and sex of 
student: 1992-93. Table 258 — Bachelor's degrees confenred by institutions of higher education, by racial/ethnic group, major field of study, 
and sex of student: 1991-92, pp. 284-85. 

Ibid. Table 260 — Master's degrees conferred by institutions of higher education, by racial/ethnic group, major field of study, and sex of 
student: 1992-93 and table 261— Master's degrees conferred by institutions of higher education, by racial/ethnic group, major field of study, 
and sex of student: 1991-92, pp. 287-88. 

Ibid. Table 263 — Doctor's degrees confened by institutions of higher education, by racial/ethnic group, major field of study, and sex of 
student: 1992-93 and table 264 — Doctor's degrees confen-ed by institutions of higher education, by racial/ethnic group, major field of study, 
and sex of student: 1991-92, pp. 290-91. 



144 



Table 3.26 

Benchmarks of Racial and Gender Composition, Obtaining Certification in the Finance Industry 
(Percentages) 

Passing the Series 7 exam — General securities registered representative ^ 









American 






Black 


Hispanic 


Asian 


Indian 


Minority^ 


Women 


5.6 


5.3 


6.2 


0.9 


17.9 


30.2 


3.5 


4.1 


5.9 


0.6 


14.2 


26.0 



Persons taking 
Persons passing 

' Percentages are recalculated from the original to exclude persons who did not identify their race/ethnicity or gender. For the series 7 exam. 
5.9 percent of test takers did not identify their race or ethnicity and 2.7 percent did not identify their gender. The former group had a passing 
rate of 64.5 percent (N=2,067); the latter group had a passing rate of 71 .3 percent (N=940). Compared with an overall passing rate of 69.8 
percent {N=34,845 or 34,929), persons who declined to identify their race had below average test scores and persons who declined to 
identify their gender scored slightly above average on the test. 

2 

Blacks, Hispanics. Asians, and American Indians are included in the category "Minorities." 

Source: Attachment to correspondence from National Association of Securities Dealers, to Ms. JoEllen Carison, director of testing 
standards. New York Stock Exchange, July 25, 1995. 



Table 3.27 

Benchmarks 

Finance Industry (Percentages) 



Benchmarks of Racial and Gender Composition, Work Experience, Officials and Managers in the 



Asian/ 

Pacific American Number of 

Black Hispanic Islander Indian Minority^ Women people 



Part A. United States 



6.2 


4.7 


3.4 


0.2 


14.6 


54.6 


259,149 


5.1 


4.5 


3.4 


0.2 


13.2 


53.9 


264,677 


3.6 


3.8 


2.9 


0.3 


10.6 


35.2 


65,561 


4.9 


4.7 


3.1 


0.3 


12.9 


40.5 


111,885 



Banking and other savings institutions 

Financial managers 
Other financial officers 
Other finance 

Financial managers 
Other financial officers 

Part B. New York PMSA 

Banking and other savings institutions 

Financial managers 16.1 

Other financial officers 14.6 

Other finance 

Financial managers 8.1 

Other financial officers 7.7 

' Job classifications were assigned using U.S.Equal Employment Opportunity Commission, Job Classification Guide (Washington, DC, 1987). 

Blacks, Hispanics, Asian/Pacific Islanders, and American Indians are included in the category "Minorities." "Blacks" are non-Hispanic blacks. 
Percentages are calculated excluding nonresident aliens. 

"Other finance" excludes banking and other savings institutions, insurance, and real estate. 
Source: Infonnation provided to the U.S. Commission on Civil Rights by the Equal Employment Opportunity Commission, "Report: Occupation 
by Industry/Race/Sex; Database: 1990 Census; 12/08/93." 



10.2 


7.4 


0.3 


34.1 


46.5 


19,556 


10.4 


9.4 


0.2 


34.7 


49.3 


12,593 


3.7 


6.7 


0.0 


18.5 


34.3 


5,505 


6.6 


5.2 


0.1 


19.6 


32.4 


5,220 



145 



51 percent of recipients of associate's degrees, 
28.2 percent of recipients of bachelor's and mas- 
ter's degrees, and 19.6 percent of doctoral degrees. 

Asian American and Pacific Islanders com- 
prise approximately the same percentage of 
business management and administrative serv- 
ices degree recipients as they do of all recipients 
of these degrees (compare table 3.24 and table 
3.25, part A). However, Asian American and Pa- 
cific Islanders are a greater number of degree 
recipients in computer and information science, 
especially among the highest level degrees. For 
example, Asian American and Pacific Islanders, 
who were 3.3 percent of associate's degree re- 
cipients, 4.3 percent of master's degree recipi- 
ents, and 5.2 percent of doctoral degree recipi- 
ents in all fields in 1992-93 (table 3.24), in the 
computer sciences were 5.4 percent of associate's 
degree recipients, 10.4 percent of bachelor's de- 
gree recipients, 18.3 percent of master's degree 
recipients, and about 12.4 percent of doctoral 
degi'ee recipients. Thus, in the computer field, 
Asian American and Pacific Islanders also have 
a greater percentage of degree earning than 
among the general population of degree earners. 

Table 3.25 shows percentages of graduates 
with higher degrees in two areas of study rele- 
vant to the finance industry, indicating a labor 
force — or at least the recent additions to it — with 
speciaUzed education. ^'^ The statistics show a 
general trend of lower percentages of minorities 
and women in the higher level graduate degrees 
for which there may be a number of potential 
causes. However, none of these statistics was 



^"' Note that the number of minorities receiving doctoral 
degrees in these majors is not large in any one year. For 
example, although the number of persons receiving doctoral 
degrees in computer and information science each year was 
roughly 375, the number of blacks, Hispanics, and American 
Indians receiving doctoral degrees in this major was only 12 
or 14 for each of the 2 years. Thomas D. Snyder and Char- 
lene M. Hoffman, Digest of Education Statistics 1995 (U.S. 
Department of Education, National Center for Education 
Statistics. NCES 95-029), table 254, pp. 281-82. The small 
numbers of minority applicants with the appropriate higher 
education makes competition among the approximately 450 
banks and securities firms great. EEOC Data, app. B. table 
B.2. As a result, it is possible that low numbers of minority 
hires may be an indication of a lack of concerted efforts to 
recruit such applicants, rather than an overt bias. It is also 
possible that there may be either overt or covert bias pres- 
ent, or that one could interpret the lack of effort as bias. 
Differences in the representation of minorities among com- 
panies is examined further in the next chapter. 



conclusive in determining what were the actual 
causes. 

Many occupations in the finance industry re- 
quire passing an examination to become certi- 
fied. Certification is required by self-regulating 
organizations, including the National Associa- 
tion of Securities Dealers (NASD) and the 
NYSE. Individuals who sohcit, purchase and/or 
sell securities must pass the Series 6 and/or the 
Series 7 examinations. The Series 6 test con- 
cerns investment securities and securities mar- 
kets, investment company products, variable 
annuities, regulation, and handling clients' ac- 
counts. It qualifies representatives to function in 
a limited way. The Series 7 is for general securi- 
ties registered representatives and qualifies 
candidates for the solicitation, purchase, and/or 
sale of corporate securities, municipal securities, 
options, direct participation programs, invest- 
ment company products, and variable contracts. 
The Series 6 and Series 7 are two of the three 
most frequently administered tests for certifica- 
tion in the finance industry. ^^ 

Traditionally, these tests have been required 
by the SEC and regulatory bodies like the NYSE 
of employees in securities firms so that they 
could participate in the stock exchanges. ^'^ How- 
ever, beginning in September 1994, as bank 
products diversified, similar requirements were 
encouraged of bank employees who engage in 
sohcitations, recommendations, purchases, or 
sales of securities. 219 By December 1996, Federal 
regulators were implementing reqviirements for 
certification using these tests.^^o Thus, as a 
measure of skills, passage of the Series 6 or 7 
exam has been more appHcable to the securities 



2" The third frequently administered test is Series 63, the 
Uniform Securities Agent State Law E.xamination. It covers 
principles of State securities regulation reflected in the Uni- 
form Securities Act . See New York Stock Exchange, Regula- 
tory Affairs Department, "Confidential Excerpts From Pro- 
cedures Manual for the Testing Standards Section," 1993, p. 
17. During 1994 the Series 6 exam was administered 
roughly 65,000 times; the Series 7, roughly 59,000; and the 
Series 63, roughly 94,000 times. See National Association of 
Securities Dealers, "1994 Test Volume and Pass Rate Statis- 
tics." 

2'8 New York Stock Exchange Constitution and Rules, Rule 
304A 1 2304A, p. 3040. 

219 Glater, "Bank Workers," p. F-1; "NASD Puts Banks to 
Test," p. D-7; Prakash, "Securities Dealers," p. 12. 

2^0 Comptroller of the Currency, "OCC Proposes Rule for 
Bank Employees Who Recommend of Sell Certain Securi- 
ties," News Release, Dec. 11, 1996, Washington, DC. 



146 



segment of the finance industry than to banking. 
However, in Hght of these changes it may be- 
come a more important measure of skills among 
bank employees in the future. 

The racial and gender composition of persons 
taking and passing the Series 7 examination is 
shown in table 3.26. Only about 18 percent of the 
persons taking the Series 7 exam are minorities 
and only 30 percent of them are women. How- 
ever, minorities and women are even less well 
represented among persons passing the exam. 
Roughly 14 percent of those passing the exam 
are minorities and approximately 26 percent 
women, respectively. Blacks are only 3.5 percent 
of the persons passing the Series 7 exam; His- 
panics are about 4 percent; Asian American and 
Pacific Islanders are about 6 percent; and 
American Indians are 0.6 percent. Passing the 
Series 7 exam has one of the lowest percentages 
of successful minority candidates among all of 
the benchmarks. 

Work experience in the financial area is one 
way to acquire the skiUs necessary for jobs in the 
finance industry. Here, work experience is 
measured by persons reporting an occupation in 
the finance industry for the 1990 census. Tables 
3.27 to 3.30 show the racial and gender distribu- 
tion of workers in a number of occupations. Ta- 
ble 3.27 has the officials and managers job clas- 
sification, table 3.28 shows professionals, table 
3.29 indicates sales workers, and table 3.30 com- 
prises office and clerical workers. Each table 
shows separate figures for workers in banking 
and other savings institutions and in "other fi- 
nance," which includes securities firms, insur- 
ance companies, nondepository institutions, real 
estate companies, and holding companies. ^2' 
Each table also contains information, compiled 
from the census, presented in the form of one 
U.S. panel and one New York City PMSA panel. 

Table 3.27 shows work experience for officials 
and managers in the finance industry through- 
out the United States. The category was com- 
piled based on persons designating financial 
manager or officer as their occupation on the 
1990 census. Table 3.27 shows that 13 to 15 per- 
cent of financial managers and officers in bank- 
ing and savings institutions are minorities. Fur- 
ther, 11 to 13 percent of financial managers and 



2-' U.S. Equal Employment Opportunity Commission, Job 
Classification Guide (Washington, DC, 1987). 



officers in "other finance," largely including the 
securities industry, are minorities. Indeed, in 
both industry segments, Hispanics are 4 to 5 
percent of the financial officers and managers, 
and Asian American and Pacific Islanders are 
about 3 percent of the financial officers and 
managers. Blacks are 5 to 6 percent of financial 
officers and managers in banking and 4 to 5 per- 
cent in "other finance." American Indians are 0.2 
percent of financial officers and mangers and 0.3 
percent in "other finance." Women are approxi- 
mately 54 to 55 percent of the financial officers 
and managers in banking, but only 35 to 40 per- 
cent of those in "other finance." 

In earlier analyses we found that there was a 
2'/2 times greater representation of minorities on 
benchmarks based upon the metropolitan area of 
New York City than the Nation as a whole. This 
higher representation is also true here. In the 
New York PMSA (part B of table 3.27), 34 to 35 
percent of financial managers and officers in 
banking and savings institutions are minorities, 
and 19 to 20 percent of financial managers and 
officers in "other finance" are minorities. Nota- 
bly, the difference between the representation of 
minorities in banking versus "other finance" is 
much more pronounced in the New York City 
metropolitan area than it is in the Nation as a 
whole. 

In the New York PMSA, financial officers and 
managers in banking and savings institutions 
are approximately 15 to 16 percent black, about 
10 percent Hispanic, approximately 7 to 9 per- 
cent Asian American and Pacific Islander, and 
0.2 to 0.3 percent American Indian. These offi- 
cers and managers are approximately 46 to 49 
percent women. Financial officers and managers 
in "other finance" are about 8 percent black, 
roughly 4 to 7 percent Hispanic, approximately 5 
to 7 percent Asian American and Pacific Is- 
lander, and to 0.1 percent are American In- 
dian. Thirty-two to 34 percent are women. Note 
that while minorities were better represented in 
the finance industry in the New York PMSA 
than throughout the United States, women were 
less well represented. 

The differences between workers in the in- 
dustry in the New York metropolitan area and 
those in the Nation as a whole are subject to a 
number of possible hypotheses. The greater con- 
centration of minorities in the urban area may 
have some impact on the higher representation 



147 



of minorities among financial officers and man- 
agers in this industry. Further, the differences 
in representation of minorities in banking and 
savings institutions versus "other finance" may 
indicate that New York City's securities industry 
has greater bias toward minorities and women 
than elsewhere in the Nation, or that industry 
firms in New York City require more of the 
benchmarks on which minorities and women 
have lower representation. Wall Street, the Na- 
tion's foremost market for trading stocks and 
bonds, is prominent in the city's industry and 
could raise skill requirements beyond those of 
the industry in the rest of the Nation which has 
only a handful of other stock exchanges along 
with financial institutions in less urban and ru- 
ral areas. These are just possible explanations 
for the difference, none is conclusive based on 
the data. 

Table 3.28 shows two occupations that are 
classified as "professionals" and are pertinent to 
the securities industry: management analysts 
and underwriters. The table shows that, 
throughout the United States, almost 14 percent 
of management analysts and underwriters in 
"other finance" are minorities, between 4 and 5 
percent of them are black, about 4 percent are 
Hispanic, almost 5 percent are Asian/Pacific Is- 
lander, and less than 1 percent are American 
Indian. Women are only 37 percent of manage- 
ment analysts in "other finance," but they are 77 
percent of the underwriters. 

With other benchmarks minorities have typi- 
cally been far better represented in the New 
York PMSA than in the Nation as a whole. With 
this benchmark only some minority groups are 
better represented. Among persons residing in 
the New York PMSA who reported "other fi- 
nance" as the industry in which they worked in 
1990, blacks are percent of management ana- 
lysts, Hispanics are percent of underwriters, 
and American Indians are percent of both 
categories. Women are more likely to be man- 
agement analysts in the PMSA than they are in 
the Nation (44 to 37 percent), but they are less 
hkely to be underwriters in the PMSA than in 
the Nation (58 to 77 percent). Clearly black 
management analysts, Hispanic underwriters, 
and American Indian management analysts and 
underwriters are absent from the New York 
PMSA. 



Table 3.29 shows the representation of mi- 
norities and women among securities and finan- 
cial services sales occupations in the United 
States and the New York PMSA. These include 
stock traders in the securities industry. 222 The 
table shows that the percentages of women and 
minorities employed in the finance industry in 
both geographic areas are lower than their per- 
centages in the general population. Thus, across 
the Nation, blacks, Hispanics, and Asian Ameri- 
can and Pacific Islanders each comprise ap- 
proximately 3 percent of the sales workers in 
securities and financial occupations. American 
Indians are 0.2 percent and women are 24 per- 
cent. In the New York PMSA, blacks, Hispanics, 
and Asian American and Pacific Islanders are 
only 5 or 6 percent each of sales workers, and 
American Indians are percent. Women are 27.8 
percent. 

Finally, table 3.30 shows race and gender of 
persons working in a variety of occupations in 
the classification of office and clerical workers. 
They are shown for two industry segments — 
banking and other saving institutions and "other 
finance" which includes securities firms. They 
are also shown for residents throughout the Na- 
tion, as well as in the New York PMSA. 

Table 3.30 shows several interesting pat- 
terns. First, there is wide variability in the rep- 
resentation of minorities and women in different 
occupations within this job classification. For 
example, the percentages of minorities in these 
banking occupations throughout the United 
States range from 20 to nearly 40 percent, from 
about 13 to 42 percent in "other finance" 
throughout the United States, from approxi- 
mately 47 to 78 percent in banking in the PMSA, 
and from about 27 to 79 percent in "other fi- 
nance" in the PMSA. Throughout the United 
States the percentages of blacks in these occupa- 
tions cover a broad range, from approximately 8 
to 22 percent in banking, and from about 10 to 
22 percent in "other finance." In the New York 
PMSA, the percentages of blacks range from ap- 
proximately 25 to 60 percent in banking and 
from about 15 to 60 percent in "other finance." 

Second, as has been found in previous tables, 
blacks, Hispanics, and Asian American and Pa- 
cific Islanders, are in nearly all instances more 



222 U.S. Equal Employment Opportunity Commission, Job 
Classification Guide (Washington, DC, 1987). 



148 



0,0 


9.3 


8.5 


0.0 


17.8 


44.1 


354 


10.2 


0.0 


18.6 


0.0 


28.8 


58.5 


118 



Table 3.28 

Benchmarks of Racial and Gender Composition, Work Experience, Professionals' in the Finance 
Industry (Percentages) 

Asian/Pacific American Number of 

Black Hispanic Islander Indian Minority^ Women people 

Part A. United States 

Other finance 

Management analysts 4.3 3.8 4.7 0.7 13.9 37.5 3,439 

Underwriters 5.1 4.0 4.5 0.2 13.7 77.2 5,390 

Part B. New York PMSA 

Other finance 

Management analysts 
Underwriters 

Job classifications were assigned using U.S. Equal Employment Opportunity Commission, Job Classification Guide (Washington, DC, 1987). 

2 

Blacks, Hispanics, Asian/Pacific Islanders, and American Indians are included in the category "Minorities." "Blacks" are non-Hispanic blacks. 
Percentages are calculated excluding nonresident aliens. 

3 

"Other finance" excludes banking and other savings institutions, insurance, and real estate. 

Source: Information provided to the U.S. Commission on Civil Rights by the U.S. Equal Employment Opportunity Commission, "Report: 
Occupation by Industry/Race/Sex; Database: 1990 Census; 12/08/93" 



Table 3.29 

Benchmarks of Racial and Gender Composition, Work Experience, Sales Workers in the Finance 
Industry (Percentages) 

Asian/Pacific American Number of 

Black Hispanic Islander Indian Minority^ Women people 

Part A. United States 

Other finance 

Securities & financial 

services sales occupations 3.4 3.1 2.6 0.2 9.3 24.4 266,503 

Part B. New York PMSA 

Other finance 

Securities & financial 

services sales occupations 5.9 4.7 4.9 0.0 15.5 27.8 30,381 

1 
Job classifications were assigned using U.S. Equal Employment Opportunity Commission, Job Classification Guide (Washington, DC, 

1987). 

2 

Blacks, Hispanics. Asian/Pacific Islanders, and American Indians are included in the category "Minorities." "Blacks" are non-Hispanic 
blacks. Percentages are calculated excluding nonresident aliens. 

3 

"Other finance" excludes banking and other savings institutions, insurance, and real estate. 

Source: Information provided to the U.S. Commission on Civil Rights by the Equal Employment Opportunity Commission, "Report: 
Occupation by Industry/Race/Sex; Database: 1990 Census; 12/08/93" 



149 



Table 3.30 

Benchmarks of Racial and Gender Composition, Work Experience, Office and Clerical Workers in 
the Finance Industry (Percentages) 



Black Hispanic 



Asian/ 








Pacific 


American 




Number of 


Islander 


Indian 


Minority^ 


Women people 



Part A. United States 



Banking and other savings i 

Supervisors, financial 

records process 
Bank tellers 
Investigators & adjusters, 

except insurance 
Bookkeepers, accounting & 

audit clerks 
Bill & account collectors 
Billing, posting, & calculating 

machine operators 
Statistical clerks 
General office clerks 
Records clerks 
File clerks 
Office machine operators, 

not elsewhere classified 

3 

Other finance 

Supervisors, financial 

records process 
Bank tellers 
Investigators & adjusters, 

except insurance 
Bookkeepers, accounting & 

audit clerks 
Bill & account collectors 
Billing, posting, & calculating 

machine operators 
Statistical clerks 
General office clerks 
Records clerks 
File clerks 
Office machine operators, 

not elsewhere classified 



nstitutions 

8.2 
9.0 

11.9 



21.6 



9.7 
10.8 

9.6 



6.2 
7.1 

7.6 



7.9 



6.1 
7.5 

7.0 



5.1 
3.8 

3.9 



9.0 



3.2 
2.7 

3.0 



0.5 
0.3 

0.4 



0.1 



0.3 
0.4 

0.4 



20.2 
20.4 

23.8 



39.2 



19.3 
21 5 

20.0 



80.0 
89.9 



57.9 



54.1 
82.0 

79.8 



5,715 
503,981 



85.8 138,912 



12.9 


7.1 


4.2 


0.3 


24.6 


86.6 


117,256 


14.4 


8.4 


2.1 


0.5 


25.4 


62.8 


18,977 


15.2 


6.7 


6.8 


0.5 


29.3 


90.4 


22,539 


18.7 


7.4 


5.0 


0.2 


31.6 


68.6 


5,650 


19.3 


10.3 


7.4 


0.3 


37.5 


85.0 


59,481 


14.2 


8.8 


5.3 


0.1 


28.5 


79.4 


13,212 


21.5 


8.9 


5.2 


0.5 


36.3 


84.6 


14,323 



5,831 



3,857 
5,042 

56,578 



11.5 


7.0 


3.8 


0.2 


22.5 


78.4 


35,196 


10.3 


9.2 


1.8 


0.8 


22.2 


55.9 


12,830 


10.7 


10.1 


5.4 


1.1 


27.2 


75.2 


467 


10.5 


5.5 


3.9 


0.1 


13.0 


64.8 


3.173 


12.8 


9.3 


4.6 


0.3 


19.6 


75.9 


32,744 


13.3 


6.2 


3.8 


0.3 


23.6 


54.8 


7,086 


20.3 


9.8 


6.3 


0.8 


37.2 


74.2 


5,439 



21.5 



16.6 



1.4 



2.1 



41.6 



52.6 



1,302 



Continued 



150 



Table 3.30 (Continued) 



Part B. New York PMSA 



Black Hispanic 



Asian/ 

Pacific 

Islander 



American Number of 

Indian Minority^ Women people 



Banking and other savings 

Supervisors, financial 

records process 
Bank tellers 
Investigators & adjusters, 

except insurance 
Bookkeepers, accounting & 

audit clerks 
Bill & account collectors 
Billing, posting, & calculating 

machine operators 
Statistical clerks 
General office clerks 
Records clerks 
File clerks 
Office machine operators, 

not elsewhere classified 
Other finance ^ 
Supervisors, financial 

records process 
Bank tellers 
Investigators & adjusters, 

except insurance 
Bookkeepers, accounting & 

audit clerks 
Bill & account collectors 
Billing, posting, & calculating 

machine operators 
Statistical clerks 
General office clerks 
Records clerks 
File clerks 
Office machine operators, 

not elsewhere classified 



institutions 

25.0 
32.9 

32.4 



47.3 



25.0 
21.9 

27,3 



15.0 
16.8 

16.5 



11.3 



11.1 
9.5 

14.1 



21.9 
9.4 

5.1 



8.8 



9.9 
0.0 

4.0 



0.0 
0.1 

0.3 



0.0 



0.0 
0.0 

0.0 



61.9 
59.3 

54.2 



67.4 



46.1 
31.4 

45.9 



60.3 
76.6 

75.3 



51.0 



49.5 
53.3 

63.8 



360 
17,757 

5,962 



36.7 


17.9 


10.8 


0.0 


66.0 


65.2 


5,166 


53.7 


8.9 


3.7 


0.0 


66.3 


71.1 


460 


57.9 


13.0 


6.9 


0.0 


77.8 


76.2 


492 


35.7 


8.8 


10.0 


0.0 


54.5 


38.0 


650 


38.9 


14.2 


12.6 


0.5 


47.5 


70.3 


7,402 


44.3 


8.5 


6.5 


0.0 


59.3 


61.1 


875 


40.0 


18.0 


12.5 


0.0 


70.5 


70.8 


1,027 



478 



503 
105 

1,711 



29.2 


14.3 


5.8 


0.0 


49.5 


59.9 


3,657 


15.0 


9.9 


2.6 


0.0 


27.5 


38.6 


233 


* 


* 


* 


* 


• 


* 


45 


13.3 


10.7 


4.0 


0.0 


28.1 


47.8 


577 


22.3 


13.4 


6.3 


CO 


42.1 


51.5 


5,541 


23.0 


12.8 


3.3 


0.0 


39.1 


43.6 


1,864 


44.2 


12.7 


7.9 


0.0 


64.8 


62.9 


762 



60.5 



18.4 



0.0 



0.0 



78.9 



34.2 



114 



' Occupations classified as office and clerical workers were selected using U.S. Equal Employment Opportunity Commission, Job Classification 
Gu/de (W/ashington, DC, 1987). 

2 

Blacks, Hispanics, Asian/Pacific Islanders, American Indians and "Other" are included in the category "IVIinorities." "Blacks" are non-Hispanic 
blacks. 

3 

"Other finance" excludes banking and other savings institutions, insurance, and real estate. 

* Too few for reliable percentages. 

Source; Information provided to the U.S. Commission on Civil Rights by the Equal Employment Opportunity Commission, "Report: Occupation 
by Industry/Race/Sex; Database: 1990 Census: 12/08/93" 



151 



highly represented in these occupations in the 
New York PMSA than they are in the United 
States population. Third, and not surprising, 
women predominate among office and clerical 
workers; this includes occupations in banking 
and other savings institutions and "other fi- 
nance" throughout the United States. For exam- 
ple, throughout the United States, the propor- 
tion of women in office and clerical positions 
ranges from about 58 to 90 percent in banking 
and from approximately 53 to 82 percent in 
"other finance." Within the New York PMSA, 
women also dominate most of these occupations. 
For example, women range from about 38 to 77 
percent of census respondents designating these 
as their occupations in banking in the PMSA, 
and from 34 to 64 percent of those designating 
these occupations in "other finance" in the 
PMSA. Statistical clerk is the only clerical occu- 
pation in banking where women are not a ma- 
jority in the New York PMSA. In the New York 
PMSA, women are not a majority in several oc- 
cupations within "other finance," including office 
machine operator (not elsewhere classified), rec- 
ords clerk, statistical clerk, bill and account col- 
lectors and supervisors, and financial records 
processors. 

Notably one of the occupations that is most 
dominated by women is bank teller. In banking, 
about 77 percent of the bank tellers in the PMSA 
and 90 percent of those in the United States are 
women. Even in "other finance," 82 percent of 
the bank tellers m the United States are women. 
But, among persons in "other finance" in the 
New York PMSA, bank teller is not one of the 
occupations most dominated by women. Only 53 
percent of bank tellers in "other finance" are 
women. Here, occupations like file clerk and in- 
vestigator and adjuster (except in insurance) 
have much larger percentages of women (63 and 
64 percent). 

Several important points are illustrated with 
table 3.30. First, each job classification includes 
a large number of occupations (only some of 
which are shown in the table). The racial and 
gender composition of persons in each of these 
occupations varies widely. The racial and gender 
composition of the job classification depends not 
only on the percentages of minorities or women 
in each occupation, but also upon the mixture of 
different occupations in the job classification. 
Therefore, changes in the types of jobs in the job 



classification could alter the racial and gender 
composition of the job classification. For exam- 
ple, bank teller is by far the most common occu- 
pation in banking. It is also one of the ones most 
dominated by women. However, if half of the 
bank teller positions are ehminated as, in fact 
occurred over time and is shown in the EEOC 
data examined earlier, then office and clerical 
workers in banking would include proportionally 
fewer women simply because of their numbers 
within this classification. The earlier analysis of 
EEOC data suggested that fewer minorities and 
women were employed in the finance industry 
because of changes among job classifications in 
the types of jobs in the industry (e.g., a tremen- 
dous reduction in office and clerical workers and 
growth in professionals and sales workers). Ta- 
ble 3.30 suggests that changes over time in the 
proportions of minorities and women employed 
in the finance industry could also result from 
changes in types of jobs within the job classifica- 
tion. 

In sum, the preceding data show that dispari- 
ties do exist in the employment of women and 
minorities in the finance industry. Whether dis- 
crimination has caused, or played a role in, these 
disparities is inconclusive. What is clear is the 
following: 

1. Women and minorities have better propor- 
tional representation in the banking seg- 
ment of the finance industry than they do in 
the securities industry. In 1994, overall, 47.7 
percent of all employees in the finance in- 
dustry were women; 50 percent of all em- 
ployees of the finance industry were women, 
while 40.6 percent of employees in the secu- 
rities segment were women. Similarly, 34.1 
percent of employees in the finance industry 
were minority, 41.2 percent of all employees 
in the banking segment were minority, and 
26.2 percent of all employees in the securi- 
ties segment were minority (figure 3.3). 

2 Women and minorities were proportionally 
best represented in the 1994 office and cleri- 
cal positions, both in the securities and 
banking areas (figure 3.4); both enjoyed pro- 
portionally better representation in the 
banking than in the securities industry. 

3. From 1987 to 1996, the banking segment 
underwent changes, including the diversifi- 
cation of products and services and techno- 



152 



logical changes. These and other changes re- 
sulted in a decrease in the number of em- 
ployees in the banking area from more than 
150,000 workers in 1984 to 90,000 in 1996. 
As a result of the loss of jobs in the banking 
segment, the proportions of jobs changed. 
For example, in 1987, 47 percent of all 
banking employees were office and clerical 
workers, where as in 1996 only 33 percent 
were such employees. The decrease in the 
percentage was offset by a growth in the per- 
centages of officers and managers, sales 
workers, and professionals, even though 
each of these three categories, with the ex- 
ception of sales workers, lost employees from 
1987 to 1996. Similarly, in the securities 
segment, the proportion of office and clerical 
worker positions decreased and a corre- 
sponding offset in the proportions of officials 
and managers, sales workers, and profes- 
sionals occurred. However, unlike the bank- 
ing segment, the actual numbers of employ- 
ees in officials and managers and sales 
workers and professionals increased in the 
securities segment. Consequently, since the 
job classification that employed the largest 
proportions of minorities and women had the 
greatest numbers of job losses, the propor- 
tions of women and minorities in the finance 
industry decreased. 
4. Even in light of the third conclusion above, 
there is no clear explanation of why women 
and minorities lost proportionally in other 
job classifications within the banking indus- 
try. For example, the number of employees 
within the banking sales worker classifica- 
tion doubled from 1987 to 1996, but the rep- 
resentation of women and blacks dropped 
dramatically. 

Tables 3.22 through 3.30 have presented 
benchmarks that suggest what the racial and 
gender composition of a qualified work force 
might look like according to broad measures of 
education, skills and work experience. A com- 
parison of the numbers of minorities and women 
acquiring jobs in the industry and attaining 
various levels of education is presented next. 



Comparing the Finance Industry's 
Employment Rates with Benchmarks of the 
Qualified Work Force 

Having identified a number of benchmarks 
showing the racial and gender composition of 
populations with a variety of pertinent qualifica- 
tions, how do the finance industry's employment 
rates compare? Tables 3.31 through 3.34 show 
the racial and gender composition of the finance 
industry for each of the four job classifications 
against a selection of these benchmarks. The 
benchmarks are ordered according to the repre- 
sentation of minorities and women within each 
one. Benchmarks where more minorities and 
women are represented are near the tops of the 
tables, and benchmarks where fewer minorities 
and women are represented are shown near the 
bottoms of the tables. The tables suggest that 
very different selection criteria operate in the 
banking and securities segments of the finance 
industry. 

Table 3.31 shows the finance industry's office 
and clerical workers along with benchmarks for 
residents of both New York City and the New 
York PMSA. The table shows the labor force, 
three levels of education, and some work experi- 
ence criteria. 

Minorities, and specifically blacks, employed 
as office and clerical workers in securities firms 
seem to be largely New York area residents with 
at least a high school degree. Larger proportions 
of minorities, and blacks in particular, are em- 
ployed in the banking segment, and more women 
are employed in both the securities and banking 
segments than are represented in the labor force 
or educational benchmarks in table 3.31. Not 
surprisingly, the overall racial and gender com- 
position of the banking segment is largely reflec- 
tive of the composition of bank tellers and gen- 
eral office clerks employed in the banking indus- 
try as reported in the 1990 census; bank tellers 
and general office clerks comprise a large per- 
centage of the banking industry occupations re- 
ported in the census and within the New York 
PMSA. 

Table 3.32 shows the racial and gender com- 
position of the finance industry's sales workers 
in relation to various benchmarks. The bench- 
marks included in this table are those repre- 
senting nationwide populations. The bench- 
marks in the table include a variety of criteria. 



153 



such as work experience, education, specialized 
education, and industry certification. 

Notably, the securities industry employs pro- 
portionally fewer minorities and women as sales 
workers than pass the Series 7 examination, one 
of the major tests required for certification. In 
banking, the percentage of black and women 
sales workers is not very different from their 
percentages in the labor force throughout the 
United States. Indeed, reqiairing an associate's 
or bachelor's degree for sales workers would 
have hmited the numbers of minorities more 
than the banking industry has, according to the 
benchmarks in this table. 

Table 3.33 suggests that in hiring profession- 
als, the differences in the proportions of blacks 
in the securities segment versus the banking 
industry may revolve around such things as 
whether bachelor's or associate's degrees are re- 
quired. The proportions of minorities, and more 
specifically of blacks, employed as professionals 
in the securities segment are larger than the 
proportions passing the Series 7 examination 
and are larger than the proportions employed in 
such professional jobs in the finance industry as 
financial manager and underwriter. Indeed, the 
percentage of blacks employed in the securities 
industry matches the percentage of blacks who 
received bachelor's degrees in 1992-93, and is 
shghtly more than the percentage of blacks who 
have reached the bachelor's degree level or 
higher throughout the United States (compare 
6.9 and 5.9 percent). The proportion of blacks 
employed in banking is much higher. It com- 
pares better to the proportions of blacks with at 
least bachelor's degrees in the New York PMSA, 
or with associate's degrees in speciahzed educa- 
tional fields such as computer and information 
science. 

The banking and securities segments employ 
more Asian/Pacific Islanders as professionals 
than the application of these educational 
benchmarks predict. The percentage of minori- 
ties is correspondingly higher. Further, the pro- 
portion of women employed in both securities 
and banking is low compared with educational 
benchmarks at either the associate's or bache- 
lor's degree levels. These disparities could be 
explained by a number of factors. Because edu- 
cation represents only one potential factor used 
to determine employability, and its import dif- 
fers according to both job classification and in- 



dustry, it is difficult to extrapolate much from 
these numbers, and they may or may not repre- 
sent bias. 

Table 3.34 shows that more blacks are em- 
ployed as officials and managers in the securities 
industry than one might expect based upon per- 
sons taking and passing the Series 7 exam, or 
persons employed as financial managers or other 
financial officers in either banking or other fi- 
nance throughout the United States (compare 
with figure 3.51). Indeed, the proportions of 
blacks and other minorities employed as officials 
and managers in securities firms are similar to 
the racial composition of recent bachelor's degree 
recipients. This similarity was noted previously 
with the proportion of blacks employed as pro- 
fessionals in the securities industry. The racial 
makeup of professionals and officials and man- 
agers classifications are much ahke in the secu- 
rities industry. 

Among officials and managers the proportion 
of minorities employed in banking (22.5 percent) 
falls far short of the proportions identified 
among financial managers (34.1 percent) and 
other financial officers (34.7 percent) in banking 
using U.S. census data for the PMSA. Minority 
employment percentages as officials and manag- 
ers in banking are more similar to financial 
managers employed in "other finance" in the 
New York PMSA, or to persons with graduate 
and professional degrees in the New York 
PMSA, or to persons who recently earned 
bachelor's degrees in computer science. 

The proportions of women employed as offi- 
cials and managers in both banking and securi- 
ties are lower than many of the benchmarks. 
These proportions, however, compare to the pro- 
portion of women passing the Series 7, the pro- 
portion of women employed as financial officers 
and managers in "other finance" either in the 
New York PMSA or the United States, and the 
proportion of women earning degrees in certain 
speciahzed fields, such as bachelor's degrees in 
computer science. 

Tables 3.31 through 3.34 juxtaposed only a 
sampling of the benchmarks against the finance 
industry's employment. The comparisons shown 
here assumed that the industry's employment 
rates derive from recruitment strategies and job 
requirements that are reflected in these bench- 
marks. 



154 



Table 3.31 

Benchmarks of Racial and Gender Composition, New York City and New York PIVISA, 
Office and Clerical Workers (Summary of Tables 3.22-3.30) (Percentages) 



Banking 



Black Hispanic 
36.2 15.4 



Asian/ 

Pacific American 
Islander Indian Minority^ 

9.6 



Reported employment in banking & other savings Institutions in 1990 census (NY PMSA) 
Bank tellers 32.9 16.8 9.4 0.1 

General office clerks 38.9 14.2 12.6 0.5 

Highest level of education — associate's degree or some college without a degree 



NYC 30.6 17.4 5.7 

NY PMSA 27.7 15.7 5.2 
Highest level of education — high school degree orGED 

NYC 27.4 17.3 4.8 

NY PMSA 25.1 15.8 4.4 
Reported employment in "other finance" in 1990 census (NY PMSA) 
Bookkeepers, accounting 

& audit clerks 29.2 14.3 5.8 

General office clerks 22.3 13.4 6.3 
Civilian labor force 

NYC 26.5 20.1 7.6 

NY PMSA 24.2 18.3 7.0 
Minimal educational attainment — high school degree or more 

NYC residents 23.7 14.0 6.8 

NY PMSA residents 21.3 12.5 6.2 



0.3 
0.3 

0.2 
0.2 



0.0 
0.0 

0.3 
0.3 

0.3 
0.2 



)rity' 


Women 


61.4 


70.9 


59.3 


76.6 


47.5 


70.3 


54.0 


53.5 


48.9 


53.8 


49.7 


58.7 


45.5 


58.9 


49.5 


59.9 


42.1 


51.5 


54.6 


47.3 


49.8 


47.2 


44.7 


54.2 


40.3 


54.0 



Securities 



23.3 



11.8 



5.6 



40.9 



62.2 



Blacks, Hispanics, Asian/Pacific Islanders, and American Indians are Included In the category "Minorities." "Blacks" are non-Hispanic 

blacks. 



155 



Table 3.32 

Benchmarks of Racial and Gender Composition, Sales Workers, United States 
(Summary of Tables 3.22-3.30) (Percentages) 



Banking 



Black 
10.4 



Hispanic 
8.7 



Asian/ 

Pacific 

Islander 

8.5 



American 
Indian 



Minority' 
27.7 



Women 
43.8 



Civilian labor force 

United States 10.6 8.1 2.9 0.7 

Business management and administrative services — associate's degrees conferred by year 

1991-92 10.2 5.7 3.6 08 

1992-93 10.9 6.5 3.6 0.8 

Highest level of education — U.S. citizens 

Associate's degree or some college 10.1 5.4 2.4 0.7 

Associate's degree 9 5.5 3.4 0.7 

Bachelor's degree 6.0 3.2 4.7 0.3 

Minimal educational attainment — U.S. citizens 

Some college or more 8.2 4.4 3.5 0.5 

Bachelor's degree or more 5.9 3.2 4.9 0.3 

Passing the Series 7 exam — general securities registered representative 

Persons taking 5.6 5.3 6.2 0.9 

Persons passing 3 5 4 1 5.9 0.6 

Reported employment in securities and financial services sales occupations — U.S. census 

"Other finance" 3.4 3.1 2.6 2 



Securities 



2.6 



2.1 



3.2 



22.3 

20.3 
21.8 

18.7 
18.7 
14.2 

16.7 
14,3 

17.9 
14.2 

9.3 

7.9 



45.8 

69.0 
68.1 

53.1 
55.7 
48.1 

49.8 
45.7 

30.2 
26.0 

24.4 

18.3 



Blacks, Hispanics, Asian/Pacific Islanders, and American Indians are included in the category "Minorities." "Blacks" are non-Hispanic 
blacks. Percentages are calculated excluding nonresident aliens. 



Table 3.33 

Benchmarks of Racial and Gender Composition, Professionals (Percentages) 



Black Hispanic 



Banking 



12.5 



6.6 



Asian/ 

Pacific 

Islander 

11.6 



American 
Indian 



Computer and information science — associate's degrees conferred by year 

1991-92 12.8 6.9 5.6 0.7 

1992-93 11.8 8.8 5.4 1.2 

Minimal educational attainment — bachelor's degree or more 

NYPMSA 12.0 6.4 9.1 0.2 

United States 5.9 3.2 4.9 0.3 

Business management and administrative services — associate's degrees conferred by year 

1991-92 10.2 5.7 3.6 0.8 

1992-93 10.9 6.5 3.6 0.8 



156 



rity' 


Women 


30.8 


43.2 


26.0 


50.9 


27.2 


50.8 


27.7 


49.0 


14.3 


45.7 


20.3 


69.0 


21.8 


68.1 




Continued 



Table 3.33 (Continued) 



Black 



Degrees conferred on U.S. citizens, 1992-93 

Bachelor's 69 



Securities 



6.9 





Asian/ 






Pacific 


American 


anic 


Islander 


Indian 


40 


4.6 


0,5 


4.1 


10.0 


mm 



Minority' Women 



Professionals reporting employment in the finance industry ("other finance") — U.S. census 

Management analysts' 4.3 3.8 4 7 0.7 

Underwriters 5.1 4.0 4.5 0.2 

Passing the Series 7 exam — general securities registered representative 

Persons taking 5.6 5.3 6.2 0.9 

Persons passing 3.5 4.1 5.9 0.6 



160 
21.1 



139 
13.7 

17.9 
14.2 



546 
35.2 



37.5 
77.2 

30.2 
26.0 



Blacks. Hispanics, Asian/Pacific Islanders, and American Indians are included in the category "Minorities." "Blacks" are non-Hispanic 
blacks. Percentages are calculated excluding nonresident aliens. 



Table 3.34 

Benchmarks of Racial and Gender Composition, Officials and Managers (Percentages) 



Black Hispanic 



Asian/ 

Pacific 

Islander 



American 
Indian 



Minority' Women 



Reported employment in banking & other savings institutions in 1990 census (NY PMSA) 



Financial managers 16.1 10.2 

Other financial officers 14.6 10.4 

Degrees conferred in computer and information science, 1991-92 

Bachelor's degree 9.5 4.0 

Highest level of education 

Graduate or professional degree 

(NY PMSA) 9.7 5.6 

Bachelor's degree (NY CMSA) 9.0 4.9 

Associate's degrees conferred on U.S. citizens by year 

1992-93 8.5 6.0 

1993-94 8.8 6.1 



7.4 
9.4 

9.5 



0.3 
0.2 

0.4 



34.1 
34.7 

23.3 



46.5 
49.3 

28.7 



7.9 


0.2 


23.3 


46.6 


7.7 


0.1 


21.8 


48.9 


3.3 


0.9 


18.7 


58.9 


3.5 


0.9 


19.3 


59.3 



Banking 



8.5 



5.3 



8.6 



22.5 



34.4 



Reported employment in "other finance" in 1990 census (NY PMSA) 

Financial managers 8.1 3.7 6.7 

Other financial officers 7,7 6.6 5.2 

Degrees conferred on U.S. citizens, 1992-93 

Bachelor's 6.9 4.0 4.6 



Securities 



6.8 



3.4 



4.2 



Reported employment in banking & other savings institutions in 1990 census (United States) 

Financial managers 6.2 4.7 3.4 

Other financial officers 5,1 4.5 3.4 

Passing the Series 7 exam — general securities registered representative 
Persons taking 5.6 5.3 6.2 

Persons passing 3.5 4.1 5.9 

Reported employment in "other finance" in 1990 census (United States) 
Financial managers 3.6 3.8 2 9 

Other financial officers 4.9 4.7 3.1 



0.0 
0.1 


18.5 
19.6 


34.3 
32.4 


0.5 


16.0 


54.6 


- 


14.4 


25.9 


ed States) 

02 
02 


14.6 
13.2 


54.6 
53.9 


0.9 
0.6 


17.9 
14.2 


30.2 
26.0 


0.3 
0.3 


10.6 
12.9 


35.2 
40.5 



Blacks, Hispanics, Asian/Pacific Islanders, and American Indians are included in the category "Minorities." "Blacks" are non-Hispanic blacks. 



157 



Education as a Job Qualification 

Many of the benchmarks presented earher in 
this section were based upon levels of education 
under the assumption that more education is 
necessary for higher status jobs, for example, 
officials and managers versus office and clerical 
workers. Table 3.35 contains 1990 census data 
showing the distribution of education among 
persons in certain occupations found in the fi- 
nance industry. The educational data are for 
persons who are employed in these occupations 
in any industry throughout the United States. 

The table shows that officials and managers 
generally have more education than office and 
clerical workers. The median years of schooling 
for persons with the jobs shown in the officials 
and managers classification is about 14 years. 
About 30 percent of financial managers have 
some college education or an associate's degree 
and another 39 percent have a bachelor's degree. 
Approximately 34 percent of other financial offi- 
cers have had some college education or an asso- 
ciate's degree, and about another 35 percent 
have a bachelor's degree. 

Office and clerical workers are more likely to 
have only a high school degree or some college 
education. For example, approximately 43 per- 
cent of bank tellers have a high school degree, 
and another 43 percent have had some college 
education or have an associate's degree. Thirty- 
eight percent of general office clerks have a high 
school degree, and about 40 percent have some 
college education or an associate's degree. The 
median years of schooling for both bank tellers 
and general office clerks is 12 years. Supervisors 
of the financial records process have sUghtly 
higher education, a median schooling of 13 
years, with 28 percent having a bachelor's de- 
gree. File clerks and some machine operators 
have less schooling, with more than 18 percent 
of them not graduating from high school. At the 
same time, not all officials and managers are 
highly educated. Table 3.35 also shows that al- 
most 14 percent of financial managers and more 
than 16 percent of other financial officers have 
only a high school degree. 

By how much, if to any appreciable degree, do 
the numbers of women and minorities in the fi- 
nance industry fall below their numbers in the 
general population? This section has presented a 
series of benchmarks demonstrating that mi- 
nority representation depends upon a number of 



factors and assumptions about the hiring and 
recruitment process. The benchmarks shown 
here suggested the effects that these and other 
job requirements might have on the employment 
of minorities and women in this industry. 

At least some of the benchmarks were compa- 
rable to the proportions of minorities and women 
employed in the finance industry in each of the 
four job classifications. Of course, many of the 
benchmarks are subject to bias. The biases of 
some of them, such as educational achievements, 
may not be attributable to the finance industry, 
while the biases of other benchmarks, such as 
having work experience in the industry, are. 
However, assuming no bias is present, the 
benchmarks that would produce the different 
racial compositions in the banking and securities 
segments of this industry could yield insight into 
how recruitment strategies and job requirements 
may vary. The benchmarks suggest that few, if 
any, educational requirements are imposed 
when recruiting office and clerical workers, sales 
workers, and professionals in banking. However, 
educational requirements, possibly specialized 
educational requirements, are used for officials 
and managers in banking. In securities, educa- 
tional requirements appear to be used in all four 
job classifications. And, although certification 
may be a barrier for sales workers in securities, 
it may not be for professionals or officials and 
managers. Proportionally more blacks are em- 
ployed as professionals and officials and man- 
agers in securities than pass the certification 
tests. 

Finally, U.S. census data show that those in 
the financial officials and managers classifica- 
tions generally have at least some college, that 
is, more education than persons in the office and 
clerical workers classification. However, the 
amount of education of financial officials and 
managers covers a wide range, with 14 to 16 
percent of them having only a high school de- 
gree. 

This section has begun to address the ways in 
which recruitment and job requirements for edu- 
cation and other skills affect the racial and gen- 
der composition of the industry's employees. The 
next section will look in more detail at how these 
factors have affected employment figures in the 
finance industry from 1987 to 1996. 



158 



Table 3.35 

Educational Levels of Persons in Selected Occupations, United States, 1990 



Officials and managers 

Financial managers 
Other financial officers - 

Office and clerical workers 

Supervisors, financial 

records process 
Bank tellers 
Investigators & adjusters, 

except insurance 
Bookkeepers, accounting 

& audit clerks 
Bill and account collectors 
Billing, posting, & calculating 

machine operators 
Statistical clerks 
General office clerks 
Records clerks 
File clerks 
Office machine operators, 

not elsewhere classified 



Median 

years of 

schooling 


Not high 

school 

graduate 


High school 

graduate (or 

equivalent) 


Some college 

or associate's 

degree 


Bachelor's 
degree 


Master's 
degree 


Doctoral or 

professional 

degree 


Number of 
persons 


14.2 
13.9 


1.8 
2.1 


13.7 
16.4 


29.7 
33.7 


39.2 
35.1 


14.1 
10.6 


1,5 
2.0 


635,911 
679,275 


13.2 


2.8 


24.3 


39.4 


28.2 


4.7 


0.5 


110,386 


12.0 


6.4 


42.8 


43.1 


6.9 


0.6 


0.2 


509,023 


12.6 


5.8 


31.1 


42.8 


17.7 


2.2 


0.5 


581,830 


12.2 
12.3 


6.7 
8.7 


37.9 
34.3 


44.1 
41.7 


9.8 
13.4 


1.2 
1.3 


0.3 

0.5 


1,921,952 
163,112 


12.1 
12.6 
12.0 
12.4 
11.8 


8.5 
6.5 

10.8 
6.8 

18.2 


40.2 
30.0 
38.4 
35.6 
36.2 


42.0 
42.6 
40.2 
39.9 
37.7 


7.9 
16.0 

8.7 
14.4 

6.5 


1.1 
4.0 
1.4 
2.5 
1.1 


0.3 
0.8 
0.4 
0.8 
0.3 


53,354 

148,578 

1,491,116 

137,972 

267,946 



11.4 



18.2 



44.6 



31.0 



4.9 



0.8 



0.4 



34,726 



' Occupations were classified using U.S. Equal Employment Opportunity Commission, Job Classification Guide (Washington, DC, 1987). 

Source; Inforrnation provided to the U.S. Commission on Civil Rights by the U.S. Equal Employment Opportunity Commission, "Report: 
Occupation by Education/Race/Sex; Database: 1990 Census; 09/01/94"; and "Median Years of School Completed by Employees In the 
Financial Industries" 



159 



Section VI. Changes in the Finance 
Industry's Employment over Time 

Overall Changes in Employment 

The EEOC data show an overall decline in 
the number of employees in the finance industry, 
but as suggested by a previous section, the 
banking segment is decreasing while the smaller 
securities segment is growing. Figure 3.45 shows 
changes in the total number of employees 
working in this industry across several years. 
Data are shown for 1987, largely reported before 
the precipitous 500-point drop in the stock mar- 
ket that occurred in October of that year, and for 
1989, as well as for 1991 through 1996. The top 
lines in the graphs show the number employed 
in the finance industry as a whole; the bottom 
lines show the banking and securities segments. 

The marked decline in the number of employ- 
ees in the finance industry from 1987 to 1989 
and continuing thereafter is obvious. In 1987 
New York City's finance industry, as reported to 
EEOC, employed nearly 338,000. This number 
decreased to 315,000 in 1989, then to 285,000 in 
1991. Since 1991 it has fluctuated between about 
272,000 and 282,000 (see the top hne in figure 
3.45). The stock market readjustment thus ap- 
pears to have been followed by a major reduction 
in the number of employees lasting for a period 
of perhaps 3 years before employment in this 
industry settled into a fairly stable and flat 
trend lasting through 1996. 

The trends shown in the overview section led 
us to expect that the banking and securities 
segments of the finance industry would not have 
the same employment trends over time. Indeed 
the EEOC data do show the expected effects of 
the banking industry's consolidations and merg- 
ers and replacement of workers with technologi- 
cal devices. The banking segment's work force 
decreased in size across the period. With more 
than 150,000 workers in 1987, it had decreased 
to about 120,000 in 1991 and further to 90,000 in 
1996. A small increase in 1995 added only about 
2,000 employees to the 1994 work force (middle 
hne, figure 3.45).'^-^ The securities industry's 



work force, on the other hand, decreased only 
between 1987 and 1991, then grew. The growth 
was substantial between 1992 and 1993, but has 
continued more moderately through 1996 
(bottom line, figure 3.45). The securities segment 
of the finance industry had roughly 93,000 
workers in 1987, 73,000 in 1991 at its low point, 
79,000 in 1992, 98,000 in 1993, 106,000 in 1994, 
and 110,000 in 1996. Because of these differ- 
ences in decline and growth, the banking seg- 
ment, which had accounted for 45 percent of the 
finance industry's work force in 1987, had only 
34 percent of the finance industry's employees 
by 1994 and only 33 percent in 1996. The securi- 
ties segment, which had only 28 percent of the 
industry's employees in 1987, was the largest 
segment by 1994, with 38 percent of its employ- 
ees, and had 40 percent of the industry's em- 
ployees by 1996.224 Thus, in 1987 banking had 
been the dominant segment of the finance indus- 
try, but by 1994 securities was the segment ac- 
counting for the largest proportion of employees, 
and it had become increasingly dominant by 
1996. 

The nature of changes in the finance industry 
is further revealed by the changes across time in 
the numbers of employees within job classifica- 
tions. As with the industry segments as a whole, 
the number of officials and managers employed 
has generally declined in banking and increased 
in securities. Indeed, 18,000 fewer officials and 
managers were employed in banking in 1994 
than in 1987. Some growth occurred thereafter, 
but by 1996 banking had only 2,500 more offi- 
cials and managers than at its low point in 1994. 
In securities, 10,000 more officials and managers 
were employed by 1996 than had been in 1987; 
three-quarters of them had been added by 

1994.225 Professionals in the secm-ities industry 
increased dramatically, from about 20,000 in 
1987 to about 33,000 in 1994 and 36,000 in 

1996.226 During the same period, office and cleri- 
cal workers in the banking industry decreased 
tremendously, from about 71,000 in 1987 to 
about 37,000 m 1994 and to 30,000 in 1996.22' 
The number of sales workers in the banking in- 



--^ The decrease in the number of banking estabhshments in 
New York City over time is further evidence of the effect of 
consolidations and mergers on the decline in employment in 
this industry. The number of banking establishments in the 
sample was 339 in 1987, a little over 300 in 1989 and 1991, a 
little under 300 in 1992 and 1993, 258 in 1994, and below 
250 in 1995 and 1996. EEOC data. 



"1 EEOC data. See app. B, table B.2. 

225 These trends will be discussed in more detail below. See 

fig. 3.50(a). 

22'iSeefig. 3.51(a). 

227 See fig. 3.53(a). 



160 



dustry increased substantially, primarily be- 
cause there were so few in 1987 — about 1,600 
which doubled to 3,200 in 1994, and continued to 
increase to 3,500 in 1996.'--* These changes will 
be discussed in more detail below as the trends 
in the finance industry are examined for differ- 
ent effects upon the employment of minorities 
and women. 

I 

Changes in the Employment of Minorities 
and Women 

What happened to the employment of mi- 
norities and women during this period? Figures 
3.46 to 3.48 show changes in the numbers and 
the percentages of minorities and women em- 
ployed in the finance industry across several 
years. In part (a) of each graph, the top line re- 
peats the total number employed for a visual 
comparison of changes in the total number em- 
ployees against the number of women or minori- 
ties. 

Figure 3.46(a) sho\ys that the employment of 
minorities and women largely mimicked the em- 
ployment trend of the finance industry as a 
whole; the numbers employed dropped dramati- 
cally between 1987 and 1992 and remained 
fairly stable between 1992 and 1996. However, 
the number of Asian American and Pacific Is- 
landers employed in the finance industry in New 
York City gradually increased throughout the 
entire period, from about 14,000 in 1987 to 
nearly 16,000 in 1989, 18,000 in 1991 and 1992, 
20,000 in 1993, nearly 21,000 in 1994, and about 
23,000 in 1995 and 1996. 

With the dechne in employment, some pro- 
tected groups did not maintain their propor- 
tional representation through this period, at 
least as far as the finance industry as a whole 
was concerned. Figure 3.46(b) shows the per- 
centages of women and minorities in the finance 
industry's work force decreased during the years 
studied. The most noticeable trend in this chart 
is one showing that the proportion of women 
gradually but steadily dechned, from 52.2 per- 
cent of the work force in 1987 to 47.7 percent in 
1994 and 46.7 percent in 1996. With respect to 
minorities, their percentage of the industry's 
work force remained about the same throughout, 
about 33 percent. However, the percentage of 
blacks, like women, decreased, from 19.6 percent 



■^■i» See fig. 3.52(a). 



in 1987 to 17.4 percent in 1994 and 16 percent in 
1996. The percentage of Hispanics remained 
nearly constant, ranging between 8.2 and 8.9 
percent. The percentage of Asian American and 
Pacific Islanders increased, as was obvious even 
from the raw numbers discussed above, from 4.2 
to 7.6 percent in 1994 and 8.4 percent in 1996. 

Two major effects were occurring in the fi- 
nance industry. First, the banking industry has 
been downsizing, apparently because of a combi- 
nation of consolidations and mergers and tech- 
nological changes. The securities industry, on 
the other hand, has been enlarging its work 
force, particularly during the period of 1992 to 
1994. Second, the banking segment employs a 
much larger proportion of women and minorities 
than the securities segment. Together, the de- 
crease in employment in banking, an industry 
segment with larger percentages of minorities 
and women, and the expansion of employment in 
securities, a segment that has much smaller per- 
centages of minority and female workers, would 
produce an overall industry trend showing a de- 
crease in the representation of minorities and 
women. However, the underrepresentation of 
blacks and women was greater than that caused 
by the industry shift in employment from bank- 
ing to securities. 

Figures 3.47 and 3.48 show changes in the 
numbers and percentages of employees in 
banking and securities. The proportions shown 
in part (b) of the two charts are the more in- 
triguing results. Figure 3.7(b) shows that the 
percentage of women employed in banking in 
New York City decreased from 56 percent in 
1987 to 51 percent in 1994 and 50 percent in 
1995 and 1996. Similarly, the percentage of 
blacks employed in banking decreased from 24 to 
21 percent in 1994 and 20 percent in 1995 and 
1996. As with the industry as a whole, the repre- 
sentation of Hispanics in banking remained very 
stable (at about 10 percent), and that of Asian 
American and Pacific Islanders doubled, from 5 
to 10 percent. 

For the securities segment, pictured in figure 
3.48(b), women and blacks show only slight de- 
creases in proportional representation from 1987 
to 1996. Women are 42 percent of employees in 
1987 and 39 percent in 1996; blacks are 12.6 
percent in 1987 and 11.3 percent in 1996. The 
proportion of Hispanic and Asian American and 
Pacific Islander securities employees increases 



161 



across the period, from 5.7 to 6.9 percent for the 
former group, and 3.3 to 7.6 percent for the lat- 
ter. 

In recent years, the finance industry as a 
whole appears to have proportionally fewer 
black and female employees than in past years 
partly because the banking segment, which em- 
ployed larger proportions of them, dwindled in 
size while the securities segment, which em- 
ployed smaller proportions of them, grew after 
the 1987 stock market readjustment. Further- 
more, there was an erosion in the proportions of 
women and blacks employed in the banking 
segment. 

It is possible that the banking segment, 
where the proportion of blacks and women em- 
ployed has decreased, is also one where techno- 
logical change, the use of automated tellers, and 
a broadening of the products offered to custom- 
ers may have brought about changes in the types 
of jobs in the industry. Some aspects of the 
EEOC data do suggest that the nature of bank- 
ing jobs has changed. However, to the extent to 
which changes in job types are captured by the 
broad EEOC job classifications, they do not ex- 
plain all the dwindling in employment of blacks 
and women in the banking industry segment. 

Indeed, figure 3.49 shows that the types of 
jobs have changed over time in both banking and 
securities. In banking, the proportion of profes- 
sional and sales worker jobs increased, while the 
proportion of office and clerical workers de- 
creased. In 1987, 14 percent of banking employ- 
ees in the New York City metropoHtan area were 
professionals, 1 percent were sales workers, and 
47 percent were office and clerical workers. In 
1994, 21 percent were professionals, 3 percent 
were sales workers, and about 40 percent were 
office and clerical workers. By 1996, 22 percent 
of employees in banking were professionals, 4 
percent were sales workers, and only 33 percent 
were office and clerical workers. The year 1996 
also showed a small increase in the percentage 
of officials and managers in banking over 1994 
levels. 

In the securities segment, the proportions of 
officials and managers and professionals in- 
creased, while the proportion of office and cleri- 
cal workers decreased. In 1987, 13 percent of 
employees in securities were officials and man- 
agers, 21 percent were professionals, and about 
45 percent were office and clerical workers. By 



1994 the percentages of officials and managers 
and professionals had increased to 19 percent 
and 31 percent, respectively, while the percent- 
age of office and clerical workers decreased to 34 
percent. By 1996 officials and managers and pro- 
fessionals were 20 and 33 percent of the employ- 
ees, while office and clerical workers were only 
30 percent. 

Because the largest proportions of blacks and 
women are employed as office and clerical work- 
ers, a decrease in the proportion of such workers 
could explain why fewer blacks and women are 
employed. But it does not. Figures presented 
below show that even though, in 1994 both 
banking and securities had proportionately 
fewer office and clerical workers and proportion- 
ately more higher level employees — officials and 
managers or professionals or sales workers — 
these changes occurred for different reasons in 
the two industry segments. 

Figures 3.50 through 3.53 show side-by-side 
graphs of trends in employment in the four job 
classifications over time for the banking and se- 
curities industry segments, both by number and 
percentage. The top hne in part (a) of each graph 
shows the overall employment trend, regardless 
of race or gender, in each job classification. The 
Unes below that show the trends for women, mi- 
norities collectively, and blacks, Hispanics, and 
Asian American and Pacific Islanders. Part (b) of 
the figures shows changes in the percentages of 
women, minorities, blacks, Hispanics, and Asian 
American and Pacific Islanders employed in the 
industry segments. 

The figures show that the banking industry's 
dramatic changes in the types of jobs have had 
major effects on the numbers of blacks and 
women employed although not always on the 
proportion employed. For example, in banking, 
as figure 3.53(a) indicates, the decrease in office 
and clerical workers was very large. Between 
1987 and 1994, the number of office and clerical 
workers was cut almost in half, not just overall 
but also for women and blacks. The number of 
office and clerical workers dropped from about 
71,000 to 37,000 overall, from about 52,000 to 
26,000 for women, and from about 26,000 to 
13,000 for blacks (figure 3.53(a)). Decreases in 
the number of office and clerical workers em- 
ployed in banking continued between 1994 and 
1996, with the result that by 1996 this industry 
segment had only 30,000 office and clerical 



162 



workers of whom 22,000 were women and 11,000 
were blacks. 

Apart from office and clerical workers in 
banking, the number of officials and managers 
also decreased substantially (figure 3.50(a)); the 
number of professionals decreased slightly 
(figure 3.51); and, in contrast, the number of 
sales workers increased sharply (figure 3.52). 
But, the changes in these higher level jobs did 
not affect such large numbers of people. And, 
because blacks and women were less often em- 
ployed in such jobs, these changes affected much 
smaller numbers of blacks and women. For ex- 
ample, following the overall trend for banking 
jobs as officials and managers, the number of 
black officials and managers dropped from about 
4,500 in 1987 to about 2,500 in 1994 and then 
increased some thereafter; and the number of 
women decreased from about 17,000 in 1987 to 
about 10,000 in 1994 and then increased some 
(figure 3.50(a)). The number of blacks employed 
as professionals dropped from about 3,200 in 
1987 to about 2,500 in 1994 and remained at 
that level through 1996 (figure 3.51(a)); the 
number of women employed as professionals was 
nearly 11,000 in 1987 and 1989 but only about 
8,000 to 9,500 since then (figure 3.51(a)). Figure 
3.52(a) shows that although the number of sales 
workers grew, the number of blacks employed as 
sales workers in banking was between only 240 
and 307 during 1987 to 1992 and only 330 and 
476 in 1993 to 1996; the number of women em- 
ployed as sales workers was between 835 and 
about 1,100 from 1989 to 1992 and ranged about 
1,400 to about 1,700 from 1993 to 1996. 

As this industry segment's downsizing dra- 
matically decreased the numbers of women and 
blacks employed, these groups were generally 
unable to maintain their proportional represen- 
tation in the banking work force. Indeed, blacks 
and women were not as weU represented per- 
centage wise in any of the four job classifications 
in 1994 through 1996 as they had been in 1987 
and 1989. However, their losses were greatest 
among female professionals and black and fe- 
male sales workers. The proportion of women 
employed in banking as professionals decreased 
from 51 or 52 to 43 percent in 1994 with a slight 
increase thereafter (figure 3.51(b)). The propor- 
tion of women employed as sales workers was 52 
to 53 percent from 1987 to 1991, 49 to 50 percent 
in 1992 and 1993, and only 43 to 44 percent from 



1994 to 1996 (figure 3.52(b)). Among blacks, 
from 1987 to 1993, the proportion employed as 
sales workers was between 14 and 17 percent, 
but decreased to between 10 and 12 percent in 
1994 to 1996 (figure 3.52(b)). Notably, both 
blacks and women experienced a 5 percent drop 
in the percentage employed as sales workers be- 
tween 1993 and 1994, and these drops coincide 
with the timeframe in which hcensing tests were 
first instituted for bank employees selling secu- 
rities. 

The banking industry's proportional losses 
occurring among black professionals and among 
black and female officials and managers and of- 
fice and clerical workers are smaller but alarm- 
ing because of their consistency. The proportion 
of blacks employed as professionals in banking 
was between 15 and 16 percent from 1987 to 
1992, but decreased to 12.5 percent in 1994 
through 1996 (figure 3.51(b)). Although blacks 
were between 8 and 9 percent of officials and 
managers (figure 3.50(b)) and 35 and 37 percent 
of office and clerical workers (figure 3.53(b)) 
throughout the period, in both instances the 
highest proportion was in 1987 and the lowest in 
1995. The proportion of women employed as offi- 
cials and managers in banking decreased from 
about 37 to 34 percent in 1994 (figure 3.50(b)); 
and the proportion employed as office and cleri- 
cal workers decreased from 74 to 71 percent in 

1994 (figure 3.53(b)). The proportions of women 
increased some after 1994 in both instances. 

In the securities segment of the finance in- 
dustry, figures 3.50(a) through 3.53(a) show that 
changes in the types of jobs occur not so much 
through reduction in the numbers of office and 
clerical workers as from growth in the numbers 
of professionals and officials and managers. 
More importantly, perhaps, is that the propor- 
tions of blacks and women in each job classifica- 
tion remain fairly stable, or actually increase 
between 1987 and 1996. In securities, the pro- 
portions of blacks employed as officials and 
managers and as professionals (figures 3.50(b) 
and 3.51(b)) increased from 4 to 7 percent. (In 

1995 and 1996, the proportion of officials and 
managers who were black had dipped back to 6 
percent.) The proportion of blacks employed as 
sales workers reached the high end of its range 
between 1.4 and 2.8 percent in 1996 (figure 
3.52(b)). The proportion of blacks employed as 
office and clerical workers increased from 20 to 



163 



23 percent from 1987 to 1994 and remained at 
22 percent in 1995 and 1996 (figure 3.53(b)). The 
percentage of women employed as officials and 
managers increased from 20 to 26 percent 
(figure 3.50(b)). The percentages employed as 
professionals and as sales workers were stable, 
ranging between about 34 and 36 percent for the 
former (figure 3.51(b)), and about 18 and 20 per- 
cent for the latter (figure 3.52(b)). The percent- 
age of women employed as office and clerical 
workers grew from 59 percent in 1987 to be- 
tween 61 and 63 percent where it has remained 
since then (figure 3.53(b)). 

The small increases in the proportions of 
blacks and women along with the general 
growth in the securities segment resulted in the 
employment of larger numbers of blacks and 
women. Among professionals, where the most 
growth occurred in the securities segment, 
roughly 800 black and 6,000 to 6,700 women 
were employed in the early years of the period 
(figure 3.51(a)). By 1996 more than 2,500 blacks 
and almost 13,000 women were employed as pro- 
fessionals in securities (figure 3.51(a)). Among 
officials and managers, about 550 were black 
and 2,500 were women in 1987, and by 1996 
about 1,400 were black and 5,800 were women 
(figure 3.50(a)). Among sales workers, fewer 
than 200 blacks and about 1,500 women were 
employed in 1991, the lowest year, while only 
about 375 blacks and 2,700 women were em- 
ployed in 1996, the highest year (figure 3.52(a)). 
The numbers of blacks and women employed as 
office and clerical workers fluctuated between 
5,750 and about 8,400 for blacks, and between 
16,500 and about 24,000 for women, where the 
highest years were 1987 and 1994 (figure 
3.53(a)). Yet despite the fairly substantial 
growth in the numbers of professionals and offi- 
cials and managers in the securities segment, 
the numbers of additional employees are quite 
small when compared with the reductions in of- 
fice and clerical workers in the banking segment 
and the tremendous effect that had on the em- 
ployment of blacks and women. 

This section described employment in the fi- 
nance industry, particularly the banking and 
securities segments of it. It has shown that pro- 
portionally more minorities and women are em- 
ployed in the banking than in securities. Not 
surprisingly, more minorities and women are 
employed as office and clerical workers than are 



employed as officials and managers, profession- 
als, or sales workers. Minorities and women are 
least likely to be employed as sales workers in 
the securities industry. 

Finance is a dynamic industry. Both banking 
and securities have been affected by technologi- 
cal, legislative and regulatory, and other 
changes. The stock market crashed in 1987, 
causing a major setback for securities firms. For- 
tunately, the industry has recovered with nu- 
merous profitable years since then. In the 
banking industry, mergers and the use of tech- 
nology and automated teller machines have re- 
sulted in downsizing. At the same time banks 
have diversified bank products and offered serv- 
ices traditionally available through securities 
firms. Employment data showed the effects of 
these changes: between 1987 and 1996, banks 
were employing fewer people, while securities 
firms were increasing their numbers of employ- 
ees. The types of workers employed in each in- 
dustry segment also changed. Banks were em- 
ploying many fewer office and clerical workers in 
1996 than in 1987, having cut the number of of- 
fice and clerical workers in half. During the 
same period, securities firms had increased the 
number of officers, managers, and professionals. 

The changes in these industry segments af- 
fected the employment of minorities and women. 
The proportions of Asian American and Pacific 
Islanders, and sometimes Hispanics, employed 
in these industries grew between 1987 and 1996. 
However, the proportions of blacks and women 
employed in banking decreased. Decreases in the 
proportions of blacks and women employed in 
the finance industry occurred largely because 
employment dropped in banking — a segment of 
the industry employing larger proportions of mi- 
norities and women — and increased in securities 
where substantially smaller proportions are em- 
ployed. Further, the proportions of office and 
clerical workers, the job classification employing 
the largest percentages of blacks and women, 
declined tremendously in the banking segment. 
But these aspects do not entirely explain the de- 
crease in the proportion of women and blacks 
employed. In 1996 the proportions of blacks and 
women employed in banking were lower than 
those of 1987 in all four of the job classifications 
examined here. The largest of these decreases 
were a steady decline among female profession- 
als and a sharp dechne from 1993 to 1994 among 



164 



black and female sales workers. The latter coin- 
cided with the time that regulating organiza- 
tions imposed new licensing requirements on 
bank employees selling securities. 

The changes over time suggest that fairly 
large decreases in employment of blacks and 
women in the finance industry residt from a 
shift in the structure of the industry with 
changes in the different types of jobs in each sec- 
tor. And, fairly large decreases in employment 
result from changes in the types of jobs in the 
industry — a shift in the use of office and clerical 
workers to sales workers, professionals, or offi- 
cials and managers. Some remaining decreases 
appear to result from the employment of slightly 



smaller proportions of blacks and women within 
job classifications. These decreases in employ- 
ment of women and blacks could be because of 
discrimination or because of other changes over 
time in the types of jobs that were not captured 
here. Here, changes in the types of jobs that 
banks have were only measured between job 
classifications, such as office and clerical work- 
ers versus sales workers. However, the types of 
jobs available may also be changing within job 
classifications. Newly imposed requirements for 
Ucensing or perhaps computer skills may also 
affect the racial or gender composition of the ap- 
plicant pool.229 



Figure 3.45 

Employment in New York City's Finance Industry, 1987-96 



350,000 



^ 300,000 - 

0) 

>. 250,000 -I 
o 

a. 

E 

(U 



01 

E 

3 

z 




1987 



1989 



1991 



1992 1993 



1994 



1995 



1996 



-Finance industry 



■Depository institutions 



-Security and commodity broilers 



source: EEOC data. See appendix B, table B.6 



229 See Linda S. Cott Fredson, "Reconsidering Fairness: A 
Matter of Social and Ethical Priorities," 'Journal of Voca- 
tional Behavior, vol. 33 (1988) pp. 293-319 



165 



Figure 3.46 

Changes over Time in the Employment of Minorities and Women in New York City's 
Finance Industry, 1987-96 



(a) Changes in the number of employees 



^ -m ^ ■- — _^ ■" Total 

9 Minorities 

— • Blacks 

— ■ — Hispanics 
— — — Asians 
— * — Women 




1987 1989 1991 1992 1993 1994 1995 1996 



(b) Changes in the percentages of employees who are 
minorities or women 



60% 

50% 
•o 

g" 40% 

Q. 

I 30% T 

c 

o 20% , ► 

o 

a. 

10% 



-Minorities 

-Blacks 

-Hispanics 

-Asians 

-Women 



0% 



-4- 



-f- 



-t- 



1987 1989 1991 1992 1993 1994 1995 1996 



source: EEOC data. See appendix B, table B.6. 



166 



Figure 3.47 

Changes over Time in the Employment of Minorities and Women in the Banking Segment of New 
York City's Finance Industry, 1987-96 



(a) Changes in the number of employees 

175,000 
150,000 -K ^ 



V) 

8 125,000 
_o 

I" 100,000 
<u 



s. 



X 




— — — Total 

— • Minorities 

■— ♦ Blacks 

— ■ — Hispanics 
— " — Asians 
A Women 



1987 1989 1991 1992 1993 1994 1995 1996 



(b) Changes in the percentages of employees who are 
minorities or women 





60% 




50% 


•D 
0) 

>. 

o 

a 


40% 


E 


30% 


a> 




a 


20% 


a. 





10% 



0% 



il * — -,^_^_ ^ 

~~^ *— — * A A 

,^___— • — • • • • •— — • 

-' * * * ♦— -.^^ ^ ^ 

II ■ ■ ^■_— ■ ■ ■ * 



-Minorities 

-Blacks 

-Hispanics 

-Asians 

-Women 



1987 1989 1991 1992 1993 1994 1995 1996 



source: EEOC data. See appendix B, table B.6. 



167 



Figure 3.48 



Changes over Time in the Employment of {Minorities and Women in the Securities Segment of 
New York City's Finance Industry, 1987-96 



(a) Changes in the number of employees 



120,000 -, 



100,000 - 



(A 
01 




?r 


80,000 


a. 

E 
at 

•5 

s 


60,000 


E 

z 


40,000 




20,000 








^^ 




— Total 

> Minorities 
— • — Blacks 
— ■ — Hispanics 
— " Asians 
— A Women 



1987 1989 1991 1992 1993 1994 1995 1 



996 



(b) Changes in the percentages of employees who are 
minorities and women 




-Minorities 

-Blacks 

-Hispanics 

-Asians 

-Women 



1987 1989 1991 1992 1993 1994 1995 1 



996 



source: EEOC data. See appendix 8, table B.6. 



168 



Figure 3.49 

Changes over Time in the Classifications of Jobs in New Yorl^ City's Banking and 
Securities Industry Segments, 1987-96 




7o/„f-^ 



Job classifications in banking 
1987 

31% 



14% 
1% 



47% 

Job classifications in banking 
1994 



31% 





Job classifications in securities 
1987 

13% 2'°/° 



,%^ 





11% 



45% 

Job classifications in securities 
1994 

31% 



.. ^ 
•.© 





11% 



40% 



34% 



Job classifications in banking 

1996 

35% 



22% 




6% v<!/ 



Job classifications in securities 
1996 



34% 



20% 



^1 






12% 



33% 



30% 



■ Officials and managers 

■ Sales workers 

DTechnical, blue-collar, and sen/ice workers 



EQ Professionals 

n Office and clerical workers 



source: EEOC data. See appendix B, table B.4. 



169 



Figure 3.50 

Changes over Time in the Employment of Protected Groups in the Finance Industry 
as Officials and Managers, 1987-96 



Officials and managers in banking 
(a) Changes in number of employees 



Officials and managers in securities 
(a) Changes in number of employees 



50,000 -| 
45,000 - 



40,000 



g 35,000 ^ 



^ 25,000 - 
o 

o 20,000 

3 15,000 - 

z 

10,000 



5,000 





25,000 





i 1- 


— h- 


— h- 


h- 


h- 


— (- 


1 

CO 


a 


CO 


o> 


a> 


en 


o> 


O) 


(J) 




o> 


o> 


O) 


O) 


o> 


O) 


O) 




r~ en ^ CM 

GO 00 O) 0> 

o> o> en o> 



CO TJ- If) <D 

O C7> 0> O 

Oi o> O* Oi 



-Total 
-HIspanics 



-Minorities 
-Asians 



-Blacl<s 
-Women 



-Total 
-Hispanics 



-Minorities 
-Asians 



- Blacks 
-Women 



Officials and managaers in banking 
(b) Changes in percent of employees 

40% n 



30% ■ 



20% 



10% 



0% 




r-H K 



-I — I — I — h 



H 1 



t^cnT-CMcoM-incD 
00Gocn<7)O>O)a)C3> 



Officials and managers in securities 
(b) Changes in percent of employees 



40% 



30% 



20% 




10% 



^ 



r>- 


<j) 


' 


OJ 


1— 

CO 


•<}• 


lO 


CO 


oo 


CO 


CJ) 


CJ) 


CJ) 


en 


O) 


en 


(j> 


o> 


o> 


en 


en 


C7> 


CJ> 


en 



-Minorities 
-Asians 



-Blacks 
-Women 



-Hispanics 



-Minorities 
-Asians 



-Blacks 
-Women 



-Hispanics 



source: EEOC data. See appendix B, table B.8. 



170 



Figure 3.51 

Changes over Time in Employment of Protected Groups in the Finance Industry as Professionals, 
1987-96 



Professionals in banking 
(a) Changes in number of employees 



Professionals in securities 
(a) Changes in number of employees 



25,000 




50,000 



45,000 
40,000 



g 35,000 

■2 30,000 

E 

* 25,000 

o 






o> 


'~^~ 


— 9- 

<N 


— ^^ 


1- 


1— 

in 


1 

to 


CO 


OO 


o> 


cn 


cr> 


CD 


O) 


(T) 


CD 


a> 


O) 


O) 


a> 


O) 


o> 


O) 



-Total 
-Hispanics 



-Minorities 
-Asians 



-Blacks 
-Women 



-Total 
-Hispanics 



-Minorities 
-Asians 



-Blacks 
-Women 



Professionals in banking 
(b) Changes in percent of employees 



60% X 



40% - - 




20% - - 



o>oocno>o>oo) 



Professionals in securities 
(b) Changes in percent of employees 

60% -, 



40% - 



20% - 



0%^ 




oi en 



-Minorities — A — Blacks — X — Hispanics 
-Asians — • — Women 



-Minorities 
-Asians 



-Blacks 
-Women 



-Hispanics 



source; EEOC data. See appendix B. table B.8. 



171 



Figure 3.52 

Changes over Time in Employment of Protected Groups in the Finance industry as Sales Workers, 
1987-94 



Sales workers In banking 
(a) Changes in number of employees 



Sales workers in securities 
(a) Changes in number of employees 




16,000 -, 



14,000 




OOCOG>0>0)0>0>0> 



coooa)a>o^cj)a>0) 



-Total 
-Hispanics 



-Minorities 
-Asians 



- Blacks 

- Women 



-• — Total 
-X — Hispanics 



-Minonties 
-Asians 



-Blacks 
-Women 



Sales workers in banking 
(b) Changes in percent of employees 



Sales workers in securities 
(b) Changes in percent of employees 



60% 



45% 



30% 




15% 



C0C005<J)0>CT>OCT) 



20% 



15% 



10% 



0% 




ip=1t^=^t=^^=^ ^ ^^^ 



00 03 



^ CM to -"T ir> lO 

CJt O) O <ji <J> o> 

<J> O) o^ o> o> o> 



-Minonties — A — Blacks — X — Hispanics 
-Asians — • — Women 



-Minorities 
-Asians 



-Blacks 
-Women 



-Hispanics 



source: EEOC data See appendix B. table B.8. 



172 



Figure 3.53 

Changes over Time in the Employment of Protected Groups in the Finance Industry as Office and 
Clerical Workers, 1987-94 



Office and clerical workers in banking 
(a) Changes in number of employees 



75,000 




Office and clerical workers in securities 
(a) Changes in number of employees 

50,000 




t-- en ■■- 
GO CO a> 

G> 0> G> 



-Total 
-Hispanics 



- Blacks 
-Women 



-Total 
-Hispanics 



- Blacks 
-Women 



Office and clerical workers In banking 
(b) Changes in percent of employees 



Office and clerical workers in securities 
(b) Changes in percent of employees 



80% 



60% 



40% 



20% 



0% 



l» •— 




^ ^ 












— ■— 


-■ — ■ 
















—^ )<— 


— ><— 


-^ — s 


i — *- 

1 — 


— *— 

— 1 — 


-^ — *— 
— 1 1 — 


— *— 

— 1 — 


-^ — * 
— 1 1 



OUVo - 


h— 

















60% ( 
40% ■ 


*^ 


• 








— ■- 


— ■ 


1 






~* 


-A — 






20% < 




-K— 












X 










-* — 


— *- 


NC 


0%- 


: 


^ 


-4- 


— 1 — 


-4— 


— 1 — 


— h- 


1 



t- CM 

CD <T> 






- Blacks 
-Women 



-Hispanics 



-Blacks 
-Women 



-Hispanics 



source: EEOC data. See appendix B, table BIO. 



173 



Chapter 4 

Impact of Securities Industry Rules on 
Minority and Women Securities Professionals 



The underemployment of minorities and 
women in Wall Street securities firms has been a 
longstanding problem. More than 25 years ago, 
in 1972, the United Church of Christ filed a peti- 
tion asking the Securities and Exchange Com- 
mission (SEC) to issue a rule requiring securities 
frrms to adopt affirmative action plans.' Al- 
though the SEC declined to adopt such a rule,^ it 
did agree to begin a campaign against discrimi- 
natory employment practices. ^ Thus, in 1976 the 
SEC's Securities Industry Committee on Equal 
Employment Opportunity was formed to "ensure 
equal employment opportunities in the indus- 
try."'' One goal of the new committee was "[t]o 
increase minority and female employment at all 
levels in the securities industry."^ 

The issue persisted, and in 1980 Sponsors for 
Educational Opportunity (SEO) began a pro- 
gram "designed to increase the number of people 
of color in the investment banking industry."^ 



' Philip H. Savage, director, Equal Employment Opportu- 
nity, U.S. Securities and Exchange Commission, "Securities 
Industry Focuses on Equal Employment," Human Resources 
Management Report, issue #3, (November/December 1977), 
p. 1 (hereafter cited as Savage, "Equal Employment"). 

2 An SEC director stated that the SEC lacks legal authority 
to regulate employment practices on Wall Street. See Rich- 
ard H. Walker, director. Northeast Regional Office of the 
U.S. Securities and Exchange Commission, testimony 
(hereafter cited as Walker Testimony) before the U.S. Com- 
mission on Civil Rights, New York, NY, Sept. 19-21, 1994, 
vol. Ill, p. 925 (hereafter cited as New York Hearing) 
("Although the SEC may lack the force of law on this issue, 
we do have the powers of persuasion and we are fully com- 
mitted to using them . . ."). 

3 Savage, "Equal Employment," pp. 1-2. 

'' Ibid., p. 3. The SEC-Securities Industry Committee on 
Equal Employment Opportunity is composed of representa- 
tives from securities firms, self-regulatory organizations, 
and the SEC. Ibid., p. 2. 

5 Ibid., p. 4. 

•■ Paul Spivey, executive director. Sponsors for Educational 
Opportunity, testimony before the U.S. Commission on Civil 
Rights, New York, NY, Sept. 19-21, 1994, vol. Ill, p. 860 
(hereafter cited as Spivey Testimony). 



Paul Spivey, executive director of SEO, testified 
at the Commission's hearing and stated that the 
program's administrators grant minority stu- 
dents a total of 200 internships per year with 
leading investment banking firms.'' Mr. Spivey 
added that 75 percent of the interns obtain per- 
manent positions in the securities industry after 
completing college or business school.* 

Despite these and other efforts,^ there re- 
mains a prevailing perception that few women 
and minorities find well-paying jobs in the secu- 
rities industry. Indeed, Alphonso E. Tindall, Jr., 
chairman of the National Association of Securi- 
ties Professionals (NASP), an organization rep- 
resenting the interests of minority and women 
securities professionals, testified at the Commis- 
sion's hearing that the number of minorities and 
women participating in the securities industry 
has declined over the past 20 years.''' Moreover, 
providing a vivid image of employment discrimi- 
nation on Wall Street, the following statement 
was made at the Commission's hearing by Jef- 
frey L. Liddle, an attorney who has represented 
numerous securities professionals in employ- 
ment disputes: 



7 Ibid., pp. 860-61. 

8 Ibid., p. 861. 

^ Similar efforts continue. For example. Reverend Jesse 
Jackson recently organized a "three-day Wall Street diver- 
sity conference" with guest speakers including President 
Clinton. Charles Gasparino and Joseph N. Boyce, "Jackson, 
Wall Street Have Their Big Day, But Will It Fuel Minority 
Opportunities?" Wall Street Journal, Jan. 16, 1998, p. C-1. 
Jackson reportedly intends to continue his efforts to "push 
the financial industry to address a range of issues from em- 
ployment practices to opportunities for investment firms 
owned by women and minorities." Ibid. 

'0 Alphonso E. TindaU, Jr., chairman, National Association 
of Securities Professionals, testimony before the U.S. Com- 
mission on Civil Rights, hearing. New York, NY, Sept. 19- 
21, 1994, vol. Ill, p. 855 (hereafter cited as Tindall Testi- 
mony). 



174 



Employment discrimination appears ... to be wide- 
spread on Wall Street. Virtually no senior executives 
in Wall Street firms are females or members of racial 
minorities, and . . . [with] high income producers, that 
is, institutional traders, salesmen, investment bank- 
ers and the like, 45 years of age is old, and female and 
minority representation is slight. 

For all of these groups, hiring is the first impediment 
to employment, in the securities business, and even 
though females and minorities experience disciimina- 
tion in all aspects of their employment, the hiring 
process is perhaps the single most problematic area. 
Only a small proportion of the new professional em- 
ployees in each firm are females or minorities. . . . 
After hiring, the problems confronted by females and 
minority employees multiply. . . . 

Minority employees are often the first to be termi- 
nated, are held frequently to higher standards than 
their white counterparts, are allowed to see or work 
with only certain clients, and in the hurly-burly at- 
mosphere of Wall Street are, like their female coun- 
terparts, rarely put into positions of managerial 
authority. The culture of the industry ... is young, 
male, and white. '^ 

Because it is perceived that minorities and 
women continue to be underrepresented in the 
securities industry, rules and practices that ap- 
pear to be neutral with regard to race and gen- 
der may have a disparate impact on minorities 
and women employed on Wall Street. This chap- 
ter studies the impact on minorities and women 
of two securities industry rules, the arbitration 
requirement and Rule G-37, to determine 
whether these rules are exacerbating inequities. 

Section I. The Mandatory Arbitration 
Requirement 

The mandatory'^ arbitration requirement is 
an obhgation to submit potential future disputes 



" Jeffrey L. Liddle, Esq., law partner, Liddle, Robinson & 
Shoemaker, testimony before the U.S. Commission on Civil 
Rights, hearing, New York, NY, Sept. 19-21, 1994, vol. Ill, 
pp. 833-35 (hereafter cited as Liddle Testimony). 
•2 The use of the word "mandatory" in this context was aptly 
explained by an author who wrote the following: "The na- 
ture of the pre-dispute arbitration clause has engendered 
the term 'mandatory arbitration' because the prospective 
employee usually signs the contract before he begins work 
and before any potential issues arise with the employer. 
Thus, arbitration becomes 'mandatory' even though not 
necessarily foreseen. At the moment an employee begins his 
job, he already has made the weighty decision not to look to 
the federal courts to enforce his civil rights under the myr- 
iad laws ensuring their protection." Jennifer N. Manuszak, 



to a private decisionmaker, rather than a court, 
for a binding ruling on the merits. '^ Until re- 
cently, the duty to submit any future employ- 
ment discrimination claims to arbitration was 
imposed upon all securities professionals who 
registered to trade at the securities exchanges. 
As a result, registered securities professionals 
who eventually sought to pursue employment 
discrimination claims had to complete the arbi- 
tration process and could only obtain limited 
court review by appealing the award given by 
the arbitrator. 1"* Recently, however, the National 
Association of Securities Dealers (NASD) and 
the New York Stock Exchange (NYSE) voted to 
eliminate their mandatory arbitration rules as 
they pertain to employment discrimination 
claims, and the SEC approved these rule 
changes. '5 The key difference between the NASD 

"Pre-Dispute Civil Rights Arbitration in the Nonunion Sec- 
tor: The Need for a Tandem Reform Effort at the Contract- 
ing, Procedural and Judicial Review Stages," Ohio Slate 
■Journal on Dispute Resolution, vol. 12 (1997), pp. 387, 389 
(hereafter cited as Manuszak, "Civil Rights Arbitration"). 

Arbitration in this context may be described as mandatory 
also because declining to agree to arbitration may not be a 
truly viable option for a securities professional. Because the 
SROs impose the obligation on all representatives who reg- 
ister at the exchanges, the obligation applies to the entire 
industry. That is, an employee seeking employment as a 
securities trader for a brokerage firm could not possibly find 
an employer that would exempt the employee from this re- 
quirement. As a result, an employee's "decision" to agree to 
arbitration by signing the U-4 form appears possibly to be 
coerced. See Samuel Estreicher, "Predispute Agreements to 
Arbitrate Statutory Employment Claims," New York Univer- 
sity Law Review, vol. 72, no. 30 (1997), pp. 1344, 1354 
(noting the enhanced likelihood of coercion that arises when 
all employers in an entire industry condition employment on 
an agreement to arbitrate). 

'3 See Black's Law Dictionary (5th ed., 1979), p. 96 
(explaining that arbitration is "[a]n arrangement for taking 
and abiding by the judgment of selected persons in some 
disputed matter, instead of carrying it to established tribu- 
nals of justice, and is intended to avoid the formalities, the 
delay, the expense and vexation of ordinary litigation") 
(citation omitted); see also United States General Account- 
ing Office, Employment Discrimination: How Registered 
Representatives Fare in Discrimination Disputes, GAO/ 
HEHS-94-17 (March 1994) (hereafter cited as 1994 GAO 
Report), p. 1 ("Arbitration is the submission of a dispute 
between parties to a neutral third party — an arbitrator — for 
resolution"). 

" For a brief discussion of the limitations on court review of 
arbitration awards, see Mark J. Astarita, Overview of the 
Arbitration Process (visited Feb. 3, 1998) <http://www. 
seclaw.com/arbover. htm> (hereafter cited as Astarita, Over- 
view). 

"> In 1997 the NASD voted to eliminate its mandatory arbi- 
tration requirement, and the SEC approved the rule change 



175 



and the NYSE new rules is that, under the 
NASD rule, the NASD will still honor a predis- 
pute mandatory arbitration agreement entered 
into between the employee and the employer. ^^ 
The NYSE rules, however, will only honor arbi- 
tration agreements entered into by the parties 
after the employment discrimination claim has 
arisen.!' Thus, both the NASD and NYSE no 
longer require mandatory arbitration agree- 
ments for employment discrimination claims as 
part of registration; however, employers can still 
condition employment on an employee's predis- 
pute agreement to submit to arbitration, and the 
NASD will provide a forum for such cases. ^^ 

Industry representatives maintain that these 
changes have broad support, including from 
within the securities industry. For example, the 
Securities Industry Association (SI A) has stated 
"that it supports 'the rule in its current form and 
commends the [SEC] staff on its efforts to bal- 
ance the competing concerns of arbitration crit- 
ics with those who believe in its efficiency, fair- 



in June 1998. The new rule became effective on Jan. 1, 1999. 
See Order Granting Approval to Proposed Rule Change Re- 
lating to the Arbitration of Employment Discrimination 
Claims, Securities and Exchange Commission Release No. 
34-40109, File No. SR-NASD-97-77 (June 22, 1998) 
(hereafter cited as SEC Order Approving NASD Rule). See 
also National Association of Securities Dealers, SEC Ap- 
proves Rule Change Regarding Arbitration of Statutory Em- 
ployment Disputes; Effective January 1, 1999 (visited Mar. 9, 
1999) <http://www.nasd.com/notices/985Gntm.txt>. The NYSE 
subsequently voted to eliminate its mandatory arbitration 
requirement and the SEC approved that rule change. See 
SEC Commission Announcements, Approval of Proposed 
Rule Changes (visited Mar. 13, 1999) <http://vvw\v.sec.gov/ 
news/digests/01-04.txt>. 

16 "NYSE to Stop Hearing Discrimination Claims," Securi- 
ties Week, Jan. 18, 1999, p. 14. 
" Ibid. 

"* Ibid. See also "Arbitration; Firms Lose Options in Arb of 
Discrimination Claims," Compliance Reporter, Jan. 4, 1999, 
p. 7. The NASD rule provides, in part that "a claim alleging 
employment discrimination, including a sexual harassment 
claim, in violation of a statute is not required to be arbi- 
trated. Such a claim may be arbitrated only if the parties 
have agreed to arbitrate it, either before or after the dispute 
arose." National Association of Securities Dealers, SEC Ap- 
proves Rule Change Regarding Arbitration of Statutory Em- 
ployment Disputes; Effective January 1, 1999 (visited Mar. 9, 
1999) <http://www.nasd.com/notices/985Gntm.txt>. In con- 
trast, the NYSE rules provide, "A claim alleging employ- 
ment discrimination, including any sexual harassment 
claim, in violation of a statute shall be eligible for arbitra- 
tion only where the parties have agreed to arbitrate the 
claim after it has arisen." NYSE to Stop Hearing Discrimi- 
nation Claims," Securities Week. Jan. 18, 1999, p. 14. 



ness and propriety for resolving all manner of 
employment claims.'"'^ 

Civil rights advocates complain that allowing 
an employer to force an employee to submit his 
or her claim to a securities industry arbitration 
violates the purposes of the Federal antidis- 
crimination statutes. 20 Specifically, advocates 
raise concerns regarding (1) the informal and 
lenient discovery procedures followed in the pri- 
vate arbitration context; (2) the race, gender, 
and professional background of the arbitrators 
hired to settle disputes; and (3) the failure of the 
awards to compensate victims of discrimination 
and, most especially, to deter future wrongdo- 
ing.2' The importance of such procedurap2 con- 
cerns was highlighted in a report, written jointly 
by the U.S. Departments of Labor and Com- 
merce, which stated, "[I]f Congress or the courts 
have decided that it is in the public interest to 
guarantee employees certain fundamental rights, 
this policy judgment must not be evaded or di- 
luted through private procedures that cannot 
fairly and effectively address employee claims 
that their rights have been violated.''^^ 



"> Statement of Stuart J. Kaswell, general counsel, Securi- 
ties Industry Association, before the Senate Committee on 
Banking, Housing and Urban Affairs, July 31, 1998, p. 1. 

20 See, e.g., Gilmer v. Interstate/Johnson Lane Corp., 500 
U.S. 20, 26-27 (1991) (setting forth plaintiffs argument that 
mandatory arbitration of a claim under the Age Discrimina- 
tion in Employment Act (ADEA) is "inconsistent with the 
statutory framework and purposes of the ADEA"). A claim- 
ant can avoid the contractual obligation to arbitrate by dem- 
onstrating an "inherent conflict" between arbitration and 
the underlying purposes of the relevant statute, evidencing 
congressional intent to preclude waivers of the right to pur- 
sue judicial remedies. See id. at 26. In Gilmer the plaintiff 
failed to offer sufficient evidence to meet the burden of proof 
described by the Court. See id. at 30-33. 

21 See, e.g., id. at 30-32 (discussing plaintiffs claims that 
arbitration panels are biased, the scope of discovery is too 
limited, and the lack of public knowledge about arbitration 
rulings). See also Daniel S. Levine, Inhuman Relations 
Dept.: NASD Sheds Mandatory Arbitration For Victims of 
Discrimination (last modified Aug. 12, 1997) <http://www. 
disgruntled.com/nasdarb897.html>, p. 2 (citing a 1995 study 
of arbitration awards in employment disputes in the securi- 
ties industry). 

-- The Supreme Court has stated, "By agreeing to arbitrate 
a statutory claim, a party does not forgo the substantive 
rights afforded by the statute; it only submits to their reso- 
lution in an arbitral, rather than a judicial, forum." Gilmer 
v. Interstate/Johnson Lane Corp., 500 U.S. 20, 26 (1991). 

'^^ U.S. Department of Labor and U.S. Department of Com- 
merce, Fact Finding Report: Commission on the Future of 
Worker-Management Relations (May 1994), p. 118. Simi- 
larly, the American Arbitration Association has emphasized 



176 



Industry officials disagree with these com- 
plaints. They believe the new rules ensure that 
an employee's decision to arbitrate is voluntary 
and that there is no solid evidence to support the 
claim that agreements to arbitrate are coerced. 
According to these industry representatives, 
Congress, in the Federal Arbitration Act, has 
provided protection against unfair application of 
mandatory arbitration clauses by incorporating 
long-established contract defenses into these 
acts.^'' 

In sum, industry representatives emphasize 
that Congress has expressly endorsed arbitra- 
tion, -^ and that courts have recognized and en- 
forced Congress' intent to bring civil rights 
claims within the scope of mandatory arbitration 
clauses. 26 These concerns, among others, were 
considered by the Commission at its New York 
hearing on September 21, 1994.2'? 

Predispute Mandatory Arbitration Requirement 

The securities industry is governed by a col- 
lection of statutes and regulations intended to 
protect investors. The Securities and Exchange 
Act of 193428 created the Securities and Ex- 



that "any [alternative dispute resolution] . . . method used in 
the employment context is most effective when the parties . . . 
have confidence in the neutrality of the . . . arbitrator and 
the procedures and the institution under which their case is 
being administered." American Arbitration Association, 
Media Alert: American Arbitration Association Encourages 
Use of Voluntary Arbitration to Resolve Employment Dis- 
putes (last modified July 9, 1997) <http://www.adr.org/press/ 
empstatement.html>. 

'''1 See 9 U.S.C. § 2 (1994) (Arbitration clauses can be 
stricken "upon such grounds as exist at law or in equity for 
the revocation of any contract"). 

25 See the Civil Rights Act of 1991, which provides, "Where 
appropriate and to the extent authorized by law, the use of 
alternative means of dispute resolution, including . . . arbi- 
tration, is encouraged to resolve disputes arising under the 
Acts or provisions of Federal law amended by this title." 
Pub. L. No. 102-166, § 18, 105 Stat. 1071, 1081 (1991). 

26 The third circuit, for example, noted, "On its face, the text 
of Section 118 evinces a clear Congressional intent to en- 
courage arbitration of Title VII and ADEA claims, not to 
preclude such arbitration. Seus v. John Nuveen & Co., 146 
F.3d 175, 182 (1998). 

2' Securities industry representatives report that although 
they were not invited to testify at the Commission's hearing, 
later, with the Commission's permission, the Securities In- 
dustry Association submitted detailed comments addressing 
the testimony offered by critics. See Statement of the Securi- 
ties Industry Association to the U.S. Commission on Civil 
Rights, Feb. G, 1995. 
28 15 U.S.C. §§ 78a-78mm (1997). 



change Commission, a Federal agency that 
regulates the securities exchanges. 2^ The indus- 
try is also governed by private regulatory or- 
ganizations, known as "self-regulatory organiza- 
tions" (SROs), such as the NASD and the 
NYSE.30 Each SRO develops rules and regula- 
tions, provides a dispute resolution forum, and 
oversees the conduct of securities professionals 
for the protection of the investors. ^^ The SROs 
are supervised by the SEC.32 

A person seeking to engage in trading^^ at an 
exchange must register with that exchange's 
SRO by filing a Uniform Application for Securi- 
ties Industry Registration or Transfer (form U- 
4).3'» Form U-4 is used by the SROs to collect 
information regarding each registered profes- 
sional's current brokerage firm affiliation, resi- 
dential history, employment history, criminal 
record, and professional record as a securities 
dealer. 35 The information is used in the SROs' 
function of overseeing the conduct of individual 
professionals. 3G Because the SROs require secu- 



23 15 U.S.C. §78d (1997). 

30 There are 10 SROs: NASD; NYSE; the American Stock 
Exchange; the Boston Stock Exchange, Inc.; the Chicago 
Board Options Exchange, Inc.; the Cincinnati Stock Ex- 
change. Inc.; the Midwest Stock Exchange, Inc.; the Phila- 
delphia Stock Exchange, Inc.; the Pacific Stock Exchange, 
Inc.; and the Municipal Securities Rulemaking Board. See 
John P. Cleary, "Filling Mastrobuono's Order: The NASD 
Arbitration Policy Task Force Ensures the Enforceability of 
Punitive Damages Awards in Securities Arbitration," Busi- 
ness Lawyer, vol. 52 (November 1996), p. 199. 
•■" See "NASD Proposes Eliminating Mandatory Arbitration 
of Employment Discrimination Claims for Registered Bro- 
kers," Business Wire, Aug. 7, 1997. 

32 15 U.S.C. § 78s (1997). 

33 A registered representative is a firm employee who 
"accept(s] and execute[s] customers' buy-and-sell orders." 
1994 GAO Report, p. 1. 

3' See Robert S. Clemente, director of arbitration. New York 
Stock Exchange, "Arbitration of Discrimination Claims 
Brought by Registered Representatives," written statement 
submitted at New York Hearing, p. 1; see also National As- 
sociation of Securities Dealers, Inc., Manual (Chicago, IL: 
CCH, July 1994), H 1785(a); New York Stock Exchange, 
Constitution and Rules (Chicago, IL: CCH, Jan. 1995) 
(hereafter cited as NYSE Rules), Rule 35, 1l 2035. 

35 See Form U-4. See also NASD By-Laws, article 1, sees, (e), 
(h), and (ee), as well as the definitions contained in the Se- 
curities Exchange Act of 1934, 15 U.S.C. § 78 c. 

3'' The form contains the following provision, which binds 
registered securities professionals to abide by the rules and 
regulations of the applicable SRO: "2. ... I submit to the 
authority of the jurisdictions [named elsewhere in the form] 
and organizations and agree to comply with all provisions, 
conditions and covenants of the statutes, constitutions, cer- 



177 



rities professionals to register in order to engage 
in trading, filing the form U-4 is a condition of 
employment with a brokerage firm as a securi- 
ties professional.'^" 

Form U-4 contains a provision requiring the 
securities professional to arbitrate any dispute 
"that is required to be arbitrated under the 
rules" of the exchange where the professional 
registered. 3* That provision, referred to as the 
mandatory arbitration clause, ^^ was originally 
drafted with disputes between customers and 
securities firms in mind.''° Indeed, the Code of 
Arbitration Procedure for NASD formerly stated 
that it applied to "the arbitration of any dispute 
. . . arising out of . . . the business of any member 
of the Association."'" Thus, a securities profes- 
sional would agree that, in the event that a dis- 
pute arose between a customer and the firm re- 
garding a transaction performed by the securi- 
ties professional, the securities professional 
would agree to have the claim submitted to an 
arbitrator for resolution. ''^ 

However, in 1993 the NASD proposed to 
amend the Code of Arbitration Procedure to in- 
clude among the claims that must be arbitrated, 
claims "arising out of the employment or termi- 
nation of employment of associated persons."''^ 

tificates of incorporation, by-laws and rules and regulations 
of the jurisdictions and organizations as they are or may be 
adopted, or amended from time to time." Ibid., p. 4. 

" 1994 GAO Report, p. 4. 

38 The form contains the following language: "I agree to arbi- 
trate any dispute, claim or controversy that may arise be- 
tween me and my firm, or a customer, or any other person, 
that is required to be arbitrated under the rules, constitu- 
tions, or by-laws of the organizations . . . [where 1 am regis- 
tering] as may be amended from time to time and that any 
arbitration award rendered against me may be entered as a 
judgment in any court of competent jurisdiction." Form U-4, 
p. 4. Although the requirement to register is imposed by the 
employer, the kinds of disputes that must be arbitrated are 
determined by the rules of the applicable SRO. Brett D. 
Fromson, "Bidding to End Mandatory Arbitration of Broker 
Bias," Washington Post, May 11, 1997, p. H-1 (hereafter 
cited as Fromson, "Bidding"). 

M See note 622. 

*'> See Liddle Testimony, New York Hearing, vol. Ill, p. 851. 

'" National Association of Securities Dealers, Code of Arbi- 
tration Procedure (1992), § 1 (hereafter cited as NASD, Code 
of Arbitration Procedure). 

*'^ Liddle Testimony, New York Hearing, vol. Ill, p. 851. Ap- 
parently, investors who file claims often name the securities 
professional as a defendant in addition to naming the bro- 
kerage firm. Ibid. 

43 See NASD, Code of Arbitration Procedure, § 1 (1993 
amendments). 



The SEC accepted the change and allowed the 
mandatory arbitration requirement to be ex- 
tended to employment disputes. ■*•* As a result, all 
securities professionals who were required to 
register with NASD had to waive their right to 
sue in Federal court and agree to submit their 
potential employment claims to arbitration.''^ 
Although the NASD and NYSE recently 
amended their rules to eliminate their manda- 
tory arbitration requirements as they apply to 
employment discrimination claims, ■'^ individual 
employers may still themselves require employ- 
ees, predispute, to agree to arbitration of such 
claims.^" And, as mentioned previously, though 



''■' See Self-Regulatory Organizations, National Association 
of Securities Dealers, Inc., Order Approving Proposed Rule 
Change Relating to the Scope of the NASD Arbitration Code 
of Procedure, Exchange Act Release No. 34-32,802, File No. 
SR-NASD-92-51, 58 Fed. Reg. 45,932 (Aug. 25, 1993). 

'5 The employee is not barred, however, fi-om filing a com- 
plaint with the EEOC and requesting that the EEOC pursue 
an investigation. 1994 GAO Report, p. 5. Moreover, if the 
EEOC finds "reasonable cause to believe that discrimination 
has occurred, it may initiate court action." Ibid.; however, 
the employee cannot instigate court action, ibid.; And "the 
EEOC may not seek monetary relief on behalf of claimants 
who have entered into valid arbitration agreements." EEOC 
v. Kidder, Peabody & Co., 979 F. Supp. 245, 247 (S.D.N.Y. 
1997). 

■"■• See SEC Order Approving NASD Rule. See also National 
Association of Securities Dealers, SEC Approves Rule 
Change Regarding Arbitration of Statutory Employment 
Disputes; Effective January I, 1999 (visited Mar. 9, 1999) 
<http://www.nasd.com/notices/9856ntm.txt>. The NYSE also 
voted to eliminate its mandatory arbitration requirement 
and the SEC approved that rule change. See SEC Commis- 
sion Announcements, Approval of Proposed Rale Changes 
(visited Mar. 13, 1999) <http://www.sec.gov/news/digests/01- 
04.txt>. 

" Although § 1 of the Federal Arbitration Act, 9 U.S.C. § 1 
(1994), states that "nothing herein . . . shall apply to con- 
tracts of employment of seamen, railroad employees, or any 
other class of workers engaged in foreign or interstate com- 
merce," a number of United States Courts of Appeal have 
limited that exclusion to seamen, railroad workers, and 
other workers actually involved in the interstate transporta- 
tion of goods. See O'Neil v. Hilton Head Hosp., 115 F.3d 272, 
274 (4th Cir. 1997); Patterson v. Tenet Healthcare, Inc., 113 
F.3d 832, 835 (8th Cir. 1997); Great Western Mortgage Corp. 
V. Peacock, 110 F.3d 222, 227 (3d Cir. 1997), cert, denied, 
118 S. Ct. 299 (1997); Cole v. Burns Int'l Sec. Servs., 105 
F.3d 1465, 1471-72 (D.C. Cir. 1997); Matthews v. Rolhns 
Hudig Hall Co., 72 F.3d 50, 53 n.3 (7th Cir. 1995); Erving v. 
Virginia Squires Basketball Club, 468 F.2d 1064, 1069 (2d 
Cir. 1972). Accordingly, employees in the securities industry 
who are required to sign individual employment contracts 
containing agreements to submit potential claims to arbitra- 
tion can be forced to arbitrate under the Federal Arbitration 
Act. See Erving, 468 F.2d at 1069 (noting that the second 
circuit had previously "held that the exclusionary clause in 



178 



the NYSE will only honor arbitration agree- 
ments entered into by the parties after the em- 
ployment discrimination claim has arisen, NASD 
will still provide a forum for disputes that fall 
within the purview of a predispute em- 
ployer/employee mandatory arbitration agree- 
ment.''^ Despite growing opposition against such 
mandatory arbitration clauses, the United States 
Supreme Court has upheld their validity. ''^ 

SRO Sponsored Arbitration Process 

A seciorities arbitration begins with the filing 
of a Statement of Claim with the relevant SRO.^" 
Upon receiving the claim, the staff of the SRO 
serve the documents on the named respondent,^' 
who then has an opportunity to file an Answer 

Section 1 applied only to those actually in the transportation 
industry"). 

*^ NYSE to Stop Hearing Discrimination Claims," Securities 
Week, Jan. 18, 1999, p. 14. See also "Arbitration; Firms Lose 
Options in Arb of Discrimination Claims," Compliance Re- 
porter, Jan. 4, 1999, p. 7. The NASD rule provides, in part 
that "a claim alleging employment discrimination, including 
a sexual harassment claim, in violation of a statute is not 
required to be arbitrated. Such a claim may be arbitrated 
only if the parties have agreed to arbitrate it, either before 
or after the dispute arose." National Association of Securi- 
ties Dealers, SEC Approves Rule Change Regarding Arbitra- 
tion of Statutory Employment Disputes; Effective January 1, 
1999 (visited Mar. 9, 1999) <http://wwvi'. nasd.com/notices/ 
9856ntm.txt>. In contrast, the NYSE rules provide, "A claim 
alleging employment discrimination, including any sexual 
harassment claim, in violation of a statute shall be eligible 
for arbitration only where the parties have agreed to arbi- 
trate the claim after it has arisen." NYSE to Stop Hearing 
Discrimination Claims," Securities Week, Jan. 18, 1999, p. 14. 

« See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S. 20 
(1991); see also Seus v. John Nuveen & Co., No. 146 F.3d 
175 (3d Cir. 1998). But see DufGeld v. Robertson Stephens & 
Co., 144 F.3d 1182, 1189-90 (9th Cir. 1998) (holding that the 
Civil Rights Act of 1991, which was enacted almost simulta- 
neously as Gilmer was decided, bars imposing mandatory 
arbitration as a condition of employment). In Gilmer the 
employee argued that mandatory arbitration conflicted with 
the purposes of the antidiscrimination statute at issue in 
part because the arbitration procedures followed by the 
NYSE were inadequate. See 500 U.S. at 30-32. The Su- 
preme Court described Gilmer's claims as "generalized at- 
tacks on arbitration" and concluded that Gilmer failed to 
show that the arbitration rules were inadequate. Id. at 30- 
31. The Court added that "the claimed procedural inadequa- 
cies . . . [are] best left for resolution in specific cases." Id. at 
33. Thus, the Court did not preclude a future complainant 
from "ris[ing] to the Supreme Court's challenge" by offering 
specific evidence about the NYSE arbitration system. 

50 NASD, Code of Arbitration Procedure, § 25(a); NYSE 
Rules, Rule 612(a), H 2612; see also Astarita, Overview, p. 2. 

51 NASD, Code of Arbitration Procedure, § 25(a); NYSE 
Rules, Rule 612(a), H 2612; see also Astarita, Overview, p. 2. 



or Counterclaim. 52 in the past, the director of 
arbitration for the SRO selected the arbitrator(s) 
who would decide the case.^^ However, in No- 
vember 1998, NASD Rule 10308 became effec- 
tive, allowing the arbitration parties to play a 
significant role in determining the arbitrators 
appointed to hear their dispute. ^^ 

After all claims and answers have been made, 
the parties may engage in prehearing discovery. 
Unlike in court proceedings where discovery is 
very broad, in arbitration the parties are only 
entitled to engage in limited discovery.^^ The 
rationale for limiting discovery is that "the in- 
tended purpose of arbitration ... is to provide 
speedy and cost efficient methods of resolving 
disputes. "^^ Thus, the Securities Industry Con- 
ference on Arbitration's Arbitrator's Manual 
states, "The effective use of discovery tools such 
as depositions rests in the careful exercise of 
judgment by the arbitrators. Care should be 
taken to avoid unnecessary expense or burdens 
to the parties and to avoid unnecessary delay ."^^ 



52 NASD, Code of Arbitration Procedure, § 25(b); NYSE 
Rules, Rule 612(c), H 2612; see also Astarita, Overview, p. 3. 

53 NASD, Code of Arbitration Procedure, § 20; NYSE Rules, 
Rule 608, H 2608. 

5'' See Order Granting Approval to Proposed Rule Change 
and Notice of Filing and Order Granting Accelerated Ap- 
proval to Amendment Nos. 3 and 4 to proposed Rule Change 
by the NASD Relating to the Selection of Arbitrators in Ar- 
bitrations Involving Public Customers, Securities and Ex- 
change Commission Release No. 34-40555, File No. SR- 
NASD-98-48 (Oct. 14, 1998) and Notice of Filing and Order 
Granting Accelerated Approval of Proposed Rule Change by 
NASD Relating to Extending the Arbitrator List Selection 
Method to Disputes Involving Members and Associated Per- 
sons, Securities and Exchange Commission Release No. 34- 
40556, File No. SR-NASD-98-64 (Oct. 14, 1998); see also 
National Association of Securities Dealers, New Arbitrator 
List Selection Rules and Monetary Thresholds For Simpli- 
fied And Single Arbitration Cases Take Effect <http:// 
www.nasd.com/notices 9890. txt>. 

55 Astarita, Overview, p. 4. While parties are encouraged to 
cooperate in the voluntary exchange of documents, there are 
occasions where the parties ask arbitrators to review and 
decide discovery disputes. Typically parties file a request for 
assistance pursuant to NASD Rule 10321(d) or 10321(e). On 
Apr. 16, 1999, the SEC published for comment the proposed 
NASD Regulation Discovery Guide. If approved, the Discov- 
ery Guide will streamline the production of essential docu- 
ments in arbitration. 

56 Ibid. 

5'' Securities Industry Conference on Arbitration, the Arbi- 
trator's Manual (May 1992) (hereafter cited as Arbitrator's 
Manual), p. 10. The American Arbitration Association takes 
a similar approach and provides that arbitrators may order 
"such discovery ... as the arbitrator considers necessary to 



179 



In the event that disputes arise, a single mem- 
ber of the arbitration panel, appointed to decide 
discovery disputes, can meet with the parties 
and make any necessary rulings. ^8 

The procedural phases of an arbitration 
hearing resemble a court trial in many ways.^^ 
The proceedings are conducted in the following 
order: each side presents opening statements; 
the claimant then introduces his or her evidence; 
the respondent presents his or her case; the 
claimant has an opportunity to present evidence 
in rebuttal; and the parties present closing ar- 
guments. ^° 

As in a trial, during the presentation of evi- 
dence at an arbitration hearing, parties take tes- 
timony from witnesses through direct and cross 
examination.^' In addition, evidence may be ad- 
mitted in the form of documents.^^ The greatest 
procedural difference between an arbitration 
hearing and a court trial is the body of eviden- 
tiary rules followed. Indeed, the NASD's Code of 
Arbitration Procedure specifically states that 
"arbitrators shall determine the materiality and 
relevance of any evidence proffered and shall not 
be bound by rules governing the admissibility of 
evidence."^'' As a result, in an arbitration hear- 
ing, the rules of evidence are apphed much more 

a full and fair exploration of the issues in dispute, consistent 
with the expedited nature of arbitration." American Arbitra- 
tion Association, National Rules for the Resolution of Em- 
ployment Disputes (1999), reprinted in American Arbitration 
Association, National Rules for the Resolution of Employ- 
ment Disputes (visited Mar. 9, 1999) <http://www.adr.org/ 
rules/employment_rules.html> (hereafter cited as AAA 
Rules), Rule 7. 

58 NASD, Code of Arbitration Procedure. § 32(e); NYSE 
Rules, Rule 619(e), H 2619; see also Astarita, Overview, p. 4. 
Arbitrators have the power to issue subpoenas or discovery 
orders requiring parties to disclose certain documents. See 
NASD, Code of Arbitration Procedure, § 32(e); NYSE Rules, 
Rule 619(0, 11 2619; see also Arbitrator's Manual, p. 14. 

'" Astarita, Overview, p. 5. 

GO Ibid. 

G' Ibid. In arbitration, however, the scope of cross examina- 
tion is more broad than in court proceedings because it is 
not limited to the scope of the direct examination. Ibid. An- 
other difference is that arbitrators may question the wit- 
nesses themselves. Ibid. 

62 Ibid. 

63 NASD, Code of Arbitration Procedure, § 34; see also NYSE 
Rules, Rule 620, 1| 2620. The American Arbitration Associa- 
tion rules are similar and provide, "The parties may offer 
such evidence as is relevant and material to the dispute .... 
The arbitrator shall be the judge of the relevance and mate- 
riality of the evidence offered, and conformity to legal rules 
of evidence shall not be necessary." AAA Rules, Rule 24. 



leniently than in court proceedings.^-* For exam- 
ple, hearsay^^ is often admitted*^^ and the rules 
relating to authenticity are not strictly en- 
forced.6" In addition, evidence is never excluded 
based on a Best Evidence Rule objection. ^^ 

An arbitrator renders his or her decision in 
the form of an "award. "^^ The award must be in 
writing,^" but the arbitrator is not required to 
provide a reason for the conclusion made.^' In 
fact, the final conclusion is often merely one sen- 
tence long.''2 

It should be noted, however, that there is a 
potential for review of an award in State or Fed- 
eral court. ''3 Nevertheless, a court is unlikely to 
overturn the award because courts grant great 



6'' Astarita, Overview, p. 6. 

65 "Hearsay evidence is testimony in court of a statement 
made out of the court, the statement being offered as an 
assertion to show the truth of matters asserted therein, and 
thus resting for its value upon the credibility of the out-of- 
court asserter." Black's Law Dictionary (5th ed., 1979), p. 649. 

66 Astarita, Overview, pp. 6-7. 

6' Ibid., p. 6. Proving authenticity entails offering evidence 
"sufficient to support a finding that the matter in question is 
what its proponent claims" it to be. FED. R. EVID. 901(a). 

6** Astarita, Overview, p. 6. The Best Evidence Rule may 
require, among other things, that the contents of a written 
document be proven by offering into evidence the document 
itself rather than by offering indirect proof such as oral tes- 
timony describing the document. See FED. R. EVID. 1002. 

69 Astarita, Overview, p. 7. 

™ NASD, Code of Arbitration Procedure, § 41(a); NYSE 
Rules, Rule 627(a), H 2627. 

'1 NASD, Code of Arbitration Procedure, § 41(e); m'SE 
Rules, Rule 627(e), 1 2627. In contrast, the American Arbi- 
tration Association rules do require that the award contain a 
written explanation for the finding. Rule 32 of the AAA 
Rules states, "The award shall be in writing and shall be 
signed by a majority of the arbitrators and shall provide the 
written reasons for the award unless the parties agree oth- 
erwise." AAA Rules, Rule 33(c). 

The NASD and the NYSE have adopted almost identical 
language requiring the awards to include the following in- 
formation: the names of the parties and the attorneys; a 
summary of the issues; the damages and other relief re- 
quested; the damages and other relief awarded; a statement 
of any other issues resolved; the names of the arbitrators; 
the dates the claim was filed and the award was rendered; 
the dates and number of hearing sessions; the location of the 
hearings; and the signatures of the arbitrators who con- 
curred in the award. NASD, Code of Arbitration Procedure, § 
41(e); NYSE Rules, Rule 627(e), H 2627. The NYSE rules, 
however, do not require the arbitrator to include a state- 
ment of the amount of damages or other relief sought by the 
claimant. NYSE Rules, Rule 627(e), H 2627. 

'2 Astarita, Overview, p. 7. 

" See 9 U.S.C. §§ 9-10 (1998); Astarita, Overview, p. 8. 



180 



deference to arbitration awards. ''■* Specifically, 
the Federal Arbitration Act states that a judge 
may set aside an arbitration award if the judge 
finds corruption, fraud, or undue means, 
"evident partiality," misconduct, or an act that 
shows the arbitrators exceeded their powers.''^ 
Moreover, a judge may modify or correct an arbi- 
tration award if there was an evident material 
miscalculation of figures or an evident material 
mistake in the description of a person, thing, or 
property referred to in the award; where the ar- 
bitrators awarded upon a matter not submitted 
to them; and where the award is imperfect in 
matter of form not affecting the merits of the 
controversy. "6 In addition, the courts have held 
that a judge may overturn an arbitration award 
upon finding a "manifest disregard" of the law.'''' 

Alleged Inadequacies of Discovery 
Procedures in SRO Sponsored Arbitration 

The hmitations on discovery rights are one 
focus of claimants' objections to the procedures 
used in SRO sponsored arbitration. For example, 
in Gilmer the plaintiff argued that because dis- 
covery is more limited in arbitration, it is harder 
for claimants to prove their allegations.''* 



'■• See, e.g., DiRussa v. Dean Witter Reynolds, Inc., 121 F.3d 
818, 822 (2d Cir. 1997), cert, denied, 118 S. Ct. 695 (1998) 
(upholding award that neglected to grant attorney's fees, 
even though attorney's fees are mandated under the appli- 
cable law, on the ground that there was no evidence that the 
arbitrator intentionally disregarded the law). At least one 
writer has argued that the courts should be granted broader 
grounds for vacating arbitration awards. See Manuszak, 
"Civil Rights Arbitration," pp. 429-31 (proposing an 
amendment to the Federal Arbitration Act to allow courts to 
vacate arbitration awards when "arbitrators have misap- 
plied or misinterpreted applicable law"). 

75 See 9 U.S.C. § 10 (1998). 

76 9U.S.C. § 11 (1998). 

" See Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Bob- 
ker, 808 F.2d 930, 933 (2d Cir. 1986). The second circuit 
emphasized the narrow nature of the grounds for review 
provided by the manifest disregard standard when it stated, 
"The term 'disregard' implies that the arbitrator appreciates 
the existence of a clearly governing legal principle but de- 
cides to ignore or pay no attention to it." Id. at 933. 

'8 See Gilmer, 500 U.S. at 31. The Supreme Court rejected 
this assertion and found that the discovery methods permit- 
ted, which included document production, depositions, sub- 
poenas, and information requests, were adequate. See id. 
The Court did recognize that discovery is more liberal in 
Federal court but stated that this fact was counterbalanced 
by the more flexible evidentiary rules followed in private 
arbitration. See id. 



Indeed, Jeffrey Liddle's testimony at the 
Commission's hearing supported this allega- 
tion. ''^ Mr. Liddle stated at the hearing that even 
though he has requested disclosure of EEO— l*" 
forms on approximately 150 occasions, he has 
never had an SRO arbitration panel overrule the 
employers' objections.*' 

Mr. Liddle explained that, in his opinion, the 
discovery rules are inadequate for employment 
discrimination cases because the procedural 
rules for securities arbitration were written with 
customer disputes, not employment discrimina- 
tion disputes, in mind.*^ However, Mr. Liddle did 
point out that the Arbitrator's Manual does ad- 
dress employment disputes directly .*3 The man- 
ual states that in employment cases the follow- 
ing items are often, though not always, disclosed 
by the employer: the employer's personnel rec- 
ords, the employee manual, employment con- 
tracts, the U-4 form, and the U-5 form.*'' Mr. 
Liddle stated, however, that the few documents 
mentioned in the manual are of little assistance 
to employees making a variety of employment 
discrimination claims. *5 He asserted that the 



™ Jeffrey Liddle, a partner at the New York City law firm of 
Liddle, Robinson & Shoemaker, has represented many secu- 
rities professionals in employment arbitration. Liddle Tes- 
timony, New York Hearing, vol. Ill, pp. 832-33. 

"" EEO-1 forms are used by the Equal Employment Oppor- 
tunity Commission to collect hiring and other employment 
data from employers. Ibid., pp. 844-45. 

*' Ibid., p. 845. However, Theodore Rogers, who has served 
as outside counsel to securities firms, has stated that "[i]n 
[his] personal experience dealing with discovery disputes, 
when one side claims that the other side's requests are too 
broad or out of bounds, the [New York Stock] Exchange has 
been, if anything, erring on the side of giving the claimant 
more information than reasonably could be considered use- 
ful." See "Symposium: New York Stock Exchange, Inc. Sym- 
posium on Arbitration in the Securities Industry," Fordham 
Law Review, vol. 63 (1995), pp. 1613, 1621 (hereafter cited 
as NYSE Symposium). 

82 Liddle Testimony, New York Hearing, vol. Ill, p. 865; see 
also Walker Testimony, New York Hearing, vol. Ill, p. 933 
(stating that the arbitration rules have traditionally focused 
on customer disputes). 

83 Liddle Testimony, New York Hearing, vol. Ill, p. 864. 

"^ Arbitrator's Manual, pp. 11-12. The U-5 form sets forth 
the reason(s) why a registered representative ceased work- 
ing for a particular investment firm. See National Associa- 
tion of Investment Professionals, Definitions (visited Jan. 8, 
1998) <http://www.naip.com/definitions.htm>. 

85 Liddle Testimony, New York Hearing, vol. Ill, pp. 864-65. 
Specifically, Mr. Liddle stated that the documents listed 
would be of no assistance to a "female proceeding under the 
Equal Pay Act in establishing comparability of job titles and 
then getting the comparable compensation information. It 



181 



body of Federal case law that sets forth princi- 
ples of relevancy for discrimination cases would 
be useful for arbitration. ^6 

Mr. Liddle added that discovery hmitations 
are exacerbated by employers' "constant effort to 
suppress and conceal information."*" He de- 
scribed the typical discovery process by stating 
that employers defending a claim before an arbi- 
trator: 

start out [by] saying, we won't produce any docu- 
ments. . . . Then, after that's discussed, then [they] 
say, okay, we have an objection to every one of these 
documents that has been requested because none of 
them are relevant. So, you get people who are essen- 
tially laymen with regard to their understanding of 
race discrimination and they hear two arguments 
and, you know, it's a coin flip. Fifty percent of the 
time they are going to say, well, I don't want to dump 
on that guy aU the time, so I'll give him half of these 
things. . . . 

[Tjhen they say, okay, now that we have to produce 
just a smidgen of documents that have been re- 
quested, we can't possibly produce the whole docu- 
ment, we'll produce only those portions that directly 
describe race discrimination, so they'll take ... [a 
document that originally was about 48 pages long 
and] . . . they will give you two paragraphs. ... So, it's 
a very frustrating process.** 

These concerns are of grave importance be- 
cause a successful arbitration forum should al- 
low "a full and fair exploration of the issues in 
dispute" while safeguarding "the expedited na- 
ture of arbitration."*^ 

Composition of Arbitration Panels 

Another procedural issue that has raised the 
concern of employees' advocates is the composi- 
tion of arbitration panels. One advocate for em- 
ployees described how she saw the problem 
when she said: 

You know, it really is a perception of fairness as well 
as the actual fairness. It is very hard to judge fair- 
ness. But you are going to feel better if you have an 

does nothing with regard to making pattern and practice 
claims in a race discrimination case. A substantially greater 
amount of documentation is necessary." Ibid., p. 865. 

86 Ibid., p. 863. 

87 Ibid., p. 839. 

88 Ibid., pp. 872-73. 

89 AAA Rules, Rule 7. 



arbitrator who is prepared to listen to your legal ar- 
guments, who is prepared to hear them, who is pre- 
pared to act as if he's heard this stuff before. It would 
go a long way to making you feel, well, "Maybe I'm 
not in the wrong place after all. "3*' 

Both the NASD Code of Arbitration Proce- 
dure^^ and the N^'SE rules^^ contain procedures 
that allow parties to have some input on the ul- 
timate selection of an arbitrator to decide the 
particular case. Nevertheless, arbitration oppo- 
nents argue, the apparently homogeneous com- 
position of the pool from which arbitrators are 
selected hmits the ability of these procedures to 
protect claimants' rights. 

The Pool from which Arbitrators are Selected 

The two central objections to the makeup of 
the pool of arbitrators are that the pool lacks 
diversity and the arbitrators lack sufficient 
knowledge of employment discrimination law. 

Racial and Gender Composition of the 
Pool. Employees' advocates argue that the ho- 
mogeneous composition of the pool of arbitrators 
creates great potential for bias against minority 
and women employees bringing claims of dis- 
crimination.93 In Gilmer v. Interstate /Johjison,^* 
the Supreme Court addressed this issue and 
"'decline [d] to indulge the presumption that the 
parties and arbitral body conducting a proceed- 
ing will be unable or unwilhng to retain compe- 
tent, conscientious and impartial arbitrators."'^^ 
In addition, the Court found that the NYSE 
rules provided adequate safeguards against the 
evidence of any potential for bias.^^ 



90 NTi'SE Symposium, p. 1627. 

9' NASD, Code of Arbitration Procedure, § 22. 

92 m'SE Rules, Rule 609, 11 2609. 

93 See Evan J. Charkes, "Arbitration Update: Employment 
Discrimination in the Securities Industry," New York Law 
Journal, May 22, 1997, reprinted in Law Journal Extra! 
(visited Dec. 18, 1997) <http;//www. ljx.com/practice/securities/ 
0522empsecdsc.html>, p. 2 (citing the arguments made by 
critics of the securities arbitration process). 

94 500 U.S. 20 (1991). 

95 Id. at 30 (quoting Mitsubishi Motors Corp. v. Soler 
Chrysler-Plymouth, Inc., 473 U.S. 614, 634 (1985)). 

96 See Gilmer, 500 U.S. at 30-31. The NYSE rules high- 
lighted by the Court were the following; (1) the requirement 
that the arbitrators submit their employment histories to 
the parties; (2) the allowance of one peremptory challenge 
and unlimited challenges for cause to each party; and (3) the 
mandatory disclosure by the arbitrators of any circumstance 



182 



Nevertheless, information presented in the 
1994 report written by the U.S. General Ac- 
counting Office provides support for the claim 
that the composition of the pool of arbitrators is 
unbalanced.9'' For instance, the GAO found that 
most arbitrators for the NYSE^* were white 
males.s^ Specifically, an estimated 89 percent of 
the NYSE arbitrators were men and approxi- 
mately 97 percent were white. i"" On the other 
hand, only 0.9 percent were African American, 
0.6 percent were Asian American, and 1 percent 
were other minorities. i"! 

The Arbitrator's Manual states that "even an 
appearance of confUct might render a decision 
suspect. It cannot be emphasized enough that 
arbitrators must be free in fact and in appear- 
ance from all bias and prejudice."i''2 Neverthe- 
less, the Commission staff could find no explicit 
poUcy of NASD or NYSE that requires the pool 
of arbitrators to be diverse. 1°^ In contrast, the 
American Arbitration Association explicitly re- 
quires that its pool of arbitrators remains bal- 
anced. Its National Rules for the Resolution of 
Employment Disputes states, "The roster of 
available arbitrators will be established on a 



that could prevent the arbitrator from rendering a fair deci- 
sion. See id. at 30. 
" 1994 GAO Report, p. 8. 

98 The GAO report did not hst data for the demographic 
composition of NASD panels but suggests they would be 
similar to the makeup of the NYSE panels. Ibid., p. 9. 

93 Ibid., p. 8. 
"» Ibid. 
10' Ibid. 

'02 Arbitrator's Manual, p. 3. 

i"'' The only reference to diversity is contained in an infor- 
mational brochure for potential arbitrators. The brochure 
states that "NASD Regulation arbitrators are carefully se- 
lected from a broad cross-section of people, diverse in cul- 
ture, profession, and background." NASD Regulation Office 
of Dispute Resolution, Become an Arbitrator (visited Mar. 9, 
1999) <http://www.nasdr.com/pdf-text/arbbro.txt> (hereafter 
cited as NASD, Become an Arbitrator), p. 1. In May 1997, 
NASD Regulation hired two recruitment administrators 
specifically responsible for the national recruitment effort. A 
primary focus of the recruiters' efforts has been the increase 
of female and minority arbitrators. Currently, the roster is 
composed of 5. .5 percent minorities and 17.4 percent women. 
Linda D. Fienberg, executive vice president. Office of Dis- 
pute Resolution, and George H. Friedman, senior vice presi- 
dent, Office of Dispute Resolution, NASD Regulation, Inc., 
Dispute Resolution, to Edward Hailes, deputy general coun- 
sel, U.S. Commission on Civil Rights, May 11, 1999, U.S. 
Commission on Civil Rights files (hereafter cited as NASD 
Regulation, Inc., letter). 



non-discriminatory basis, diverse by gender, 
ethnicity, background and qualifications." i"'' 

Professional Background and Knowledge 
of Arbitrators in the Pool. Another objection 
to the composition of the pool from which arbi- 
trators are selected is the assertion that the 
qualifications needed to become an arbitrator 
are inadequate. Specifically, employment dis- 
crimination plaintiffs complain that the arbitra- 
tors lack sufficient knowledge of employment 
discrimination issues. '"^ 

An online informational brochure discussing 
the qualifications necessary to become a securi- 
ties arbitrator states: 

The NASD Regulation Office of Dispute Resolution 
relies on a roster of neutral, qualified arbitrators to 
help maintain its fair, impartial, and efficient system 
of dispute resolution. NASD Regulation arbitrators 
are carefully selected firom a broad cross-section of 
people, diverse in culture, profession, and back- 
ground. . . . Our goal is to recruit arbitrators from 
different backgrounds, such as educators, account- 
ants, lawyers, business and securities professionals, 
and others. So, if you have at least five years of busi- 
ness, professional, investing, or other related experi- 
ence, you may qualify. '"^ 

To apply to become a NASD arbitrator, an 
applicant must provide NASD with information 
regarding educational background, work experi- 
ence, knowledge of the securities industry, and 
any other qualifications. i<" Based upon the in- 
formation provided, the NYSE and the NASD 
decide on a case-by-case basis whether the appli- 
cant is initially qualified to serve as an arbitra- 
tor, los 



'0'' AAA Rules, Rule ll(a)(iii); see also Lucille M. Ponte, "In 
the Shadow of Gilmer: How Post-Gt7mer Legal Challenges to 
Pre-Dispute Arbitration Agreements Point the Way Towards 
Greater Fairness in Employment Arbitration," Ohio State 
Journal on Dispute Resolution, vol. 12 (1997), pp. 359, 385 
(stating that "any fair process should focus on the quality 
and diversity of the arbitral panel"). 

'05 Charkes, "Arbitration Update," p. 2; Mark J. Astarita, 
"Mandatory Arbitration," Research Magazine, August 1997, 
reprinted in SEC LAW.com (visited Dec. 18, 1997) <http:// 
www.seclaw.com/docs/897.htm>, p. 1. 

106 NASD, Become an Arbitrator, p. 1 <http://www.nasdr. 
com/arbbro.txt>. 

'(" NASD Arbitration, Arbitrator Profile (June 21, 1994) 
(hereafter cited as NASD Arbitrator Profile); see also 1994 
GAO Report, p. 5. 

'"« 1994 GAO Report, p. 5. NASD Regulation guidelines 
require an applicant to demonstrate 5 to 8 years of business, 
professional, investing, or other related experience to be 



183 



Robert Clemente, director of arbitration of 
the NYSE, was asked at the hearing to comment 
on the requirements to become an arbitrator for 
the NYSE. Mr. Clemente stated that "there is no 
requirement [for] arbitrators to be knowledge- 
able in any particular law when they come into 
the hearing room.""'^ In addition, he said that "a 
good percentage of [NYSE's] arbitrators are in- 
volved in the legal field, probably followed by 
accounting, other financial areas, but we also 
include doctors and academicians." ''° Mr. 
Clemente added that the NYSE has begun "to 
implement . . . training programs in the area of 
employment and labor disputes."^" 

The Commission is unaware of any require- 
ment, at the NASD or the NYSE, that the arbi- 
trator pools contain a minimum number of arbi- 
trators with expertise in employment law.^'^ j^ 



accepted into NASD Regulation's pool. Applicants must also 
disclose their disciplinary history, which NASD Regulation 
will review to determine if any statutory disqualification 
standards apply. Recommended applications are then for- 
warded to the National Arbitration and Mediation Commit- 
tee's Qualifications Subcommittee, a standing committee of 
NASD Regulation, for its review and approval. NASD 
Regulation, Inc., letter. 

'"8 Robert Clemente, director of arbitration of the NYSE, 
testimony before the U.S. Commission on Civil Rights, 
hearing. New York, NY, Sept 19-21, 1994, vol. Ill, p. 946 
(hereafter cited as Clemente Testimony). 

""Ibid., p. 949. 

'" Ibid., p. 938. One defender of the securities arbitration 
process argued that arbitrators are no more ill-suited to 
decide employment discrimination cases than jurors. See 
NYSE Symposium, p. 1620 ("Those who criticize the sup- 
posed lack of legal training by arbitrators ignore the fact 
that juries have no training in discrimination law, and there 
is no reason to suppose that a judge's instruction to a jury 
concerning the law leaves the jury any more informed on 
these issues than arbitrators who have received some 
training and have the benefit of the competing arguments 
and evidence submitted by counsel"). 

"2 It should be noted that the NASD has proposed some 
enhancements to the process of arbitrating employment 
discrimination claims. These proposals have not yet been 
accepted by the SEC. In regard to employment discrimina- 
tion disputes, the NASD has proposed that arbitrators se- 
lected to serve as single arbitrators, or chairs of three- 
person panels, should have substantial familiarity with em- 
ployment law. NASD, Proposed Rule, Rule Filing SR-NASD- 
99-08 § 10210 (the proposed rule is not yet published in the 
Federal Register and is subject to amendment before it be- 
comes effective). Furthermore, under the proposed rule, 
arbitrators selected to serve as single arbitrators, or chairs 
of three-person panels, may not have represented primarily 
the views of employers or of employees within the last 5 
years. Ibid. Though not in its proposed rule, the NASD has 
also announced its intention to develop a specialized em- 



contrast, the American Arbitration Association, 
in its National Rules for the Resolution of Em- 
ployment Disputes, has adopted a requirement 
that its pool of employment arbitrators have 
adequate expertise. The AAA rules state, 
"Arbitrators serving under these rules shall be 
experienced in the field of employment law.""^ 

Composition of Individual Arbitration Panels 

Advocates for employees argue that due to 
the composition of the pool from which arbitra- 
tors are selected, the arbitrators chosen to decide 
individual employment discrimination cases lack 
adequate training and may even be biased 
against minorities and women. These advocates 
recognize that the arbitration procedures con- 
tain certain procedural safeguards to protect 
against bias but assert that the current protec- 
tions are inadequate. ^^^ 

Rules Governing the Selection of Arbitra- 
tors for Individual Cases. Under the NYSE 
arbitration rules, the director of arbitration is to 
assign an arbitrator to the case after the State- 
ment of Claim has been filed. "^ The NASD im- 



ployment case roster of arbitrators with training and experi- 
ence in discrimination law. PR Newswire, Oct. 8, 1998. 

"I AAA Rules, Rule ll(a)(i). 

'" See, e.g., Rosenberg v. Merrill Lynch, Pierce, Fenner & 
Smith, Inc., 995 F. Supp. 190, 210-11 (D. Mass. 1998) affd 
1G3 F.3d 53 (1st Cir. 1998), modified by 1999 U.S. App. 
LEXIS 3441 (1st Cir. Feb. 24, 1999). In Rosenberg, the court 
stated that the procedural protections "cannot correct the 
fundamental imbalance in a system in which the entire ini- 
tial panel and any replacements are appointed by the Direc- 
tor of Arbitration, that is, by an employee of the NYSE," 
which is "the employer's own trade association." Id. The 
court stated, "Dominance of an arbitral system by one side 
in the dispute does not comport with any model of arbitral 
impartiality, especially when that dominance takes the form 
of selecting the entire arbitrator pool, appointing the indi- 
vidual arbitration panels, and making important procedural 
and discovery decisions." W. at 211. On appeal, however, the 
United States Court of Appeals for the First Circuit, though 
affirming the lower court, disagreed with the district court's 
rationale. Rosenberg v. Merrill Lynch, Pierce, Fenner & 
Smith, Inc., 163 F.3d 53, 56 (1st Cir. 1998), modified by 
1999 U.S. App. LEXIS 3441 (1st Cir. Feb. 24, 1999). Specifi- 
cally, the appeals court stated that the district court misin- 
terpreted certain facts about the NYSE's arbitration system 
and mischaracterized the system. Id. at 67 (1st Cir. 1998). 

"5 NYSE Rules, Rule 608, 1 2608. In contrast, the American 
Arbitration Association allows the parties to choose an arbi- 
trator from a list of the registered arbitrators in the parties' 
geographical region. AAA Rules, Rule 12(b). The AAA only 
reserves the power to appoint the arbitrator in the event 
that the parties cannot reach an agreement on an acceptable 
arbitrator to hear the case. AAA Rules, Rule 12(b)(iv). 



184 



plemented a new list selection procedure that 
became effective in November 1998. '^^ Under the 
new policy, parties select arbitrators through a 
computerized process called the Neutral List 
Selection System (NLSS). This new system gen- 
erates lists of arbitrators by sorting or screening 
arbitrators according to four primary factors: 
public or nonpublic classification, geographic 
hearing location, conflict of interest with the 
parties, and roster rotation. If a party requests 
that the hsts include arbitrators with subject- 
matter knowledge, such as employment law, 
NLSS will add this factor when it searches for 
arbitrators.!'^ 

In every arbitration case, parties receive a 
Ust of up to 15 potential arbitrators. Accompa- 
nying that list is a detailed disclosure statement 
for each arbitrator. These disclosure statements 
include the arbitrator's educational history, em- 
ployment background, a hst of training pro- 
grams completed, a narrative description of the 
arbitrator's experience, plus a history of the ar- 
bitrator's case experience. Parties may request 
copies of prior arbitration decisions of these per- 
sons and may ask the arbitrators to provide ad- 
ditional information.*!^ 

Parties may strike any arbitrator and rank 
the remaining arbitrators according to the 
party's preference. NLSS combines the parties' 
preferences and produces a consolidated list of 
arbitrators in order of their consolidated rank- 
ings. (Any arbitrator stricken from a list by any 
party does not receive a consolidated ranking.) 
The director then appoints the arbitrator or arbi- 
tration panel based on the consolidated list.''^ 

In employment discrimination cases before 
the NASD, 120 the arbitrator appointed must be a 
"public" arbitrator, one who is not affiliated with 
the securities industry. '^i In certain cases, if a 



"6 NASD Rule 10308, effective Nov. 17, 1998. 

'" NASD Regulation, Inc., letter. 

"8 Ibid. 

I 'a Ibid. 

120 The NYSE rules do not make separate provisions for 

employment disputes. See NYSE Rules, Rule 630, 1 2630 

("The provisions of the Uniform Arbitration Code contained 

in Rules 600 to 629 shall also apply to controversies between 

members . . ."). 

'21 NASD, Code of Arbitration Procedure, §§ 9(a), 13(0, 19. 
An arbitrator is affiliated with the securities industry if he 
or she is associated with a securities firm or has been within 
the last 3 years, is retired from a securities firm, is another 
professional who has devoted at least 20 percent of his or 



party so requests, the director of arbitration 
must appoint a panel of three arbitrators, the 
majority of which must be public arbitrators. '-- 
The requirement that the arbitrators be public is 
imposed to avoid an appearance that the panel 
may be biased in favor of the industry. '23 

Composition of Individual Panels. Mr. 
Liddle testified at the Commission hearing that 
the chance of an employee obtaining a panel 
with a female or minority arbitrator is very 
shm.!24 This is because very few arbitrators in 
the entire pool of arbitrators are women or 
members of minority groups. '^s In addition, even 
if a woman or minority arbitrator is initially ap- 
pointed to a panel, he or she may not remain on 
the panel due to peremptory challenges. As a 
result, almost all arbitration panels are com- 
posed entirely of white males. '^6 

The Commission is unaware of any rules at 
the NYSE or the NASD requiring that the pan- 
els chosen to decide employment discrimination 
cases be diverse. 

Consideration of Arbitrators' Expertise. 
In its 1994 report, the GAO found that "NYSE 
and NASD do not necessarily consider, as a pri- 
mary criterion for arbitration panel selections, 
arbitrators' expertise in the subject matter of the 
dispute. In fact, NYSE and NASD arbitration 
staff do not routinely assess the expertise of the 
members of their arbitrator pools." '^^ As a result, 
GAO recommended that the SEC "direct [the] 
SROs to . . . assess and maintain information on 
arbitrators' expertise and use this information 
when selecting arbitrators to serve on panels, 
especially those deciding discrimination dis- 



her work to securities industry clients, or is registered pur- 
suant to the Commodity Exchange Act. Ibid., § 19(c); NYSE 
Rules, Rule 607(a)(2), M 2607. The NYSE rules differ in that 
an arbitrator is from the industry if he or she has been af- 
filiated with a member firm within the last 5 years. NYSE 
Rules, Rule 607(a)(2)(ii), 1 2607. 

122 NASD, Code of Arbitration Procedure, § 19(a); NYSE 
Rules, Rule 607(a)(1), H 2607. 

123 Megan L. Dunphy, "Comment: Mandatory Arbitration: 
Stripping Securities Industry Employees of their Civil 
Rights," Catholic University Law Review, vol. 44 (1995), pp. 
1169, 1196. 

■21 Liddle Testimony, New York Hearing, vol. Ill, pp. 848- 
49. 

125 Ibid. 

126 Ibid., p. 849. 

127 1994 GAO Report, p. 12. 



185 



putes."'28 The SEC has yet to adopt this recom- 
mendation. 

Robert Clemente, director of the Arbitration 
Division for the NYSE, testified at the hearing 
that the NYSE had begun to address all of the 
recommendations in the GAO report, including 
the recommendation that the NYSE use an arbi- 
trator's knowledge of employment discrimination 
law as a criterion when determining whether the 
arbitrator will serve on an employment dis- 
crimination panel. '29 jn addition, the NYSE had 
amended its arbitrator profile to include infor- 
mation regarding an arbitrator's substantive 
area of expertise. i^o 

Mr. Clemente stated that NYSE tries "to se- 
lect arbitrators that are knowledgeable or have 
famiUarity with the issues involved in the 
case."i3i Mr. Clemente added that "[a] number of 
[NYSE's] arbitrators are individuals who have 
become somewhat full-time arbitrator-mediators 
and are focused in the employment or the labor 
field, in labor arbitration." '^^ 

NASD Regulation guidehnes require an ap- 
phcant to demonstrate 5 to 8 years of business, 
professional, investing, or other related experi- 
ence to be accepted into NASD Regulation's pool 
of arbitrators. The application form asks for a 
complete education and employment history, 
plus a listing of relevant training. Applicants 
must supply two letters of reference and indicate 
any experience or expertise related to various 
securities-related controversies, '^s 



'28 Ibid., p. 16. 

•23 Clemente Testimony, New York Hearing, vol. Ill, p. 938. 

'•■'0 Ibid. The June 21, 1994, version of the NASD Arbitrator 
Profile allows an applicant to indicate whether he or she has 
expertise in employment discrimination or sexual harass- 
ment disputes. See NASD Arbitrator Profile, p. 11. 

'■" Clemente Testimony, New York Hearing, vol. Ill, p. 946. 

'32 Ibid., p. 950. 

'W NASD Regulation, Inc., letter. In addition, the applica- 
tion form asks arbitrators to indicate any or all of the fol- 
lowing employment law areas of expertise: breach of con- 
tract, commissions, compensation, age discrimination, dis- 
ability discrimination, gender discrimination, national origin 
discrimination, race discrimination, religious discrimination, 
sexual preference discrimination, partnerships, promissory 
notes, sexual harassment, training contracts, and wrongful 
termination. Ibid. 



Arbitration Awards in Employment 
Discrimination Cases 

An additional objection to arbitration proce- 
dures focuses on the outcomes: some advocates 
argue that employers are more likely to prevail 
in SRO sponsored arbitration and that even 
when employees do prevail, the awards granted 
are smaller in arbitration than in jury trials. '^■' 
Other advocates, however, argue that employees 
actuaUy fare better in arbitration than in Fed- 
eral court. '35 The Commission asked the NASD 
and the NYSE to provide information on the re- 
sults of the employment discrimination arbitra- 
tions they conducted. 

Awards Finding Employers Liable 

Mr. Clemente testified at the hearing that 
during the period between January 1, 1990, and 
June 30, 1994, a total of 5,415 arbitrations were 
conducted at the NYSE. '36 Of those, only 43 con- 
tained allegations of discrimination. '^^ Most of 
the discrimination claims alleged gender and age 
discrimination. '38 Only one claim alleged racial 
discrimination, and only one claimed discrimina- 
tion based on national origin. '39 

The NYSE later reported that during the pe- 
riod between January 1, 1990, and December 31, 
1994, a total of 58 cases containing allegations of 
employment discrimination were filed with 
NYSE.''"' Of those cases, 33 actually completed 



'3'' See Daniel S. Levine, Inhuman Relations Dept.: NASD 
Sheds Mandatory Arbitration For Victims Of Discrimination 
flast modified Aug. 12, 1997) <http://www.disgruntled.com/ 
nasdarb897.html>, p. 2 (citing a 1995 study of arbitration 
awards in employment disputes in the securities industry). 

'■'* See John Coffee, Jr., "Sex and the Securities Industry," 
New York Law Journal, May 29, 1997, reprinted in Law 
Journal Extra! (visited Dec. 22, 1997) <http://www.ljx.com/ 
practice/securities/0529sexsec.html>, p. 3 (citing a study 
conducted by the Securities Industry Association which 
found that employees were victorious in 26 percent of cases 
before NASD and 41 percent of cases before NYSE, com- 
pared with 19 percent of cases litigated in the Southern 
District of New York). 
'36 Clemente Testimony, New York Hearing, vol. Ill, p. 954. 

'3' Ibid. Mr. Clemente testified that only 40 alleged dis- 
crimination, but in a subsequent letter to the Commission, 
Paula R. Union, senior arbitration counsel for the NYSE, 
corrected the data previously provided. See Paula R. Union 
to Eileen E. Rudert, Mar. 3, 1995, U.S. Commission on Civil 
Rights files (hereafter cited as Union Letter). 
'38 Clemente Testimony, New York Hearing, vol. Ill, pp. 
954-55. 
'39 Ibid., p. 955. 
'■fo Union Letter. 



186 



the arbitration process; the others were either 
settled, withdrawn, or closed for inactivity. •■" 
NYSE reported that 15 of the 33 cases were dis- 
missed. ^^^ Of the 18 cases in which awards were 
granted, 5 cases involved multiple claims, and 
the discrimination claims were denied. i^^ Thus, 
the information indicates that approximately 20 
of the 33 discrimination claims were denied. '■'•* 

NASD records indicate that the total number 
of arbitration cases closed at NASD during the 5- 
year period from 1990 through 1994 was 
21, 319.145 Of those cases, only 63 alleged dis- 
crimination based on "color, race, sex, or na- 
tional origin."i''s NASD reported that the arbi- 
tration process was completed for 19 of the 63 
cases. i"*^ Of the 19 cases that arbitrators decided. 



'■" Ibid. 

1^2 Ibid. 

'« Ibid. 

I"'" Ibid. 

'■•^ Susie Miao, National Association of Securities Dealers, 
"Arbitration Department's response to an inquiry by the 
United States Commission on Civil Rights," July 26, 1995, 
filed as Exhibit 42 of the Commission's record of the July 26, 
1995, Commission Hearing, Racial and Ethnic Tensions in 
American Communities: Poverty, Inequality, and Discrimi- 
nation (hereafter cited as NASD Submission to Commis- 
sion). Specifically, the report indicated that the number of 
cases for each year was the following: 1990 — 4,019; 1991 — 
4,036; 1992—4,375; 1993—4327; 1994—^562. Ibid. 

'■fs Ibid. NASD records actually indicate that only 60 cases 
alleged discrimination. Ibid. However, one of the discrimina- 
tion arbitrations involved the resolution of four separate 
claims. Ibid. For purposes of reporting the outcomes of the 
total number of discrimination cases, the single arbitration 
of four cases is treated here as four separate arbitrations. 
Since 1994 the number of arbitration claims, and specifi- 
cally, the number of claims alleging employment discrimina- 
tion, has increased. NASD reported that in 1996, 109 of its 
5,631 arbitrations involved allegations of employment dis- 
crimination. National Association of Securities Dealers, 
NASD Press Release: NASD Proposes Eliminating Manda- 
tory Arbitration Of Employment Discrimination Claims For 
Registered Brokers flast modified Aug. 7, 1997) <http://www. 
nasdaqnews.com/news/pr/ne_section97_52.html> (hereafter 
cited as NASD Press Release), p. 1. 

'^^ NASD records actually report that 16 arbitrations were 
completed. NASD Submission to Commission. However, as 
noted above, one of the cases reported by NASD was a joint 
Statement of Claim brought by four claimants. Ibid. The 
arbitrator awarded damages to one of the four claimants 
and denied the other three claims. Ibid. Because the case 
involved four separate complainants it is treated here as 
four separate arbitrations. Of the remaining cases, 9 were 
withdrawn by the claimants, 32 were settled before the arbi- 
trations were completed, and 3 were terminated for other 
reasons ("Forum Denied, Case Stayed, and Case Information 
Deficient"). Ibid. 



employers were held liable in 6 cases. '■'^ In most 
of the other 13 cases, the claims were simply 
dismissed. '-"s 

The above figures indicate that approxi- 
mately 39 percent of the discrimination claims 
arbitrated at the NYSE resulted in awards for 
the claimant. At the NASD, approximately 32 
percent of the claimants were victorious. 

Amounts Awarded to Victorious Claimants 

Jeffrey Liddle, an attorney who has repre- 
sented a number of employment discrimination 
plaintiffs in securities arbitration cases, testified 
at the hearing that plaintiffs who obtain awards 
usually are only awarded 40 to 60 percent of the 
amount they sought in their complaints. '5'' He 
characterized the arbitration awards as "lower 
than normal. "151 Mr. Liddle described what he 
perceives to be a problem in the determination of 
the amounts of awards by arbitrators as follows: 

[The arbitrators] wrestle probably with the concept of 
liability and then my impression is that generally 
they negotiate the amount of damages, whereas in a 
court it's most likely that once the liability has been 
established, the amount of damages is measured in 
accordance with generally accepted legal principles as 
to how damage has been measured .... But in arbi- 
tration panels it's more like after you've overcome this 
major hurdle of liability, you've got a negotiation go- 
ing on among the panelists and a lower than normal 
award coming out.i^^ 

One "leading advocate[ ] of employees in dis- 
crimination cases,"i53 Judith Vladeck, has de- 
scribed the arbitration system as follows: 

If I take a [claimant] into the federal court who has a 
legitimate, meritorious case of discrimination, she is 
entitled to certain protection, she is entitled to a fair 
hearing, entitled to due process. If she wins, she gets 
whatever money she's lost in back wages, she gets 
enough in attorneys' fees so that she nets whatever it 
is of the damages provided, and if she has suffered 
emotional distress, under the Act she can get dam- 
ages for that. Go into arbitration, even if you win they 



i^** Ibid. The awards for two of the cases were not provided 
to the Commission. Ibid. 

i« Ibid. 

'SO Liddle Testimony, Neu) York Hearing, vol. Ill, p. 868. 

'5' Ibid., p. 869. 

'52 Ibid. 

'" NYSE Symposium, p. 1613. 



187 



give you, say, twenty dollars with no explanation, no 
attorneys' fees, no compensation for emotional dis- 
tress. '-^^ 

Documents submitted by NYSE indicate that 
three of the victorious claimants before the 
NYSE each were awarded $562,500, $765,321, 
and $240,000,155 Because the remaining 10 cases 
involved multiple claims, the NTSE was unable 
to determine the amounts of the total awards 
that were attributable to the discrimination 
claims. '56 Claimants who won their cases at the 
NASD were awarded amounts ranging from 
$8,832.58 to $380,835,157 However, because 
many of the cases involved multiple claims, it is 
impossible to determine the amounts awarded 
for the discrimination violations. '58 

The evidence submitted to the Commission 
does not conclusively prove which parties, em- 
ployers or employees, fare better in SRO spon- 
sored arbitration. However, if the goals of pro- 
viding a fair and cost-efficient tribunal are met, 
both parties should fare better in arbitration 
than in court. 

Institutional Responses to Concerns 

Since the New York hearing, several reforms 
were proposed and two critical reforms have 
taken effect. 

On January 21, 1997, U.S. Senator Russell 
Feingold introduced a bill to amend seven major 
Federal civil rights statutes to prevent the in- 
voluntary application of arbitration claims that 
arise from unlawful discrimination based on 
race, color, reUgion, sex, national origin, age, or 



'54 Ibid., p. 1625. 

'■■''' Union Letter. 

'■'>'' Ibid. The total award amounts in those cases were 
$61,950, $38,000, $12,000, $45,000, $475,000, $60,750, 
$75,000, $68,000, $114,668, and $34,908.10. Ibid. 

'S'' See NASD Submission to Commission. 

"'* Ibid. Critics of the arbitration process have argued that 
the failure of arbitrators to provide written explanations for 
their findings undermines the enforcement of the antidis- 
crimination statutes. See, e.g., Equal Employment Opportu- 
nity Commission, "EEOC Notice Number 915.002," July 10, 
1997, reprinted in EEOC Notice Number 915.002 (visited 
Dec. 15, 1997) <http://www.eeoc. gov/docs/mandarb.t.\t> 
(hereafter cited as EEOC Notice), p. 6. Indeed, as noted 
above, the American Arbitration Association requires that 
its arbitrators provide a written explanation of the reasons 
for each award in employment disputes. AAA Rules, Rule 
34(c). 



disability. '59 U.S. Representative Edward Mar- 
key introduced a companion bill in the House on 
March 6, 1997. '^o The bills would have amended 
title VII of the Civil Rights Act of 1964, 'si the 
Age Discrimination in Employment Act,'62 the 
Rehabilitation Services Act,'63 the Americans 
with Disabilities Act,'^^ section 1981, '^5 the 
equal pay requirement in the Fair Labor Stan- 
dards Act, '6^ and the Family and Medical Leave 
Act. '6'' The bills would have, in effect, prohibited 
an agreement to arbitrate claims arising under 
the aforementioned acts when such an agree- 
ment is entered into prior to the cause of action 
arising. '68 An agreement to arbitrate one of 
these claims that is entered into after the cause 
of action arose would have been unaffected by 
these bills. Both bills were referred to committee 
during the 105th Congress;'^^ no floor action was 
taken on either bill. 

NASD also made efforts to understand the is- 
sue and implement reform.''"' In the process of 



'M See Civil Rights Procedures Protection Act of 1997, S. 63, 
105th Cong., IstSess. (1997). 

160 See Civil Rights Procedures Protection Act of 1997, H.R. 
983, 105th Cong., 1st Sess. (1997); 143 Cong. Rec. E407 
(daily ed. Mar. 6, 1997) (statement of Rep. Markey). 

161 42 U.S.C. §§ 2000e-2000e-17 (1994). 

162 29 U.S.C. §§ 621-634 (1985). 
'63 29 U.S.C. §§ 701-796i (1985). 

16-1 42 U.S.C. §§ 12101-12213 (1995). 

'65 42 U.S.C. § 1981 (1994). 

166 29 U.S.C. § 206(d) (1978). 

'67 29 U.S.C. §§ 2601-2654 (1998). 

168 See Civil Rights Procedures Protection Act of 1997, S. 63, 
105th Cong., 1st Sess. (1997); Civil Rights Procedures Pro- 
tection Act of 1997, H.R. 983, 105th Cong., 1st Sess. (1997). 
'69 See 143 Cong. Rec. S160 (daily ed. Jan. 21, 1997); 143 
Cong. Rec. H803 (daily ed. Mar. 6, 1997). Both amendments 
would add the following language to the seven civil rights 
statutes; "Notwithstanding any Federal statute of general 
applicability that would modify any of the powers and pro- 
cedures expressly applicable to a claim arising under this 
[statute], such powers and procedures shall be the exclusive 
powers and procedures applicable to such claim unless after 
such claim arises the claimant voluntarily enters into an 
agreement to resolve such claim through arbitration or an- 
other procedure." Civil Rights Procedures Protection Act of 
1997, S. 63, 105th Cong., 1st Sess. (1997); Civil Rights Pro- 
cedures Protection Act of 1997, H.R. 983, 105th Cong., 1st 
Sess. (1997). 

"0 In addition, the New York attorney general held a hear- 
ing on Jan. 22, 1998, to "elicit testimony fi-om women who 
have faced sex discrimination daily on the job." Bureau of 
National Affairs, "New York Attorney General Plans Hear- 
ing To Examine Claims in Securities Industry," Daily Labor 
Report, Dec. 2, 1997, p. A-4. 



188 



studying the issue, the NASD sohcited com- 
ments from a variety of resources. The National 
Association of Investment Professionals, an or- 
ganization representing the interests of employ- 
ees, reported that it recommended making par- 
ticipation in the arbitration system optional. '''i 
The Securities Industry Association, an organi- 
zation that represents the interests of securities 
firms, 1^2 "strongly urge[d]" NASD to keep in 
place the mandatory arbitration system. '''^ 
NASD's National Arbitration and Mediation 
Committee ultimately recommended the elimi- 
nation of the mandatory arbitration require- 
ment, and the issue was sent to NASD for final 
resolution. !''■' 

While the rule change was being considered 
by NASD, the U.S. Equal Employment Opportu- 
nity Commission (EEOC) issued a policy state- 
ment denouncing mandatory arbitration agree- 
ments. "^ EEOC stated that the mandatory arbi- 
tration requirement " '[p]rivatizes' [e]nforcement 
[o]f [t]he Federal [e]mployment [d]iscrimination 



'" National Association of Investment Professionals, NAIP 
Press Releases: NAIP Offers Views on Mandated Arbitration 
for Discrimination Claims Before NASD Advisory Committee 
flast modified June 17, 1997) <http://www.naip.com/PRO 
61797.htm>, p. 1. 

"2 Securities Industry Association, SIA Press Releases: SIA 
Board Member, Firm's Chief Legal Officer Outlines Em- 
ployment Arbitration Strengths Before NASD Panel (last 
modified June 17, 1997) <http://www.sia.com/html/pr666. 
html>, p. 2. 

"' Stuart J. Kaswell, senior vice president and general 
counsel, Securities Industry Association, letter to Mary L. 
Schapiro, president, NASD Regulation, Inc., Mar. 11, 1997, 
reprinted in SIA Comment Letters (visited Jan. 7, 1998) 
<http://www.sia.cora/legal_regulatory/html/nasd97-2.html>, 
p. 5. SIA argued that Congress and the courts have ap- 
proved of arbitration and that criticisms of the arbitration 
process are "misplaced." Ibid., pp. 1-.5. Specifically, the SIA 
argued that the arbitrator training provided is adequate, the 
SROs ensure that each arbitration panel is "appropriate in 
all respects," and employees enjoy "extensive opportunity to 
collect evidence" through the existing discovery procedures. 
Ibid., pp. 3-4. However, the SIA did recommend improving 
the arbitration process by, among other things, increasing 
arbitrator training requirements, enhancing efforts to en- 
sure that the pool of arbitrators is diverse, and allowing 
parties to have greater influence on the selection of an arbi- 
trator for individual cases. Stuart J. Kaswell, senior vice 
president and general counsel. Securities Industry Associa- 
tion, letter to Mary L. Schapiro, president, NASD Regula- 
tion, Inc., Apr. 25, 1997, reprinted in SIA Comment Letters 
(visited Jan. 7, 1998) <http://www.sia.com/legal_regulatory/ 
htmynasd97-3.html>, p. 7. 

■'''' See Fromson, "Bidding." 

'" See EEOC Notice. 



[l]aws," undermining public enforcement, and 
specifically, the ability of the EEOC to enforce 
the civil rights laws.''^ EEOC made numerous 
additional arguments, including the following: 
the private nature of the proceedings limits the 
extent to which the forum can be held publicly 
accountable, arbitration inhibits the develop- 
ment of the law, and the forum contains a struc- 
tural bias against employees.!^'' 

The NASD then announced, on August 7, 
1997, that it had voted to amend the NASD rules 
to exempt employment discrimination claims 
from the mandatory arbitration requirement. ^''^ 
In addition, the NASD stressed its commitment 
to improve the arbitration forum in the hopes 
that employees would perceive it as fair and vol- 
untarily opt to have their disputes arbitrated. i'^^ 
Specifically, NASD stated its intention to in- 
crease the diversity of arbitration panels and 
provide specialized training for arbitrators. '^o 

The proposed rule change was submitted to 
the SEC for approval. ^^^ In the meantime, in De- 
cember 1997, Isaac Hunt, a Commissioner for 
the SEC, reportedly opined that "'in all likeli- 
hood an industry arbitration panel lacks the 
background and experience to competently deal 
with issues of race-based and sex-based dis- 
crimination."'i82 Commissioner Hunt added that 



1™ Ibid., pp. 6, 9. 

•" Ibid., pp. 6-9. The EEOC also advanced additional argu- 
ments. Ibid. 

™ See NASD Press Release, p. 1. 

i™ Ibid. 

ISO Ibid. 

'8' Ibid. 

'"^ See Fromson, "Bidding" (quoting Commissioner Isaac 
Hunt). As noted previously, the NASD recently proposed 
some enhancements to the process of arbitrating employ- 
ment discrimination claims. These proposals have not yet 
been accepted by the SEC. In regard to employment dis- 
crimination disputes, the NASD has proposed that arbitra- 
tors selected to serve as single arbitrators, or chairs of 
three-person panels, should have substantial familiarity 
with employment law. NASD, Proposed Rule, Rule Filing 
SR-NASD-99-08 § 10210 (the proposed rule is not yet pub- 
lished in the Federal Register and is subject to amendment 
before it becomes effective). Furthermore, under the pro- 
posed rule, arbitrators selected to serve as single arbitra- 
tors, or chairs of three-person panels, may not have repre- 
sented primarily the views of employers or of employees 
within the last 5 years. Ibid. Though not in their proposed 
rule, the NASD has also announced its intention to develop 
a specialized employment case roster of arbitrators with 
training and experience in discrimination law. PR 
Newswire, Oct. 8, 1998. 



189 



ending the mandatory arbitration requirement 
would be a priority for 1998.183 The SEC ap- 
proved NASD's proposed rule change on June 
22, 1998.18^ 

Finally, subsequent to the NASD's rule 
change, the NYSE modified its mandatory arbi- 
tration rule. '85 The NYSE rule goes one step fur- 
ther than the NASD rule, however, in that it 
does not permit NYSE arbitration of an em- 
ployment discrimination claim when the arbitra- 
tion agreement was entered into prior to the 
cause of action arising. '86 

The Future of Mandatory Arbitration 

Despite the rule changes approved by the 
SEC, the potential that employers will include 
mandatory arbitration clauses in individual em- 
ployment contracts persists. '87 In fact, some 



"*•• See "SEC Commissioner to Push for End to Mandatory 
Arb," Wall Street Letter, Dec. 1, 1997, p. 7 (stating that 
Commissioner Isaac Hunt told the Wall Street Letter that 
"ending the mandatory arbitration of securities industry 
employment discrimination cases is among his top priorities 
for 1998"); see also "Fienberg Admits Mandatory Arbitration 
May Be Abolished," Wall Street Letter, May 26, 1997, p. 8 
(stating that SEC Commissioners Stephen Wallman and 
Isaac Hunt were against mandatory arbitration). 

is-i See SEC Order Approving NASD Rule. 

'85 See SEC Commission Announcements, Approval of Pro- 
posed Rule Changes (visited Mar. 13, 1999) <http://www.sec. 
gov/ne ws/digests/0 1 -04.txt>. 

18G "NYSE to Stop Hearing Discrimination Claims," Securi- 
ties Week, Jan. 18, 1999, p. 14. See also "Arbitration; Firms 
Lose Options in Arb of Discrimination Claims," Compliance 
Reporter, Jan. 4, 1999, p. 7. The NASD rule provides, in part 
that "a claim alleging employment discrimination, including 
a sexual harassment claim, in violation of a statute is not 
required to be arbitrated. Such a claim may be arbitrated 
only if the parties have agreed to arbitrate it, either before 
or after the dispute arose." National Association of Securi- 
ties Dealers, SEC Approves Rule Change Regarding Arbitra- 
tion of Statutory Employment Disputes; Effective January 1, 
1999 (visited Mar. 9, 1999) <http://www.nasd.com/notices/ 
9856ntm.txt>. In contrast, the NYSE rules provide, "A claim 
alleging employment discrimination, including any sexual 
harassment claim, in violation of a statute shall be ehgible 
for arbitration only where the parties have agreed to arbi- 
trate the claim after it has arisen." NYSE to Stop Hearing 
Discrimination Claims," Securities Week, Jan. 18, 1999, p. 14. 

•87 Although § 1 of the Federal Arbitration Act, 9 U.S.C. § 1 
(1994), states that "nothing herein . . . shall apply to con- 
tracts of employment of seamen, railroad employees, or any 
other class of workers engaged in foreign or interstate com- 
merce," a number of United States Courts of Appeal have 
limited that exclusion to seamen, railroad workers, and 
other workers actually involved in the interstate transporta- 
tion of goods. See O'Neil v. Hilton Head Hosp., 115 F.3d 272, 
274 (4th Cir. 1997); Patterson v. Tenet Healthcare, Inc., 113 
F.3d 832, 835 (8th Cir. 1997); Great Western Mortgage Corp. 



firms already require employees, as a condition 
to employment, to agree to mandatory arbitra- 
tion in their individual employment contracts, 
and other firms are currently considering 
amending their contracts to include such a re- 
quirement. '88 Because many securities profes- 
sionals likely will still be required to submit to 
arbitration, the procedural inadequacies pointed 
to by employees are important issues for consid- 
eration. 

Moreover, arbitration "should be encouraged 
in order to provide expeditious, accessible, inex- 
pensive and fair private enforcement of statu- 
tory employment disputes for the . . . members of 
the work force who might not otherwise have 
ready, effective access to administrative or judi- 
cial rehef."'89 Providing a fair and cost-efficient 

v. Peacock, 110 F.3d 222, 227 (3d Cir. 1997), cert, denied, 
118 S. Ct. 299 (1997); Cole v. Burns Int'l Sec. Servs., 105 
F.3d 1465, 1471-72 (DC. Cir. 1997); Matthews v. Rollins 
Hudig Hall Co., 72 F.3d 50, 53 n.3 (7th Cir. 1995); Erving v. 
Virginia Squires Basketball Club, 468 F.2d 1064, 1069 (2d 
Cir. 1972). Accordingly, employees in the securities industry 
who are required to sign individual employment contracts 
containing agreements to submit potential claims to arbitra- 
tion can be forced to arbitrate under the Federal Arbitration 
Act. See Erving, 468 F.2d at 1069 (noting that the second 
circuit had previously "held that the exclusionary clause in 
Section 1 applied only to those actually in the transportation 
industry"). 

'88 See Patrick McGeehan and Deborah Lohse, "NASD May 
Vote Today to Halt Mandated Harassment Arbitration," 
Wall Street Journal, Aug. 7, 1997, p. B-2. However, one 
firm, Smith Barney, Inc., has agreed, as part of a settlement 
of a sex discrimination suit brought by 20 current and for- 
mer employees, to "invest $15 million over four years in a 
diversity training program" and to provide an alternative 
dispute resolution mechanism for its employees. See Timo- 
thy Burn, "Settlement at Smith Barney sets new rules," 
Washington Times, Nov. 19, 1997, p. B-7. Under the new 
system, a claimant would begin the case by submitting her 
claim to Smith Barney. Peter Truell, "Smith Barney Plain- 
tiffs Agree to Incentives For Settlement," New York Times, 
Nov. 19, 1997, p. D-1. The parties would then attempt to 
resolve the dispute and arrive at a settlement. Ibid. In the 
event that a settlement could not be reached, the contro- 
versy would be submitted to a neutral mediator, chosen 
from a pool of mediators who all must be experienced in 
employment discrimination issues. Ibid. If a settlement can- 
not be reached with the assistance of the mediator, the 
claim must be submitted to a panel of three mediators for a 
binding decision. Ibid. Smith Barney agreed to pay the full 
cost of mediation and up to $5,000 of each claimant's own 
attorney's fees. Ibid. This new mediation forum only applies 
to claims of gender discrimination. Bureau of National Af- 
fairs, "Sex Discrimination: Attorneys in Smith Barney Class 
Action Submit Plan for ADR, Diversity Programs," Daily 
Labor Report, Nov. 19, 1997, p. A-12. 

183 American Arbitration Association, A Due Process Protocol 

for Mediation and Arbitration of Statutory Disputes arising 



190 



arbitration forum is, therefore, an important on- 
going mission. 

Section II. Rule G-37 

In general terms, Rule G-37 prohibits a mu- 
nicipal securities dealer from transacting securi- 
ties business with a locality within 2 years of 
making a political contribution to a candidate 
elected to office' in that locality. '3" The purpose of 
the rule is "to prevent fraudulent and manipu- 
lative acts and practices," '^i such as making po- 
htical contributions to secure future securities 
business from the candidate after he or she is 
elected. 192 

Those who opposed the rule while it was un- 
der consideration argued that due to the concen- 
tration of minorities and women in the munici- 
pal securities business, the rule would have a 
disparate impact on minority and women securi- 
ties professionals who had just begun to form a 
sohd presence in the securities market. ^^^ Oppo- 
nents specified two ways in which the rule would 
have a disparate imp&ct: (1) because newer, mi- 
nority- and women-owned firms depended more 
on municipal securities business than the tradi- 
tional firms that had stronger ties to the private 
securities market, the limits on access to the 
municipal securities market would impose a dis- 
proportionately heavy burden on minority- and 
women-owned firms; ■^'^ and (2) the limits would 
prevent many minority and women municipal 
securities dealers from making certain poHtical 
contributions, ehminating one important source 
of campaign revenue used by the affected mi- 



out of the Employment Relationship (visited Jan. 20, 1998) 
<http;//www. adr.org/protocol. html>, p. 1. 

'3" See Municipal Securities Rulemaking Board, MSRB 
Manual (Chicago: CCH, Apr. 1, 1994) (hereafter cited as 
MSRB Manual), Rule G-37(b), H 5001. 

'9' Ibid., Rule G-37(a). 

'92 See Order Approving Proposed Rule Change by the Mu- 
nicipal Securities Rulemaking Board Relating to Political 
Contributions and Prohibitions on Municipal Securities 
Business, Securities Exchange Act Release No. 94-33868, 
File No. SR-MSRB-94-2, 59 Fed. Reg. 17,621 (Apr. 7, 1994) 
(hereafter cited as SEC Rule G-37 Approval Order), pp. 3-4. 

■'•^ See Securities and E.xchange Commission, "Summary of 
Comments: File No. SR-MSRB-94-2," pp. 23-25. 

"'' See National Association of Securities Professionals, 
"National Association of Securities Professionals' (NASP) 
Position on Rule G-37 of the Municipal Securities Rule- 
making Board (MSRB) and the Securities and Exchange 
Commission (SEC)," p. 7. 



nority and women political candidates. '^^ These 
concerns were explored at the Commission's 
hearing in New York on September 21, 1994. 

Origins of Rule G-37 

Because of broad statutory exemptions, the 
municipal securities market remained virtually 
unregulated for many years after the Securities 
and Exchange Act was passed in 1934. '^^ (Con- 
gress ultimately decided that regulation of the 
municipal securities market was necessary after 
the SEC accused several municipal securities 
dealers of improper trading practices in the early 
1970s. '9' In the Securities Act Amendments of 
1975, Congress for the first time required mu- 
nicipal securities professionals to register with 
the SEC and created the Municipal Securities 
Rulemaking Board (MSRB), an SRO with 
authority to regulate the municipal securities 
market. 198 The MSRB is charged with the duty 
of, among other things, "prevent[ing] fraudulent 
and manipulative acts and practices."i99 

The impetus for Rule G-37 arose in the early 
1990s in reaction to numerous allegations that 
localities were hiring municipal securities pro- 
fessionals based on their records of past political 
contributions rather than their records as com- 
petent dealers in municipal securities.^oo The 
practice, dubbed "pay to play," specifically refers 
to municipal securities professionals giving po- 
litical contributions to candidates in order to se- 
cure future securities business after the candi- 
dates are eventually elected.^oi 

The SEC, in a written statement submitted to 
the Commission at its New York hearing, de- 
scribed the impact of pay to play practices on the 
municipal securities market.202 The SEC ex- 
plained that when a municipal securities profes- 
sional undertakes to offer public securities for 



'95 Ibid., p. 10. 

'^ MSRB Manual, H 101. 

197 Ibid. 

19S 15 U.S.C. § 78o-4(a)-(b) (1997). 

'99 15 U.S.C. § 78o-4(b)(2)(C) (1997). 

200 SEC Rule G-37 Approval Order, pp. 8-11. 

291 Ibid. 

292 See Securities and Exchange Commission, "Written 
Statement of the U.S. Securities and Exchange Commission, 
Hearings on 'Racial and Ethnic Tensions in America' Before 
the United States Commission on Civil Rights," written 
statement submitted at New York Hearing (hereafter cited 
as SEC Written Statement), pp. 17-21. 



191 



sale to the investing public, the municipal secu- 
rities professional must first "investigate the 
financial condition" of the issuing municipal- 
ity 203 Municipal securities professionals perform 
such "due dihgence" investigations to ensure 
that the information they provide to the public is 
accurate. 20^ The SEC described the impact of 
poHtical contributions on this process as follows: 

When a[ ] [municipal securities professional] ... is 
chosen based on its history of contributions or politi- 
cal contacts, the resulting conflict of interest between 
the [municipal securities professional's] obligation to 
its customers and its allegiance to the issuer official 
who selected the [municipal securities professional], 
compromises its ability to perform due diligence. ^^^ 

As a result, "pubUc confidence in the integrity 
of the market" dechnes.^os The SEC clarified that 
the problem does not arise when contracts are 
issued after a competitive bidding process be- 
cause the political contributions could not have 
an impact on the ultimate selection of a munici- 
pal securities professional. ^o'' The problem does 
arise in "negotiated" contracts, however, because 
the selection of a municipal securities dealer 
"may be based on factors unrelated to merit. "'•^"^ 
Therefore, the SEC concluded that in negotiated 
offerings "a genuine risk exists that [municipal 
securities professionals] will be selected on a ba- 
sis unrelated to the quaUty of the [municipal se- 
curities professional's] services in distributing 
the securities. "2"^ 

In response to the allegations of improper 
payments, Representatives Markey and Dingell 
requested that the SEC conduct a study of the 
municipal securities market.-^" As a result, the 



203 Ibid., p. 17. 

204 Ibid. 

205 Ibid. 

206 Ibid., pp. 17-18. 

207 Ibid., p. 18. When competitive bidding is used, the mu- 
nicipality grants the contract to the municipal securities 
professional who offers the best bid. See Thomas G. Hil- 
borne, Jr., "Report of the Committee on Public Finance: Rule 
G-37: The 'Pay to Play' Rule and Its Impact on the Munici- 
pal Securities Industry," Urban Lawyer, vol. 26 (1994), p. 
963. 

208 SEC Written Statement, p. 18. 

200 Ibid. 

2'o Arthur Levitt, chairman, SEC, letters to Representatives 
Dingell and Markey, Sept. 3, 1993, reprinted in Division of 
Market Regulation, U.S. Securities and Exchange Commis- 
sion, "Staff Report on the Municipal Securities Market," 



staff of the SEC issued a report indicating, 
among other things, that it supported a then ex- 
isting proposal by the MSRB to regulate political 
contributions. 2" In the meanwhile, the industry 
responded by adopting a "Statement of Initia- 
tive," which bound its more than 50 voluntary 
adherents to cease making pay to play political 
contributions. 2'2 

The SEC eventually approved the rule, which 
became effective in April 1994.^13 The rule states 
the following, in pertinent part: 

(b) No . . . municipal securities dealer shall engage in 
municipal securities business with an issuer within 
two years after any contribution to an official of such 
issuer made by: (i) the . . . municipal securities dealer; 
(ii) any municipal finance professional associated 
with such . . . municipal securities dealer; or (iii) any 
pohtical action committee controlled by the . . . mu- 
nicipal securities dealer or by any municipal finance 
professional. . . .2'"' 

A municipal securities dealer also may not 
solicit contributions for an official of a munici- 
pality with which the dealer is seeking to engage 
in securities business. ^'^ Finally, a municipal 
securities dealer may not indirectly do an act 
that would violate the rule if done by the dealer 
himself.216 

Because of the impact of pay to play practices 
on the municipal securities market, the SEC 
"concluded that the [rule] . . . was an appropriate 
investor protection measure."^!'' The SEC stated 
that the rule was "aimed at preventing fraudu- 
lent and manipulative practices, . . . removing 
impediments to free and open trade, and pro- 
tecting investors and the public interest."2i8 

September 1993 (hereafter cited as SEC Staff Report); see 
also SEC Rule G-37 Approval Order, p. 11. 
2>i See SEC Staff Report, pp. 32-34; SEC Rule G-37 Ap- 
proval Order, p. 12. 

212 SEC Rule G-37 Approval Order, pp. 13-14. 
2>'! Ibid., p. 53. 

2'-' MSRB Manual, Rule G-37(b), H 5001. The rule contains 
an exception stating that the prohibition does not apply 
when a municipal securities dealer contributed a total of 
less than $250 within the previous 2 years to a candidate for 
whom the dealer was entitled to vote. Ibid. 

215 Ibid., Rule G-37(c). 

216 Ibid., Rule G-37(d). 

21' SEC Written Statement, p. 20. 

21s SEC Rule G-37 Approval Order, p. 15. The rule was 
challenged on 1st and 10th amendment grounds, and the 
Court of Appeals for the District of Columbia Circuit found 



192 



The Impact of Rule G-37: Minority- and 
Women-owned Firms 

Before approving the rule, the SEC consid- 
ered numerous comments that were submitted 
by a variety of organizations. ^'^ Specifically, the 
SEC noted, "Several commentators believe that 
the proposal will disadvantage small, regional 
municipal securities firms and firms owned by 
minorities or Women.''^^" However, the SEC de- 
termined that the rule would not have a dispro- 
portionate impact on minority- and women- 
owned firms, in part because "the [rule] will ap- 
ply equally to all municipal securities dealers 
seeking to obtain municipal securities under- 
writing business."22i 

At the Commission's hearing, Alphonso Tin- 
dall, Jr., then chairman of the NASP,222 de- 

the claims to be meritless. See Blount v. SEC, 61 F.3d 938 
(D.C. Cir. 1995), cert, denied, 517 U.S. 1119 (1996). 

Recent proposals would extend the pay to play prohibitions 
to lawyers hired by municipalities to assist in the process of 
issuing bonds. For example, the Association of the Bar of the 
City of New York proposed a measure that would prohibit 
lawyers' pay to play practices in the State of New York. Ar- 
thur Levitt, "Lawyers and Ethics: The Problem of Pay-to- 
Play" (speech delivered at the Fixed Income Daily Confer- 
ence on Municipal Finance, Philadelphia, PA, June 26, 
1997), reprinted in Lawyers and Ethics: The Problem of Pay- 
to-Play (last modified June 26, 1997) <http://www. 
sec.gov/news/speeches/spchl69.txt>, p. 4. In addition, SEC 
Chairman Arthur Levitt has urged the American Bar Asso- 
ciation to issue a rule asking "bond lawyers to cut the tie 
between campaign contributions and selection as bond coun- 
sel." Ibid. Subsequently, the American Bar Association ap- 
pointed a "Task Force on Pay to Play." American Bar Asso- 
ciation, ABA President Shestack Names "Pay to Play" Panel 
Members To Study Lawyer Campaign Contributions (visited 
Jan. 22, 1998) <http://www.abanet.org/media/sep97/payplay. 
html>. Because the Commission has no evidence that mi- 
nority or women attorneys are concentrated in bond law 
practices, the possible effect of such a rule on minority and 
women attorneys is unknown. However, one bond attorney 
opined that the measure represents "blatant discrimination 
of singling out bond lawyers for the ban," when analogous 
conflicts of interest arise in many other areas of legal prac- 
tice as well. John L. Kraft, "Don't Make Bond Lawyers the 
Scapegoats for Larger Problems in the Market," The Bond 
Buyer, June 10, 1997, p. 29. 

219 SEC Rule G-37 Approval Order, pp. 24-52. 

220 Ibid., p. 37. 

221 Ibid., p. 38. 

222 NASP "is a trade organization aimed at promoting pro- 
fessional excellence and equal access to business opportuni- 
ties for minorities and women in the financial securities 
industry." "Testimony of Alphonso E. Tindall, Jr., chairman, 
National Association of Securities Professionals before the 
U.S. Commission on Civil Rights," written statement sub- 
mitted at New York Hearing, inside cover page (hereafter 
cited as Tindall Written Statement). 



scribed the historical background that led mi- 
nority and women securities professionals to 
gravitate toward the municipal securities mar- 
ket. He explained that, in an attempt to offer 
additional opportunities to minorities and 
women, many local government entities sought 
to employ minorities and women to issue mu- 
nicipal bonds. 223 As a result, minorities and 
women acquired and currently maintain a 
stronger presence in the municipal securities 
market than in the private securities market. 22-1 

On the other hand, most of the larger, tradi- 
tional firms that engage in municipal securities 
business also engage in private securities trans- 
actions. 225 Mr. Tindall stated that the rule gives 
these larger firms an "unfair competitive advan- 
tage" because the ban against political contribu- 
tions does not apply to a firm's nonmunicipal 
finance personnel. 226 Because of this "loophole," 
the larger firms, which employ numerous securi- 
ties professionals who do not engage in munici- 
pal securities transactions, can "easily direct 
huge pohtical contributions to any elected offi- 
cials [they] desire [ ]."2'^7 Because minority- and 
women-owned firms are smaller, they are much 
less hkely to employ securities professionals who 
are not involved in the municipal securities 
market.228 As a result, minority- and women- 
owned firms will be much less able to use this 
loophole as a means to continue making other- 
wise prohibited political contributions. 229 



223 See Tindall Written Statement, pp. 2-3. According to Mr. 
Tindall, in Atlanta 30 percent of bond underwriting fees 
were allocated to African Americans and 3 percent were 
allocated to women, and in California 15 percent were allo- 
cated to minority firms and 3 percent were allocated to 
women. Ibid., p. 3. Other cities, such as New York, and Dade 
County, Florida, have made similar efforts without setting 
specific numerical goals. Ibid. 

221 Ibid., p. 3 ("[T]he vast majority of African-American and 
Hispanic executives in the industry are employed in public 
or municipal finance as opposed to corporate finance"). 

225 Ibid., p. 6. 

226 Ibid. 

227 Ibid. 

228 Ibid. 

229 Ibid. The general counsel for the U.S. Securities and 
Exchange Commission argues that such a "loophole" does 
not exist, stating: "Paragraph (d) of Rule G-37 prohibits 
doing indirectly what cannot be done directly. Any firm 
'direct[ing] huge (or small] political contributions to any 
elected officials' by its non-municipal employees, is in clear 
violation of paragraph (d) of Rule G-37." Harvey 
Goldschmid, general counsel, U.S. Securities and Exchange 
Commission, to Stephanie Y. Moore, general counsel, U.S. 



193 



In its written statement submitted at the 
New York hearing, the SEC responded to these 
concerns by stating that there was "no reason to 
believe that increased opportunities which firms 
owned by minorities and women have experi- 
enced in recent years in the municipal securities 
. . . business will be undercut by indirect restric- 
tions aimed at curbing pay-to-play abuses/'^^o 
The SEC pointed out that "[t]he Rule does not 
discourage [municipalities] from selecting 
[minority- and women-owned] firms/'^^i 

News accounts in 1997, shortly before the 
rule's 3-year anniversary, indicated that the ef- 
fects of the rule had been felt by municipal secu- 
rities dealers. The Bond Buyer reported that Mi- 
chael D. McCarthy, vice chairman of the Pubhc 
Securities Association (now renamed the Bond 
Mark Association), stated that Rule G-37, along 
with other rules promulgated by the MSRB, has 
"'become quite a burden to bear and it's hard to 
see the real benefits to the investors out 
there."'232 McCarthy added that Rule G-37 '"has 
turned into a quagmire of interpretations and 
questions and (has created) a nearly impossible 
compUance burden."'233 

A separate article in the Bond Buyer re- 
ported, "Minority-owned underwriters' participa- 
tion in the municipal bond market fell [in 1997] 
... to its lowest level since 1990."23'i One CEO of 
a securities firm indicated that he thought the 
decUne was caused, in part, by the restrictions 
imposed by Rule G-37.235 In addition, in 1996 



Commission on Civil Rights, Apr. 19, 1999, U.S. Commission 
on Civil Rights files (hereafter cited as Goldschmid letter). 

230 SEC Written Statement, p. 25. 

231 Ibid. 

232 Lynn Stevens Hume, "PSA Official: Reform Burdens 
Appear to Outweigh Benefits," The Bond Buyer, Mar. 3, 
1997, p. 1 (quoting Mr. McCarthy). 

233 Ibid, (quoting Mr. McCarthy). 

234 Mark T. Kuiper, "Minority-Owned Firms Lost Ground In 
'97, But Predict a Comeback This Year," The Bond Buyer, 
Jan. 22, 1998, p. 1. Another news article reported that, since 
1993, underwritings by minority firms had decreased by 42 
percent. Ylonda Gault, "Now That The Smoke Has Cleared," 
Ethnic NewsWatch, vol. 27, no. 11 (June 30, 1997), p. 214. 

235 Kuiper, "Minority-Owned Firms." The general counsel for 
the U.S. Securities and E.xchange Commission notes, how- 
ever, that there are "economic pressures applicable to all 
firms in the municipal market. For example, the Bond 
Buyer Securities Data Company 1998 Yearbook shows that 
'spreads,' or revenues from municipal underwriting, have 
declined substantially over the last decade, citing one mar- 
ket participant's explanation that there are 'only a limited 



U.S. Senator Carol Moseley-Braun raised con- 
cerns about the possibility that the rule was 
having a disparate impact on minority firms. '^36 
An aide to Senator Moseley-Braun was quoted as 
saying, '"Just as the minority firms were . . . 
breaking into the business and following the 
same rules that everybody else followed, the 
rules were changed on them .... The net result 
was that it functioned as the equivalent of yet 
another entry barrier."'23'' 

However, not all municipal bond dealers 
agree that Rule G-37 has made it more difficult 
to engage in municipal securities business. A 
member of one firm stated that his firm focuses 
on maintaining a good reputation, and as a re- 
sult, a single regulation like Rule G-37 does not 
hurt its business. 238 Another municipal securi- 
ties professional stated that the rule has actually 
"leveled the playing field" by causing municipaU- 
ties to be more willing to deal with local firms.239 

The Impact of Rule G-37: Minority and 
Women Candidates 

At the Commission's hearing, Mr. Tindall 
raised the additional concern that "Rule G-37 
will have a chiUing effect on financial support for 
minority and female political candidates."2'*o He 
asserted, "Cutting off access to the financial in- 
dustry [as a source for political contributions] 
may therefore reduce their opportunities to raise 
sufficient campaign funds to successfully com- 
pete for important local and state elected offices 
across America. "2'*' The impact on minority and 
women candidates will, in turn, affect minority- 
and women-owned securities firms because these 
firms "are more hkely to do substantial business 
with state and local governments where female 
and minority elected officials predominate. "242 



number of deals and too many firms competing for them'" 
(emphasis added). Goldschmid letter. 

2'6 Lynn Stevens Hume and Niamh Ring, "Levitt, Senator, 
and Firms Start Talks on Minority Participation," The Bond 
Buyer, Nov. 15, 1996, p. 4. 
^■" Ibid. 

238 Tanuja Kanwar and Michael Stanton, "Q & A: Under- 
writing Strengthens Firm's Advisory Role," The Bond Buyer, 
Dec. 5, 1995, p. 26. 

^M Mark T. Kuiper, "The Trading Floor," The Bond Buyer, 
Dec. 16, 1997, p. 33. 

2« Tindall Written Statement, p. 7. 

2" Ibid. 

2^2 Ibid. 



194 



In response to this concern, the SEC wrote 
that the impact of the rule on the success of mi- 
nority and women pohtical candidates is 
"uncertain."2-'3 The SEC emphasized that "the 
restrictions would affect all candidates equally, 
regardless of sex or race, with respect to the 
state or local offices affected."^'''' 

Shortly after the Commission's hearing, at a 
meeting of the' NASP, participants asserted that 
minority candidates had already begun to expe- 
rience greater difficulties raising sufficient cam- 
paign funds.^-'s Subsequently, in 1996 a munici- 
pal securities professional employed by a minor- 
ity-owned firm opined that "the rule took away 
from smaller firms the abihty to help the type of 
candidates that favor inclusion, and as such 
[Rule G-37] . . . probably . . . hit minority firms 
harder than others. "^■is 

SEC Response to Complaints from Industry 

In the statement it submitted at the Commis- 
sion's New York hearing, the SEC addressed 
complaints about the rule's possible discrimina- 
tory impact by stating that opponents of the 
rule: 



2« SEC Written Statement, p. 26. 

^ii Ibid. 

2''5 Sharon R. King, "Minority Securities Professionals Criti- 
cize G-37 at Conference," The Bond Buyer, Oct. 25, 1994, p. 

4. 

2''6 "Minority Firm Looks to Internet to Capture Retail In- 
vestors," The Bond Buyer, Mar. 14, 1996, p. 27 (quoting an 
interview between reporter Michael Stanton and Leopold 
Guzman, chairman and CEO of Guzman & Co.). 



fail[ ] to distinguish between the SEC's role in ap- 
proving MSRB's rules and potential unintended col- 
lateral consequences with respect to other legitimate 
social goals such as anti-discriminatory policies. The 
SEC is mindful of the importance of such issues, but 
the controlling statutory framework requires the SEC 
to give overriding weight to the goals of investor pro- 
tection and fair markets. The MSRB is not compelled 
by statute to select the least restrictive alternative in 
deciding how to address problems. ^'^ 

Nevertheless, Mr. TindaU, in his written 
statement submitted at the New York hearing, 
recommended that a study be done to determine 
the impact of the rule on minority- and women- 
owned fu-mB.^-JS Although the MSRB reportedly 
conducted a "major review" of Rule G-37 in July 
1997, ^''9 the Commission is unaware of any com- 
prehensive study, commissioned by either the 
SEC or the MSRB, detailing the impact of the 
rule on minority securities professionals. ^so 



•2'" SEC Written Statement, p. 24. The SEC also reports that 
although it does not have the statutory and regulatory 
authority to directly tackle the issue of increasing minority 
employment in the securities industry, the agency "has been 
engaged in a public awareness campaign for the last several 
years. The goal of that campaign has been to use the 
agency's influence to encourage securities firms to increase 
opportunities for minorities within the industry." Recent 
activities of this nature include SEC Chairman Levitt's June 
1998 speech before the Detroit conference of the National 
Association of Securities Professionals (NASP) on "Working 
Toward Diversity: Progress Through Partnership." Chair- 
man Levitt delivered similar speeches at Reverend Jesse 
Jackson's first Wall Street Conference in January 1998, at 
the Boca Raton, Florida, conference of the Securities Indus- 
try Association (SIA) in November 1997, and at Reverend 
Jackson's La Salle Street Project in April 1999. In addition, 
through his "Diversity Roundtables," Chairman Levitt has 
encouraged chief operating officers and other senior corpo- 
rate executives from more than a dozen securities firms 
based throughout the country to make a personal commit- 
ment to diversity. Finally, in 1998 the SEC sponsored a 
series of symposia in Los Angeles, Chicago, Dallas, and 
Washington, DC, designed to acquaint minority students 
with the securities industry and to identify the skills re- 
quired for a career in the securities field. Goldschmid letter. 

^■'s See TindaU Written Statement, p. 8. 

^■'s Lynn Stevens Hume, "G-37 Controversies May Deter 
PSA From Making Proposals to MSRB," The Bond Buyer, 
June 13, 1997, p. 6. 

250 Press reports indicate that the rule has been invoked in 
disciplinary proceedings against several municipal securities 
dealers. Lynn Stevens Hume, "Key Player in Landmark 
Muni Case Leaves SEC for Merrill Litigation Shop," The 
Bond Buyer, Oct. 9, 1997, p. 1; Christopher McEntee, 
"Records Show Grigsby Used His Companies to Skirt G-37," 
The Bond Buyer, Sept. 11, 1997, p. 1. 



195 



Chapter 5 

The Role of Community Reinvestment 



Section I. Federal and State Community 
Reinvestment Acts 

Federal Community Reinvestment Act 

The Community Reinvestment Act (CRA) was 
enacted as title VIII of the Housing and Urban 
Development Act of 1977. The legislation was 
passed to encourage federally insured banks and 
thi-ifts to help meet the credit needs of their en- 
tire communities, including low- and moderate- 
income neighborhoods, consistent with safe and 
sound banking practices. 

The CRA was generally viewed as a congres- 
sional response to the problem of "redUning," 
which restricts access to credit for homes and 
small businesses based upon geography rather 
than on an applicant's creditworthiness. Finan- 
cial institutions would outline entire metropoli- 
tan geographic zones — oftentimes minority and 
lower income neighborhoods in central cities — 
with a red marker to remind lending officers 
that loans should not be made in those regions. ^ 
Supporters of the CRA wanted financial institu- 
tions to look locally for profitmaking opportuni- 



' A number of empirical studies completed around the time 
of the passage of the CRA confirmed the existence of red- 
lining in various communities. See George J. Benston et al., 
An Empirical Study of Mortgage Redlining (1978) 
(summarizing studies). Regarding the problems addressed 
by the CRA, Senator Proxmire, the sponsor of the legisla- 
tion, said: "P^]or more than 2 years the Banking Committee 
has been studying the problem of redlining and the disin- 
vestment by banks and savings institutions in older urban 
communities. By redlining let me make it clear what 1 am 
talking about. I am talking about the fact that banks and 
savings and loans will take their deposits from a community 
and instead of reinvesting them in that community, they 
will . . . actually or figuratively draw a red line on a map 
around the areas of their city, . . . sometimes in the older 
neighborhoods, sometimes ethnic and sometimes black, but 
often encompassing a great area of their neighborhood." 12.3 
Cong. Rec. 17,630 (daily ed. June 6, 1977) (statement of Sen. 
Proxmire). 



ties in low- and moderate-income communities.^ 
They argued that banks^ were benefiting from 
millions of dollars in deposits from residents of 
low- to moderate-income communities while 
making virtually no loans to these communities.'' 
The CRA has played a crucial role in ensur- 
ing credit to residents of low- and moderate- 
income areas and in encouraging banks to open 



'•' For a definition of low- and moderate-income communities, 
see Community Reinvestment Act Regulations, 12 C.F.R. § 
228. 12(n)(l)-(2) (1998). 

■* The term "bank" refers to all relevant financial institu- 
tions, which include national banks. State banks, thrifts, 
and savings and loan associations. 

1 See Robert G. Boehmer, "Mortgage Discrimination: Paper- 
work and Prohibitions Prove Insufficient — Is It Time for 
Simplification and Incentives?" Hofstra Law Review, vol. 21 
(1993), pp. 603, 603, n.2 ("As of the late 1960's and through 
the mid 1970's, redlining was indisputably a common, if not 
universal, practice among lending institutions in urban ar- 
eas of the country . . . [R]edlining came to be recognized as a 
major cause of urban neighborhood decline . . ." (quoting 
Jane McGrew et al., "Fair Housing: An Agenda for the 
Washington Lawyer's Committee for Civil Rights," Howard 
Law Journal, vol. 27 (1984), pp. 1291, 1304-06). 

.See also E. L. Baldinucci, "The Community Reinvestment 
Act: New Standards Provide New Hope," Fordham Urb. Law 
Journal, vol. 23 (1996), p. 831; Christopher Kui, executive 
director of Asian Americans for Equality and president of 
Manhattan Neighborhood Renaissance Local Development 
Corp., testimony (hereafter cited as Kui Testimony) Hearing 
Before the U.S. Commission on Civil Rights, New York, NY, 
Sept. 19-21, 1994, transcript, vol. Ill, pp. 989, 1006-07, 
1010, 1025 (hereafter cited as New York Hearing) (stating 
that while Asian enclaves were "saver communities" who 
deposited billions of dollars into local banks, residents of 
those communities had difficulty qualifying for loans from 
those same banks because they lacked "traditionally defined 
good credit records" and sometimes lacked complete income 
documentation. When loans were made to members of the 
Asian community, the down payment to qualify for the loan 
was oftentimes very high^; Mark Winston Griffith, executive 
director of Central Brooklyn Partnership and president. 
Central Brooklyn Federal Credit Union, testimony. New 
York Hearing, p. 1193 (hereafter cited as Griffith Testimony) 
(stating, "We did a study of bank lending in the [central 
Brooklyn community] and found that for every dollar that is 
deposited in banks in our neighborhoods, less than 1 penny 
is returned in the way of loans . . ."). 



196 



new branches and expand services in these 
communities. It has been estimated that the act 
has directed between $4 biUion and $6 bilhon a 
year to such communities. ^ Moreover, 1997 
Home Mortgage Disclosure Act data show that 
since 1993, home mortgage loans to low- and 
moderate-income borrowers increased by 45 per- 
cent, well above the overall market increase in 
home mortgage lending.^ 

In enacting the CRA, Congress found that 
regulated financial institutions are required by 
law to demonstrate that their deposit facilities 
serve the convenience and needs of the commu- 
nities in which they are chartered to do busi- 
ness.^ "Convenience and needs of the communi- 
ties" refers to deposit and credit services that 
financial institutions have an affirmative obliga- 
tion to help provide.^ The four financial supervi- 
sory agencies — the Office of the Comptroller of 
the Currency (OCC), the Federal Reserve Board 
(FRB), the Federal Deposit Insurance Corpora- 
tion (FDIC), and the Office of Thrift Supervision 
(OTS) — are responsible for assessing institu- 
tions' records in meeting the credit needs of the 
communities they serve, including low- and 
moderate-income neighborhoods, consistent with 
the safe and sound operation of the institutions.^ 

On May 4, 1995, the Federal banking regula- 
tory agencies published new CRA regulations."* 
This was the culmination of a process that began 
nearly 2 years earlier, in July 1993, when Presi- 
dent Clinton called for a reform of the CRA en- 
forcement regime. The goal was to institute a 
regulatory scheme that emphasized lending per- 
formance over process, that was more objective 
and less subject to arbitrary interpretation, and 
that reduced unnecessary paperwork. Overall, 
the new regulations emphasize a bank's "actual 
performance," rather than the documented proc- 
ess it used to achieve its performance record. 



5 "Rubin Defends CRA But Backs 'Sensible Regulatory Re- 
form,'" American Banker, May 5, 1995, p. 3. 

6 Richard S. Carnell, Assistant Secretary for Financial Insti- 
tutions, U.S. Department of the Treasury, to Ruby G. Moy, 
Staff Director, U.S. Commission on Civil Rights, June 1, 
1999, U.S. Commission on Civil Rights files (hereafter cited 
as Carnell letter) 

7 12 use. § 2901(a)(1) (1998). 
8/rf.§ 2901(a)(2), (3). 

9 7d. §2902(l)(a)-(d). 

'0 60 Fed. Reg. 22156 (1995), codified at 12 C.F.R. §§ 25, 228, 
345, 563e, and 203 (1998). The CRA can be found at 12 
U.S.C. §§ 2901-2906. 



The Federal regulators must periodically as- 
sess the CRA record of the banks they regulate, 
issue a public written assessment report, and 
assign one of four ratings: "outstanding," 
"satisfactory," "needs to improve," or "substantial 
noncompliance."'^ Performance of large retail 
banks — or those with more than $250 million in 
assets — is based on the following three tests:'^ 

(1) Lending Test 

The five criteria of this test include: (1) the 
total number and dollar amount of a bank's 
loans, including home mortgage, small farm, 
small business, and consumer loans; '^ (2) the 
geographic distribution of a bank's loans, in- 
cluding the proportion of — and dispersion of — 
loans in the bank's assessment area, as well as 
the total number and dollar amount of loans in 
low-, moderate-, middle-, and upper income cen- 
sus tracts; i"* (3) the income level of the borrow- 
ers;i5 (4) the total number and dollar amount of 
a bank's community development loans as well 
as the complexity and innovative character of 
the loans; '^ and (5) any innovative or flexible 



II 12 U.S.C. §§ 2903(1), 2906(a),(b) (1998). 

'2 The regulations implemented by tne four agencies, OCC, 
FRB, FDI, and OTS, can be found at 12 C.F.R. §§ 25, 228, 
345, and 563e (1998), respectively. Small banks are sub- 
ject — effective in January 1996 — to the small bank perform- 
ance test. A small bank is a bank that, in either of the 2 
previous years, had total assets of less than $250 million 
and is independent, or a bank with less than $250 million in 
assets that is an affiliate of a bank holding company with 
total assets of less than $1 billion. See 12 C.F.R. § 25.12(t). 
When evaluating a small bank's record, the regulators will 
apply five CRA performance criteria: (1) loan-to-deposit ra- 
tio, (2) percentage of loans in its as.sessment area, (3) record 
of lending to borrowers of different income levels and small 
businesses and small farms, (4) geographic distribut.on of 
loans, and (5) responsiveness to complaints. 12 C.F.R. § 
25.26(a)(l)-(5). 

13 12 C.F.R. § 25.22(b)(1); Further definitions at 12 C.F.R. § 
25.12(m), (u), and(v). 

i-" 12 C.F.R. § 25.22(b)(2)(i)-(iii). The regulators will consider 
the performance of similarly situated lenders and the bank's 
market share. They will not require a bank to lend evenly 
throughout its service area or to every census tract. How- 
ever, the bank's lending record should not contain conspicu- 
ous geographical gaps that are not explained by the per- 
formance context. 

'^ Id. § 25.22(b)(3). 

"^ Id. § 25.22(b)(4); A community development loan is a loan 
that has as its primary purpose affordable housing for low- 
er moderate-income individuals, community services tar- 
geted to low- or moderate-income individuals, activities that 
promote economic development by financing small busi- 
nesses or small farms, activities that revitalize or stabilize 



197 



lending practices, meaning those that serve low- 
and moderate-income borrowers in new ways or 
that serve groups of creditworthy borrowers not 
previously served.'" 

(2) Investment Test 

Pursuant to the CRA, the regulators will 
evaluate a retail bank's "qualified investments" 
in community development projects.'* The 
regulations establish the following four criteria 
to evaluate a bank's investments: (1) the total 
number and dollar amount of the investments, 

(2) their innovative character or complexity, (3) 
their responsiveness to credit and community 
development needs, and (4) the degree to which 
the investments are not made by other private 
investors. '9 

(3) Service Test 

The bank's regulators will evaluate the 
bank's system for delivering two types of serv- 
ices: retail banking and community development 
banking.20 

• Retail banking: Four performance criteria 
are considered: (1) branch distribution 
among low-, moderate-, middle-, and upper 
income census tracts; (2) record of opening 
and closing branches, particularly those lo- 
cated in low- and moderate-income census 
tracts; (3) the availability and effectiveness 
of alternative service dehvery systems, such 



low- or moderate-income geographies, and loans to commu- 
nity development financial institutions. A community devel- 
opment loan can be outside a low-income area as long as it is 
intended to benefit low-income people. However, loans not 
primarily benefiting low-income people or neighborhoods do 
not qualiiy. For example, a loan for upper income housing in 
a low-income area does not count under the lending test. 12 
C.F.R. § 25.12(i). 

"12 C.F.R. § 25.22(b)(5). 

'8 "Qualified investments" include investments, grants, de- 
posits, or shares in or to, among other things, financial in- 
termediaries that facilitate lending in low-income areas; 
community development financial institutions; affordable 
housing and small business development projects; and not- 
for-profit organizations. CRA Regulations, 60 Fed. Reg. at 
22,162 n.3 (May 4, 1995). 

19 12 C.F.R. § 25.23(e)(lH4). 

-" Community development banking services include pro- 
viding technical expertise to not-for-profit entities involved 
in economic development, serving on a board of directors, 
credit counseling, or low-cost government check cashing. 60 
Fed. Reg. at 22,160 n.2. 



as ATMs, 2' to low- and moderate-income 
census tracts and to low- and moderate- 
income individuals; and (4) the range of 
services offered to low-, moderate-, middle-, 
and upper income individuals. 
• Community development banking: Two per- 
formance criteria are considered: (1) the ex- 
tent of the services and (2) whether the 
services are innovative and responsive to 
community needs. 22 

To arrive at an overall CRA rating, regulators 
will first assign one of five ratings — 
"outstanding," "high satisfactory," "low satisfac- 
tory," "needs to improve," and "substantial non- 
compliance" — for each of the three component 
tests. 23 The regulators will then combine these 
scores to generate a composite or overall rating 
for the bank.2^ In addition, the new regulations 



^' The preamble to the new regulations states that the 
regulators' emphasis in the service test will be on branches 
rather than alternative systems for service delivery because 
"convenient access to full-service branches within a commu- 
nity is an important factor in determining the availability of 
credit and noncredit services." Id. at 22,167. 

" 12 C.F.R. § 25.24(e)(l)-(2). 

« GO Fed. Reg. at 22,168-70. 

2' There has been some suggestion of grade inflation. From 
1990 to 1996, the percentage of institutions receiving 
"satisfactory" or "outstanding" performance ratings rose 
from 87 to more than 98 percent. During the same time, the 
percentage of institutions receiving "needs to improve" or 
"substantial noncompliance" ratings dropped firom 14 to 2 
percent. This means that out of 4,777 CRA evaluations in 
1996, 8 institutions in the country (0.2 percent of those ex- 
amined) received ratings of "substantial noncompliance" and 
84 institutions (1.8 percent of those examined) received 
"needs to improve" ratings. The charge has also been made 
that the four regulators charged with tracking lenders' com- 
pliance — the Federal Deposit Insurance Corp., the Office of 
Thrift Supervision, the Federal Reserve Board, and the 
Comptroller of the Currency — sometimes give high ratings 
for below-satisfactory performance. A recent study of 23 
Milwaukee-area lenders found that those receiving 
"outstanding" ratings often did no better, and sometimes 
worse, than "satisfactory" lenders in serving Milwaukee's 
central city. The lenders were rated between October 1993 
and January 1997. Michele Derus, "Lenders' Ratings Incon- 
sistent: Satisfactory Institutions Have Outperformed Out- 
standing Ones In Some Ways, Study Shows," Milwaukee 
Journal Sentinel, Apr. G, 1997, p. 1. 

One possible reason for the discrepancies is that the reviews 
changed in 1995 from reviewing procedures to reviewing 
actual performance by the lenders. Janis L. Smith, senior 
public affairs specialist for the Comptroller of the Currency, 
said that before 1995 there was a lack of consistency among 
regulatory agencies, and performance standards did not 
provide a good indicator of lending performance. Ms. Smith 
said, "We now have uniform rules, exam procedures and 



198 



list three guidelines that the regulators will fol- 
low when assigning an overall CRA rating to a 
bank. First, if the bank receives an "outstanding" 
rating on the lending test, it will automatically 
receive an overall CRA rating of at least 
"satisfactory.''^^ Second, if the bank receives an 
"outstanding" rating on the service and invest- 
ment tests, and at least a "high satisfactory" on 
the lending test, it will receive an overall CRA 
performance rating of "outstanding."^^ Third, no 
bank may receive an overall rating of 
"satisfactory" unless it receives a rating of at 
least "low satisfactory" on the lending test.^^ 

In effect, an institution must receive at least 
a "low satisfactory" on the lending test to attain 
an overall "satisfactory" rating. This scheme also 
means that any institution receiving an 
"outstanding" on the lending test is assured an 
overall "satisfactory," even if it receives 
"substantial noncomphance" on the other two 
components. One criticism of placing increased 
emphasis on the lending test is based on the con- 
cern that banks are evaluated less harshly on 
the pivotal lending test, and judged more se- 
verely on the service and investment tests, 
which have less impact on the overall rating. 
Moreover, one community group's study states: 

The need for minimum required scores on all three 
tests, at least for the larger institutions, is begged 
here. Even the semantics argue for such a minimum 
score; if a bank receives a "Substantial Noncompli- 
ance" on any component of its performance evalua- 
tion, a "satisfactory" composite score does not seem 
warranted. 28 

The significance of a CRA performance record 
is twofold. First, it is a factor considered by the 



standards and rather than looking at pohcy and procedure, 
outreach and ads, we're looking at performance. We have 
conducted training jointly, so every agency's examiners are 
trained identically. We believe the new system will give us 
accurate and reliable results." Ibid.; see also "Testimony of 
Daniel Immergluck, vice president of Woodstock Institute, 
U.S. House Small Business Loan Programs," Federal Docu- 
ment Clearing House Congressional Testimony, Oct. 22, 
1997. 

25 12 C.F.R. § 25.28(b)(1). 

2C Id. § (b)(2). 

■" Id. § (b)(3). 

^8 Daniel Immergluck, "Is CRA Reform for Real? Analyzing 

the Ratings of Large Banks Opting for Evaluation Under the 

New CRA Regulations," Woodstock Institute, Sept. 17, 1997, 

p. 17. 



regulatory agency when a bank applies for per- 
mission to change its structure (i.e., branch ac- 
quisitions, mergers, and consolidations). ^9 Sec- 
ond, a current performance rating is made avail- 
able for public inspection, along with the bank's 
public file. 30 A public file consists of portions of 
the bank's application to engage in corporate 
activities and transactions, supplementary in- 
formation, and information submitted by inter- 
ested persons. 31 

The CRA does not strictly prohibit any acts, 
nor does it estabhsh civil or criminal penalties, 
damages, or injunctions. The CRA's sanctions 
are indirect, including delays or denials of apph- 
cations requesting permission to engage in vari- 
ous business ventures or bank activities. ^2 Since 
any member of the pubHc may file written com- 
ments opposing the bank's application— known 
as a "challenge" or "protest" — community groups 
from low-income areas have successfully used 
the CRA to obtain significant "agreements" or 
"settlements."^^ 

Community reinvestment agreements, termed 
"CRA agreements," became increasingly common 
in the 1980s and 1990s. These agreements ex- 
press a bank's goals or commitments toward im- 
proving its services to minority and low-income 
neighborhoods. Through 1983, only 16 CRA 
agreements had been established. However, be- 
tween 1984 and 1996, more than 310 agree- 
ments among lenders and community groups 
were announced, totahng more than $200 bil- 
Uon.^'i The proliferation of CRA agreements from 
the mid-1980s stems largely from the deregula- 
tion and rapid restructuring and consoUdation of 
the financial services sector, including the bank 
and thrift industries. 

Since the CRA enables community groups 
and other organizations to challenge bank merg- 
ers and acquisitions as well as applications to 



29 12 U.S.C. § 2903; 12 C.F.R § 25.29(a). 

30 12 C.F.R. § 4.14(a)(8), (11) (1998). 

31 12 C.F.R. §§ 5.4(a) and 5.9(b) (1998). 

32 These include five types of applications; (1) a charter for a 
national bank or Federal savings and loan association, (2) 
deposit insurance, (3) a new branch, (4) a branch or office 
relocation, or (5) a merger with or acquisition of the assets 
or liabilities of another bank. 12 U.S.C. § 2902(3). 

33 Michael E. Shrader, "Competition and Convenience; The 
Emerging Role of Community Reinvestment," Indiana Law 
Journal, vol. 67 (1992), pp. 331, 344. 

3'' "CRA Dollar Commitments Since 1977," National Com- 
munity Reinvestment Coalition, Washington, DC, 199G. 



199 



expand interstate banking, the industry's re- 
structuring gave these groups numerous oppor- 
tunities to negotiate CRA agreements. ''^ For ex- 
ample, the number of savings and loans declined 
by 40 percent from the late 1970s to 1990, and in 
recent years the number of commercial banks 
has declined by several hundred annually. ^6 

Community reinvestment agreements usually 
include provisions for home mortgage lending. 
Additionally, CRA agreements increasingly en- 
compass other areas, such as small business 
loans, construction loans, mortgages for new 
housing development, lines of credit for commu- 
nity development corporations, investment in 
low-income housing financed with low-income 
housing tax credits, and grants to community- 
based organizations. Some agreements pledge 
not to close bank branches (or pledge to open 
branches in low-income areas), and some set goals 
for increasingthe hiring of women and minorities. 

Although the language and appearance of 
many CRA agreements resemble those of a for- 
mal contract,37 CRA agreements are probably 
not legally binding. 38 Regulatory agencies re- 
sponsible for the enforcement of the CRA have 
not required their examiners to monitor a bank's 



■" Because of the continuing quick pace of mergers and ac- 
quisitions, approximately one-third of the banks hsted in the 
National Community Reinvestment CoaUtion (NCRC) 
"Catalog and Directory of Community Reinvestment Agree- 
ments" no longer exist. Thus, just as the rapid pace of merg- 
ers gives community reinvestment advocates many opportu- 
nities to mount CRA challenges and negotiate CRA agree- 
ments, so too does this restructuring make any given 
agreement vulnerable to subsequent bank mergers and ac- 
quisitions. Given this situation, it might be reasonable for 
future CRA regulations to make it clear that regulatory 
agencies, when considering merger requests, will take note 
of whether CRA agreements will be honored by the acquir- 
ing institution. 

"• Calvin Bradford and Gale Cincotta, "The Legacy, the 
Promise, and the Unfinished Agenda," in From Redlining to 
Reinvestment: Community Responses to Urban Disinvest- 
ment, ed. Gregory D. Squires (Philadelphia: Temple Univer- 
sity Press, 1992). 

■" While some agreements are negotiated, others are volun- 
tary. Negotiated agreements often result firom an actual or 
threatened challenge to a bank merger or acquisition. Banks 
usually settle the matter before the challenger formally 
submits a letter of protest with the regulatory agency that 
must approve the merger or acquisition. Voluntary agree- 
ments are announced unilaterally by the banks and do not 
result from a negotiation process. In some instances a bank 
will announce an agreement to preempt a CRA challenge. 

38 This remains unknown because, as yet, no financial insti- 
tution has been taken to court in an attempt to enforce a 
CRA agreement. 



compliance with CRA agreements; in fact, ex- 
aminers are not required to take the agreements 
into consideration when they assess a bank's 
performance under the CRA. Despite all this, 
research suggests that banks with CRA agree- 
ments appear to be more responsive than other 
banks to the credit needs of minority and low- 
income households and neighborhoods — including 
having larger market shares of mortgage ap- 
provals for disadvantaged households and 
neighborhoods. 39 

In one recent case, the Second Circuit U.S. 
Court of Appeals rejected an attempt by plaintiff 
Inner City Press/Community on the Move to 
block merger approval of Chase Manhattan 
Bank, Chemical Bank, and U.S. Trust.« The 
plaintiff accused the defendant banks of falling 
short on their Community Reinvestment Act ob- 
ligations, and urged the Federal Reserve Board 
to deny approval of their merger. 

After denying standing to the plaintiff, the 
court reached several important pronounce- 
ments regarding the scope of the CRA, holding 
that the CRA neither creates a private right of 
action to enforce any of its terms, nor imposes 
specific obligations on financial institutions."" 
According to the court, the CRA "is not a direc- 
tive to undertake any particular program or to 
provide credit to any particular individual. The 
statute, rather, is precatory . . ."""^ Moreover, 
"any attempt to glean substance from the CRA is 
met with the reality that the statute sets no 
standards for the evaluation of a bank's contri- 
bution to the needs of its community."''^ Paul A. 
Smith, senior federal counsel at the American 
Bankers Association, said CRA protests will still 
delay mergers. "The agencies take these things 
very seriously, almost no matter what the pro- 
test says," he said.'*'' 



3' Alex Schwartz, "Bank Lending to Minority and Low- 
Income Households and Neighborhoods; Do Community 
Reinvestment Agreements Make a Difference?" New School 
for Social Research, New York, January 1998, under review 
for publication in Journal of Urban Affairs. 

'10 Lee V. Board of Governors of the Fed. Reserve Sys., 118 
F.3d 905 (2nd Cir. 1997). 

'I'M at 913. 

''3 Id.; see also "Court Offers Narrow CRA Definition," Regu- 
latory Compliance Watch, Oct. 6, 1997, p. 1. 

" Jaret Seiberg. "Federal Court Tightens Rules On CRA 
Challenges to Mergers," American Banker, Sept. 24, 1997. 



200 



Matthew Lee, the executive director of the 
Bronx-based Inner City Press/Community on the 
Move (ICP), the plaintiff group in the case, ar- 
gued to ensure that the regulatory agencies lis- 
ten to the affected public, the CRA statute 
should be amended to designate community 
groups, such as ICP, as aggrieved parties. This 
would grant legal standing necessary to ask 
courts to review regulators' merger approvals. 
Mr. Lee argued that, as with other public inter- 
est statutes — such as the Freedom of Informa- 
tion Act or the Fair Housing Act — the amend- 
ment should specify that attorney's fees and 
costs would be awarded to prevailing community 
groups. ''5 

A CRA agreement was reached in the Chase 
Manhattan-Chemical Bank merger, whereby 
Chase pledged $18.1 bilUon ($4.2 billion in New 
York State alone) for CRA initiatives over the 
next 5 years, including expanding its presence in 
the Bronx to 35 facilities, 3 times more than any 
other bank.'*^ The bank's final pledge package 
resulted from consultations with more than 350 
community organizations and government offi- 
cials. 

The major components of Chase's commit- 
ment include: (1) $13.5 billion in affordable 
mortgages and an expansion of the bank's credit 
and mortgage counseling programs; (2) $3.4 bil- 
lion in loans and investments to assist small 
businesses and community-based nonprofit or- 
ganizations; (3) $1.2 billion in loans and invest- 
ments for affordable housing and commercial 
economic development projects; and (4) $70 mil- 
lion in philanthropic contributions to commu- 
nity-based nonprofit organizations providing 



^^ Mr. Lee argues that this type of language exists in many 
environmental and administrative law statutes. He cites to 
the example of the Federal Communications Act, which 
permits a listener of a radio station to become a party to a 
station's application for approval, and thus have standing to 
challenge the FCC's decision. Mr. Lee explains, "It is simply 
a matter of good government, of checks and balances. An 
agency's interpretation and implementation of a law passed 
by Congress must be subject to challenge by those affected." 
Matthew Lee, "New Strategies for Community Reinvest- 
ment in an Era of Mega-Banks, Mega-Mergers, and Fast 
Deregulation," Reinvestment Works, vol. 6, no. 1 (winter 
1998), p. 6. 

'"• It has opened two branches in the borough since 1994, 
including a full-service office in University Heights that 
began accepting customers in the summer of 1997. Univer- 
sity Heights had been without a bank for 25 years. See Jaret 
Seiberg, "N.Y. Activist Changing Strategy to Stay on 
Course," Anieiican Banker, July 29, 1997, p. 1. 



assistance in education, employment, and busi- 
ness management. The agreement also calls for 
the opening of two new branches in East Harlem 
and the South Bronx, as well as 46 new ATMs in 
low- and moderate-income areas.'''' 

There are other, smaller examples of CRA 
agreements. In New York City, many of these 
cases have involved the aforementioned Mat- 
thew Lee and ICP. In 1994 ICP persuaded five 
banks to make $65 million in loan commitments 
and to open four new facilities in the Bronx. ■'^ In 
1997 Mr. Lee signed a deal with Astoria Federal 
Savings and Loan, a $7.7 billion-asset thrift in 
Brooklyn buying Greater New York Savings 
Bank, whereby he and ICP pledged not to pro- 
test the acquisition. For its part, Astoria commit- 
ted to issue $25 million in loans over the next 3 
years. This credit will be earmarked for low- and 
moderate-income sections of Brooklyn and Man- 
hattan. The bank also agreed to open two auto- 
matic teller machines in Northern Brooklyn, and 
to expand its reinvestment activities in each of 
New York City's five boroughs. ''s 

However, there are signs that the effective- 
ness of CRA protests will decrease, given that 
the regulators are granting faster approvals and 
offering shorter comment periods for community 
group input. 5" Moreover, Congress appears to be 
working to streamline the process further still; 
pending financial modernization legislation 
would allow banks to buy insurance companies, 
securities firms, and industrial companies with- 
out requiring an application procedure in which 
affected communities could participate and 
comment. 

Given the current climate, Matthew Lee be- 
lieves that other strategies are needed, including 
innovations from the labor union movement. Mr. 
Lee suggests that activists probe the business 
relationships of banks. If a bank provides insuf- 



"i' "Chase/Chemical Vow Billions for CRA," Regulatory Com- 
pliance Watch, Nov. 6, 1995, p. 1. 

■'8 Seiberg "N.Y. Activist," p. 1. 

''^ Ibid. See also "Astoria Federal Savings and Loan Associa- 
tion and Inner City Press Announce Community Reinvest- 
ment Agreement," PR Newswire, July 10, 1997. 

5" Moreover, the Congress appears to be working to stream- 
line the process further still; pending financial moderniza- 
tion legislation would allow banks to buy insurance compa- 
nies, securities firms, and industrial companies without 
requiring any application procedure in which affected com- 
munities could participate and comment. Lee, "New Strate- 
gies for Community Reinvestment" p. 2. 



201 



ficient service to low-income communities, Mr. 
Lee urges the activists to inform all the bank's 
customers (including individual depositors, gov- 
ernment agencies with accounts at the bank, 
institutional pension and trust customers, and 
syndicated loan customers) of this fact. Mr. Lee 
says, "While the target bank may be entrenched 
in its position, its business partners might have 
a much lower pain threshold for tolerating a pro- 
tracted and widely publicized slugfest. They may 
inform the bank, 'Resolve this or we'U end our 
relationship. '"51 

The New York State CRA 

New York adopted its own CRA law in 1978. 
It is 1 of 12 States to have enacted their own 
CRA statute. Seeking to encourage actual lend- 
ing rather than paperwork. New York regulators 
revised the community reinvestment require- 
ments for State-chartered banks. As of Decem- 
ber 3, 1997, the New York State Banking De- 
partment began grading institutions on their 
lending, service, and investment in the commu- 
nity, a measure that closely paralleled the re- 
cently revised Federal Community Reinvestment 
Act regulations. 

Critics are wary of the new community in- 
vestment rules because they appear not to meet 
the needs of the intended beneficiaries, those in 
low- to moderate-income areas. Banks that oper- 
ate in parts of New York State with low- to mod- 
erate-income housing may earn credit for fi- 
nancing middle-income housing in mid- to high- 
income areas. State Senator Franz S. Leichter, a 
Democrat from Manhattan and the Bronx, said 
the new plan "is guaranteed to result in the si- 
phoning of milhons of dollars from low- and 
moderate-income neighborhoods. "^^ Sarah Lud- 
wig, executive director of the Neighborhood Eco- 
nomic Development Advocacy Project in New 
York City and coordinator of the New York City 
Community Reinvestment Task Force, ^3 agrees: 
"Middle-income housing is outside the parame- 



5' Ibid. 

52 Olaf de Senerpont Domis and Dean Anason, "Capital 
Briefs: Critics: New York CRA Proposal Would Hurt Poor," 
American Banker, Oct. 16, 1997, p. 2. 

53 The Community Reinvestment Task Force is a network of 
community organizations and advocates working for com- 
munity reinvestment in affordable housing, microenterprise, 
small business, and community development financial insti- 
tutions in low-income neighborhoods in New York City. 



ters of CRA. If banks aren't providing low and 
moderate housing assistance, then they are not 
in compliance with CRA."^'' Ms. Ludwig points to 
preliminary research data showing that al- 
though low-income households constitute more 
than 45 percent of all households in the New 
York Metropolitan Statistical Area, lenders in 
1995 made only 1.54 percent of ail loans to low- 
income borrowers.55 

The State banking industry nevertheless 
supports the new regulations. Michael P. Smith, 
president of the New York Bankers Association, 
said the new rules "recognize that even in higher 
income areas, there can be shortages of credit.''^^ 
Andrew Kelman, director of the community re- 
investment monitoring unit of the New York 
State Department of Banking, also defended the 
approval of the new CRA regulation, saying that 
the "CRA was intended to provide housing assis- 
tance to all communities, not solely low-income 
areas. The new regulation recognizes the possi- 
ble gap between the income of certain geographic 
areas and the income of the borrowers. "^'^ 

In a letter filed with the State's Department 
of Banking prior to approval of the new CRA 
regulation, 80 New York-based organizations 
and city. State, and Federal public officials ex- 
pressed strong opposition to key provisions of 
the proposed CRA regulations, charging that the 
new regulation would "seriously weaken the 



5'' Elaine Ringoff, "NY Community Advocacy Groups Accuse 
Department of Banking of Bowing to Bank Interest," Credit 
Union Times, Dec. 3, 1997, p. 5. See also New York City 
Community Reinvestment Task Force, letter to Stacey M. 
Cooper, deputy superintendent of banks, New York State 
Banking Department, Oct. 22, 1997 (hereafter cited as "Task 
Force Letter"), arguing that the proposed provision "directly 
undermines the spirit and letter of the CRA, which is in- 
tended to ensure that banks meet the credit needs of low- 
and moderate-income neighborhoods in their service areas." 
The letter concludes that the provision "should be based on 
demonstrated need in communities, not driven by prefer- 
ences of financial institutions and homeownership interme- 
diaries." Ibid. 

55 Task Force Letter. The letter adds that since most low- 
and moderate-income people in a high-cost area like New 
York City live in multifamily rental housing, the State 
regulations should follow the Federal CRA example by pro- 
viding "double credit" for multifamily lending. "Emphasis on 
owner-occupied housing in a high cost area like New York 
City, where the majority of residents, at all incomes, live in 
multi-family, rental housing, seems especially misplaced, 
and insufficiently driven by public interest." Ibid. 

56 Ringoff, "NY Community Advocacy Groups Accuse Dept. 
of Banking," p. 5. 

57 Ibid. 



202 



state's 17 year-old Community Reinvestment Act 
and let banks get away with considerably less 
lending to low- and moderate-income New York- 
ers."58 In addition to concern over the provision 
allowing banks to earn State CRA credit for fi- 
nancing middle-income housing in mid- to high- 
income areas, the following objections to the 
proposed regulations were put forth by the sig- 
natories: 

1. The signatories argued that the Banking 
Department did not adequately address the 
issue of loans that "gentrify" or "destabilize" 
low- and moderate-income neighborhoods. 
They contended that the issue is "especially 
important given the Banking Department's 
proposal for expansive treatment of middle- 
income lending for owner-occupied housing." 
Signatories argued the provision could lead 
to middle-income lending that results in 
neighborhood destabilization or gentrifica- 
tion.59 

2. The signatories argued that the Banking 
Department erred in its decision not to pro- 
pose formal procedures for processing public 
comments on banks' community reinvest- 
ment performance. They contended that the 
department should "promulgate clear, writ- 
ten procedures that ensure an open and 
public process."^" Written procedures, it was 
argued, would benefit all parties, putting fi- 
nancial institutions, regulators, and the 



'^ Upon reviewing a draft of this report, counsel for the New 
York Banking Department said there was no basis for this 
conclusion, stating: "The regulation specifically states that 
activities pertaining to middle-income individuals and areas 
shall be considered in addition to and not in lieu of consid- 
eration of activities pertaining to low- and moderate-income 
individuals and areas." Barbara Kent, assistant counsel, 
State of New York Banking Department, to Ruby Moy, Staff 
Director, U.S. Commission on Civil Rights, Apr. 16, 1999, 
U.S. Commission on Civil Rights files (hereafter cited as 
Kent letter). 

^'■' Ringoff, "NY Community Advocacy Groups Accuse Dept. 
of Banking," p. 5. According to counsel for the New York 
Banking Department: "At the time the regulation was pro- 
posed and continuing to present time, the Department 
agrees that 'gentrification' loans may not be consistent with 
the spirit of CRA. However, we do not believe that it is pos- 
sible to consider this issue with a one-size-fits-all approach. 
Accordingly, the Department elected not to address this 
issue in the regulation, but will continue to consider infor- 
mation brought to its attention on a case-by-case basis." 
Kent letter. 

"0 Task Force Letter. 



public on notice as to how comments will be 
addressed, both at the CRA examination 
stage and when banks submit applications 
subject to CRA.61 

3. The signatories argued that the final regula- 
tions should place greater emphasis on small 
business lending in low- and moderate- 
income neighborhoods. 82 

4. The signatories argued that the final regula- 
tions should create explicit incentives for 
banks' support of community development 
financial institutions (CDFls), such as com- 
munity development credit unions and loan 
funds. 83 

5. The signatories argued that the proposed 
CRA examination is inadequate, since all 
banks would be examined every other year 
irrespective of their rating. They suggested 
that exam frequency should be based on 
banks' ratings, and they argued that a 2- 
year interval between examinations "is too 
long for banks that receive less than satis- 
factory ratings. "^'^ 

6. The signatories argued that the final regula- 
tions should clarify criteria for evaluating re- 
tail banks' service records, and place empha- 
sis on branch services located in low- and 
moderate-income neighborhoods. The letter 
states: 



^' Ibid. According to counsel for the New York Banking De- 
partment, "The Department has not seen the need to adopt 
formalized procedures relative to the handling of CRA-based 
comments because it has been successful in its endeavors to 
assure a full airing of such comments without special regu- 
lations covering the same. In addition to expanding to 30 
days the comment period on major CRA-sensitive applica- 
tions, the Department has, as a matter of routine, shared 
commentators' statements with applicants and applicants' 
responses to such comments with the particular commenta- 
tor authoring the same. In this way, we already meet the 
spirit of the request." Kent letter. 

•52 Task Force Letter. 

''5 Ibid. According to counsel for the New York Banking De- 
partment, "We believed at the time and continue to believe 
that the regulation does place significant emphasis on small 
business lending and provides adequate incentives for the 
support of community development financial institutions." 
Kent letter. 

'''' Task Force Letter. According to counsel for the New York 
Banking Department, the decision to evaluate every other 
year rather than yearly "was done in order to use the De- 
partment's resources in a manner designed to achieve more 
comprehensive evaluations and to ultimately provide the 
public with more informative reports. . . . Reports under the 
new system are, in fact, more comprehensive and informa- 
tive." Kent letter. 



203 



The proposal would allow the Banking Department to 
consider banks' distribution of services primarily 
serving low- or moderate-income individuals, even if 
not located in low and moderate income neighbor- 
hoods. The provision undermines incentives for banks 
to locate in low and moderate income neighborhoods, 
reinforcing the problem many residents of under- 
served neighborhoods face of having to travel to 
higher income communities to do their banking. ^^ 

The letter called on the Banking Department 
to hold a public hearing on the proposed 
amendments, but such a hearing was never 
held.^6 The State's new CRA laws were formally 
adopted 1 week after the 14-week comment pe- 
riod ended. s'' 

Section II. CRA as Catalyst to 
Economic Development 

Economic Development as the Driving Engine 

At a forum in January 1998 entitled 
"Community Reinvestment and Access to 
Credit,"^* Federal Reserve Chairman Alan 



^^ Task Force Letter. According to counsel for the New York 
Banking Department; "[TJhe regulation allows the Depart- 
ment to consider, when evaluating a bank's distribution of 
services, branches that serve low- and moderate-income 
individuals even if the branches are not located in a low- or 
moderate-income neighborhoods, provided the branches are 
located adjacent to a low- or moderate-income area. . . . Since 
the branch, to be favorably considered, must be in or adja- 
cent to a low- or moderate-income area, the provision does 
not enable institutions to make claims that distant branches 
are serving the needs of low- or moderate-income custom- 
ers." Kent letter (emphasis original). 

86 According to counsel for the New York Banking Depart- 
ment, "The proposal was issued for comment only after a 
lengthy period of public discussion of CRA at both the state 
and federal levels. In addition, the proposal was issued for 
an extended 60 day public comment period that was further 
extended for an additional two weeks. The great length of 
the comment period and the publicity attendant thereto 
were important factors in the Department's determination 
not to hold public hearings. Prior to the expiration of the 
comment period, a total of 36 comments were received in 
response to the proposal, representing a diversity of banking 
institutions, banking trade groups, community groups, af- 
fordable housing developers, community group service pro- 
viders, legislators and other public officials. . . . Given this 
extensive input, the Department did not believe that there 
would be any benefit in having a public hearing." Kent letter. 

67 Ringoff, "NY Community Advocacy Groups Accuse Dept. 
of Banking," p. 5 

6** The forum was organized by U.S. Congresswoman Maxine 
Waters, a House Banking Committee member who has long 
been critical of the dearth of bank branches and loans made 
to her South-Central Los Angeles district and other inner 
cities. See Don Lee, "Greenspan Says," Buffalo News, Jan. 
13, 1998, p. 6-D. 



Greenspan told a gathering of bankers and 
community activists that curing the economic ills 
of the inner city requires not more credit or gov- 
ernment help, but capital investments that will 
spur lasting development. ^^ Greenspan noted 
that he was "very dubious of all sorts of govern- 
ment subsidies," and that access to credit has 
risen sharply in lower income areas in recent 
years. ^o He cautioned against expanding credit 
availabihty, saying that delinquency problems 
have surfaced and that more credit is not en- 
tirely a good thing for lower income areas. ^' 

Economist Laurence H. Meyer, a Federal Re- 
serve Board governor and longtime Washington 
University economics professor, stated at a re- 
cent conference'- that private-public economic 
development collaborations are the country's 
best hope for urban revitaUzation.'^ He argued 
that while housing has led troubled neighbor- 
hoods toward prosperity, only an infusion of 
small business and commerce will assure it: 

Housing is not enough to revitalize distressed com- 
munities, reinvigorate neighborhood life and create 
the kind of economic value that helps sustain revitali- 
zation efforts in ways that continue to benefit low- 
and moderate-income residents. You need a broader 
bayed effort: business development to create jobs and 
commercial development.'''' 

Mr. Meyer made a strong case for involving 
government, stating, "The hallmark of commu- 
nity development today is collaborative partner- 
ships between community non-profits, financial 
institutions, private-sector organizations, and 



69 Ibid. 

™ Ibid.; see Kui Testimony, New York Hearing, vol. Ill, p. 
1010. Mr. Kui, executive director, Asian Americans for 
Equality, argues, "We are not asking for subsidies" but 
rather for a "standard mechanism to look at lending overall 
in the minority community" to ensure those communities 
that save a great deal through bank deposits are given ac- 
cess to a reasonable and fair share of the lending that re- 
sults from those deposits. Ibid. 

" Lee, "Greenspan Says"; but see Kui Testimony, New York 
Hearing, vol. Ill, p. 991, where Christopher Kui, states that 
lack of access to credit "impacts on housing, job creation, 
small business growth, individual credit needs and a com- 
munity's overall capacity for development. . . ." 

"2 The conference was sponsored by the Urban Studies Pro- 
gram at the University of Wisconsin-Milwaukee in Decem- 
ber 1997. 

'3 Michele Derus, "Cooperation Called Key To Urban Revi- 
talization," Milwaukee Journal Sentinel, Dec. 7, 1997, p. 5. 

"' Ibid. 



204 



state and local government agencies — 

partnerships designed to increase the flow of 

funds into and within low- and moderate-income 
communities. '"^5 

Nicholas Ketcha, Jr., the New York regional 
director of the FDIC, testified at the New York 
hearing that such collaborative partnerships are 
taking place in New York City."^ The FDIC re- 
gional office is part of a large group of private- 
sector businesses, and city, State, and Federal 
agencies that come together annually for a 
"small business financing expo." The annual 
event concentrates on bringing together lenders, 
potential entrepreneurs, and experts in the field. 
The event includes a large education component, 
helping to clarify small lending procedures, as 
well as introducing to potential borrowers some 
of the lending programs that are available.''' 

Lawrence Toal, chairman and chief executive 
officer of New York City's Dime Bancorp, points 
out the importance of economic development: 

I think what has not happened is that there really 
has not been a coordinated effort, in government, 
business and the financial sector, in terms of what I 
call true economic development. There have been 
housing programs with small business lending, but I 
think that economic development is important for 
housing, and it is an important part of education and 
job creation.'^ 

Some people in the banking business believe 
that to ensure the viability of underserved com- 
munities, it is essential that they have sufficient 
capital available to them. Peter Williams, direc- 
tor of housing and community development. Na- 
tional Urban League, testified at the New York 
hearing that "capital to a community is like fuel 
to a car. If you have no capital, the community 
does not run.""^ Further, without adequate ac- 
cess to capital, the community is bound to be- 
come "socially isolated." Once capital is withheld 
from a given community, argued Wilhams, the 



'5 Ibid. 

'6 Nicholas Ketcha, testimony, New York Hearing, vol. Ill, 
pp. 1102-03 (hereafter cited as Ketcha Testimony). 

" Ibid., p. 1109. 

'8 "Assessing The New Direction of CRA," U.S. Banker, 
August 1997, p. 44. 

'" Peter Williams, testimony, New York Hearing, vol. Ill, p. 
999 (hereafter cited as Williams Testimony). 



result will be disinvestment, abandonment, and 
"the erosion of the community ."^o 

Doreen Greenidge, senior economic analyst at 
the Office of the Manhattan Borough President, 
suggested at the New York hearing that when 
people do begin investing in low-income commu- 
nities, such as Northern Manhattan, the resi- 
dents of the area should be given a "stake" in the 
new development: 

[Glutting through it all for me, the largest and biggest 
suggestion which came out of speaking to thousands 
of people. . . and doing studies, is really the distrust 
which I have encountered on the most basic grass- 
roots level, the distrust of those, for instance in the 
Northern Manhattan community, of investors coming 
in and people taking back and reclaiming and putting 
dollars back into the community without allowing 
those there to have a stake in the new renaissance 
which is underway . . . it's called stakeholding . . . And 
it is going to take great communication between fi- 
nancial institutions and investments into that area 
fi-om both the public sector and from the private. They 
have to win the trust of the people, bring them in. 
There is a lot of talent and resources there. . . .*' 

Ms. Greenidge also stated that when finan- 
cial institutions invest in low-income areas, it is 
important that they are willing to be more flexi- 
ble. ^^ For example, Greenidge testified, "There 
are different levels and ways to measure cash 
flow," and there are startup businesses that fi- 
nancial institutions have historically deemed 



80 Ibid. 

8' Doreen Greenidge, testimony. New York Hearing, vol. Ill, 
pp. 1124—25 (hereafter cited as Greenidge Testimony). See 
also Harriet Michel, president, National Minority Supplier 
Development Council, testimony. New York Hearing, vol. 
Ill, p. 1136 ("Minority businesses are the single greatest job 
engine in the minority community, the overwhelming num- 
ber of minority businesses have up to 75 percent or more of 
their employees are minorities, whether they are located in 
the minority community or outside of it"); see also Rudolph 
Bryant, associate director, Pratt Center, Pratt Institute, 
testimony. New York Hearing, vol. Ill, p. 1187 ("The [low- 
income] communities are structured such that the owner- 
ship is owned by absentee individuals. And that ownership 
allows for in the first instance a profit off of mortgages, 
rents . . . that flow directly out of the community. And so if 
low-income communities are to become better situated with 
regard to assets and wealth it requires in the first instance a 
restructure of their ownership base, rent, property and 
business"). 

8- Greenidge Testimony, New York Hearing, p. 1125. Ms. 
Greenidge states, "You don't have to jeopardize safety and 
soundness, just look at it in a different way with looking at 
the risk factor." Ibid. 



205 



unworthy of lending money to, such as hair 
braiding and child care businesses, which can 
thrive in such communities and return a profit.*^ 
A strong commitment by the city of New York 
is necessary before private dollars will be in- 
vested into lower income areas of the city. Ac- 
cording to William R. Frey, vice president and 
director of the Enterprise Foundation in New 
York: 

New York City is leading the private sector into those 
communities, and giving some security that there is a 
serious effort to rebudd and revitalize them. This 
really led to bilhons of dollars in commitment and 
investment on behalf of the financial institutions. I 
think that if you look at stable communities, there is 
an important lesson to be learned: that a certain 
amount of private investment follows a strong com- 
mitment by the government.*'' 

Some experts have hinted that strong gov- 
ernment commitment could entail extending the 
coverage of the CRA to entities other than 
banks. In June 1997, New York State's insur- 
ance commissioner, Neil Levin, called for a 
"consideration" of transferring the burden of the 
CRA to insurance companies and their activities, 
including those pursued by banks.*^ The issue 
over whether insurance activities should be 
subject to CRA regulation arose during a meet- 
ing of the National Association of Insurance 
Commissioners on the bank sale of insurance. 
Mr. Levin cited improvements in bank lending 
that followed the enactment of the CRA, but 
questioned the availability of bank investment 
without the necessary insurance coverage. In 
Mr. Levin's words, "Bank avadabihty without 
insurance availability doesn't do any good."86 

During the New York hearing, Timothy 
Bates, professor of vtrban, labor and manage- 
ment affairs at Wayne State University, noted 
his agreement with Mr. Levin's analysis, stating, 
"There is the perception that the inner-city mi- 
nority community is a very, very bad risk. And 
that's why the insurance companies are hesitant 
to be there and that compounds with the banks' 



limited willingness to lend." Mr. Bates argued 
that the situation creates a "vicious circle."*" 

In a recent speech, the comptroller of the cur- 
rency, Eugene Ludwig, explained that banks 
alone simply cannot meet all the financial needs 
of low- and moderate-income communities.** He 
stated that reinvestment responsibilities should 
be shared by all financial institutions. In his 
opinion, the CRA has not "damaged" the banking 
industry. In fact, he stated that "the greatest era 
of CRA activity in history, the last three years, 
has also seen the highest levels of bank profit- 
abihty in history."*^ 

Moreover, it is clear that banks no longer 
hold the great majority of assets in the financial 
industry. Currently, Americans have invested $4 
trilhon in mutual funds, while they hold $3 tril- 
Uon in bank and thrift deposits. Thus, it could be 
argued that if the CRA is not allowed to evolve 
with the evolution of the financial industry, it 
will cover fewer and fewer assets. It is likely that 
mergers among depository and nondepository 
institutions will accelerate, and that the distinc- 
tions among products offered by financial insti- 
tutions wUl thereby become blurred. For exam- 
ple, mutual funds offer checking accounts that 
are not regulated by CRA, and insurance com- 
panies now want to establish thrifts. If the CRA 
is not expanded, then bank holding companies 
may find it very tempting to switch their assets 
from their CRA-covered subsidiaries (banks and 
thrifts) into their CRA-exempt affiliates (mort- 
gage companies, insurance companies, etc.) Fi- 
nally, without an expansion of the CRA, the 
major lenders in poor communities (banks and 
thrifts) may no longer have the financial where- 
withal to continue increasing access to capital and 
credit to traditionally underserved communities. 

Availability of Deposit Facilities and Services 
in Low-income Areas 

Many low-income communities have a dearth, 
or a complete absence, of branch facilities for 



83 Ibid., pp. 1125-26. 

^ "Assessing the New Direction of CRA," U.S. Banker, 

August 1997, p. 44. 

85 "New York's Levin Eyes CRA For Insurance," Bank Mu- 
tual Fund Report, vol. 5, no. 25 (June 23, 1997), p. 1. 

86 Ibid. 



87 Timothy Bates, testimony, New York Hearing, vol. Ill, p. 
1199 (hereafter cited as Bates Testimony). 

88 "NCRC Celebrates CRA's 20th Birthday: CRA Will Re- 
main the Hope for Neighborhood Renewal Only if It 
Evolves," Reinvestment Works, vol. 6, no. 1 (winter 1998), p. 
6. 

89 Ibid. 



206 



banking. 9° According to a recent Federal Reserve 
Board study, bank offices declined 21 percent 
between 1975 and 1995 in low-income neighbor- 
hoods.^' The recent wave of bank mergers has 
led to an even greater elimination of branch fa- 
cilities. ^^ Testimony at the New York hearing 
indicated that, in the last decade or so, nearly 



™ See, e.g., David Dinell, "Capitol Federal Savings Inks Deal 
for KenMar Site,'" Wichila Business Journal, vol. 12, no. 14 
(Mar. 28, 1997), p. 3 ("There is a dearth of financial re- 
sources" in the KenMar area, a low-income community, of 
Wichita); Jonathan D. Epstein, "N.J. Bank, Besieged by 
Activists, Draws the Line," American Banker, July 31, 1995, 
p. 6 (stating that of its 46 branches. Commerce Bancorp in 
Cherry Hill, NJ, does not have one branch in a low-income 
area); Louise Witt, "An Alternative to Banking: Western 
Union Caters to the Low End; Western Union Corp. West- 
ern Union National Payment Network," Boston Business 
Journal, vol. 10, no. 49 (Jan. 28, 1991), p. 15 ("Despite in- 
creased CRA efforts, banks are continuing to close branches 
in low-income neighborhoods"); Robert Guskind, "Thin Red 
Line," National Journal, vol. 21, no. 43 (Oct. 28, 1989), p. 
2639 ("[There is] mounting evidence that deregulation of the 
banking industry had resulted in branch closing or elimina- 
tion of services in low-income neighborhoods"). 

Of course, there are other factors besides per capita income 
of a given area's residents that determine if a branch will be 
opened in the area. As Chase Manhattan's executive vice 
president Carol J. Parry points out, people bank where they 
work, and more than 2 million people work in Manhattan, 
compared with 300,000 in the Bronx. See Seiberg, "N.Y. 
Activist," p. 1; Ketcha Testimony, New York Hearing, vol. 
Ill, p. 1131 "(What you have is almost a 'Catch-22.' There is 
no financial services in there, so you can't get the new ac- 
tivity; because you don't have the new activity, you can't 
justify putting a branch in there"). 

5' Association of Community Organizations for Reform Now, 
"Small Business Loans Much More Likely in Wealthy 
Neighborhoods than Poor," Nov. 25, 1997, Washington, DC 
(hereafter cited as ACORN, "Small Business Loans More 
Likely"). Many low-income residents have no relationship 
with banking institutions, which makes it still more difficult 
to foster the more complicated relationship required for 
small business lending. Bankers' unfamiliarity with these 
communities and borrowers leaves them unable to under- 
stand and appreciate the credit needs and business plans of 
low-income borrowers. This affects lending adversely be- 
cause bankers are unable to differentiate the more compli- 
cated credit needs of low-income borrowers and to design 
programs and policies to meet these needs. Ibid. 
82 Jaret Seiberg, "Fed Called 'Embarrassing Rubber Stamp 
on Mergers,'" American Banker, Mar. 8, 1996. p. 2. Former 
New York State Senator Franz S. Leichter conducted a 
study which suggested that when minorities left their 
neighborhoods to find a bank, some were discriminated 
against. Some of the banks would institute a "10-block" rule 
for the bank, meaning potential customers had to reside 
within 10 blocks of the bank. The Leichter study found that 
the rule was waived 70 percent of the time for white testers, 
but only 22 percent of the time for Latino and African 
American testers. See Williams Testimony, New York Hear- 
ing, vol. Ill, p. 1027. 



one-third of the bank branches in Central 
Brooklyn have closed. ^^ Many residents are then 
forced to use pubHc transportation to reach 
banks in other communities, 9-» or to turn to local 
check-cashing stores. ^^ 

Check-cashing stores do not provide the tra- 
ditional banking services that allow people to 
save money, earn interest, and develop a bank- 
ing history. Instead, they impose a surcharge for 
every check cashed. ^^ Mark Winston Griffith, 
executive director of Central Brooklyn Partner- 
ship and president of Central Brooklyn Federal 
Credit Union, stated during testimony at the 
New York hearing that in Central Brooklyn 
there are twice as many check-cashing opera- 
tions as there are banks.^'' In addition, he testi- 
fied that "most of the people who run these insti- 
tutions have no other vital connection to the 
neighborhood but to be there to suck money out 
ofit."98 

Doreen Greenidge, senior economic analyst, 
Office of the Manhattan Borough President, 
conducted — with the help of some community- 
based organizations — a banking survey in Cen- 
tral Harlem and Washington Heights. The main 
concern expressed by the nearly 1,500 people 
interviewed was the lack of affordable banking 
(i.e., the need for low-fee or no-fee basic banking 
accounts, which also do not require a minimum 
balance), and the overcrowding due to the clos- 
ing of branches in low-income areas.^^ 



93 Griffith Testimony, New York Hearing, vol. Ill, p. 1193. 
Mr. Griffith indicated that while the nationwide average is 
one bank branch per 5,000 people, that number falls to one 
branch per 23,000 people in Central Brooklyn. Ibid. See also 
Statement of Alan Greenspan, Chairman, Board of Gover- 
nors of the Federal Reserve System, Community Forum on 
Community Reinvestment and Access to Credit: California's 
Challenge, Los Angeles, CA, Jan. 12, 1998, p. 2 (hereafter 
cited as "Greenspan Community Reinvestment Statement") 
("The banking crisis of the late 1980's, plus ongoing consoli- 
dation, have reduced the total number of banking organiza- 
tions by more than a third in the past two decades"). 

s** Jacqueline S. Gold, "The South Bronx Is Cheering as 
Banks Come Back," American Banker, Aug. 20, 1997, p. 1. 

95 Griffith Testimony, New York Hearing, vol. Ill, p. 1193 

'■"' Sarah Smith, "Cut to the Chase: Why the Chemical-Chase 
Megamerger Doesn't Add Up for Many New Yorkers," Vil- 
lage Voice, Jan. 23, 1996, p. 12. See also Bloomberg News 
Service, "Federal Law Makes Small Business Loans Easier 
to Get," Sacramento Bee, Jan. 15, 1996, p. E-1. 

9' Griffith Testimony, New York Hearing, vol. Ill, p. 1 193. 

M Ibid., pp. 1193-94. 

99 Greenidge Testimony, New York Hearing, vol. Ill, pp. 
1098-99. Ms. Greenidge testified that in Northern Manhat- 



207 



While many banks have installed offsite 
ATMs in large-chain supermarkets and depart- 
ment stores, this solution does not meet the 
needs of low-income customers because most 
large retail outlets are not located in low-income 
areas, and many offsite ATMs do not accept de- 
posits. In testimony presented at the New York 
hearing, it was argued that ATMs should be in- 
stalled in places that are actually frequented by 
low-income residents, even if this means uncon- 
ventional installations, such as in a church. '°° 
Another suggestion was that banks would be 
more accessible to certain members of low- 
income communities if they provided bihngual 
staffing and access to bilingual banking materi- 
als."" 

One of the newer products to emerge from the 
banking industry is the stored-value card. This 
card allows customers to transfer a sum of 
money onto an electronic card and use it like 
cash to pay for goods and services. '"^ Certain 
types of stored-value cards can be used in mak- 
ing small-value payments, such as at parking 
meters, pubUc transport, and fast food restau- 
rants. In addition. Federal and State Govern- 
ments are testing different types of stored-value 
cards for making electronic payments to food 
stamp recipients, and for other purposes.'"^ Be- 
cause the system is relatively new, however, its 
apphcation is still largely unregulated with re- 
spect to security, privacy, and access. 

While CRA advocates may be skeptical of 
these kinds of payment products, presuming 
that banks have created another cost-saving de- 
vice at the expense of the poor, representatives 
of the banking industry argue that such technol- 
ogy extends electronic access to lower income 
neighborhoods, which lack ATMs and mini- 



tan, the number of customers at some branches has quadru- 
pled due to closings, causing "overcrowding and very poor, 
unfavorable conditions for people to do banking." Ibid., pp. 
1099-1100. 

">" Ibid., p. 1100. Ms. Greenidge argued during the New 
York hearing that placing ATMs in churches is simply 
making banking facilities "more user friendly." Ibid., pp. 
1100, 1127. 

'O'lbid., p. 1100. 

'"- Laurence H. Meyer, member, Board of Governors of the 
Federal Reserve System, statement before the Committee 
on the Judiciary, U.S. House of Representatives, Federal 
Reserve Bulletin, vol. 84, no. 8 (August 1998), p. 619. 

■"••i Ibid. 



branches. 10^ After describing a very similar sys- 
tem in her testimony at the New York hearing, 
Doreen Greenidge concluded, "[l]f we had this 
[available in low-income areas], at least it is 
something to make up for not having ATM ma- 
chines to be able to get cash. ... It is very basic, 
but the impact is tremendous. And just little mi- 
nor considerations like that can make a big dif- 
ference." '"^ 

Community Development Financial Institutions 

Community Development Financial Institu- 
tions (CDFIs) are community-based and com- 
munity-controlled financial intermediaries de- 
signed to support the credit and technical busi- 
ness needs of their communities. They are spe- 
cifically established to respond to their commu- 
nity's needs, and actively seek out the expertise 
required to fulfill such needs. More importantly, 
CDFIs provide low-income residents a stake in 
their own community development. 

In New York City, community development 
corporations — usually small, nonprofit neigh- 
borhood groups — have built thousands of homes 
and apartments for poor people since the 
1970s. ^"6 "These groups are the stabilizing force 
in their neighborhoods," said Gary Hattem, di- 
rector of the Community Development Group at 
Bankers Trust, i^*' Since the community devel- 
opment corporations began their work in the 
1970s — typically to fix up a small number of 
blighted buildings that had become centers of 
the drug trade — the groups have rehabihtated 
more than 500 vacant buildings and created 
more than 20,000 apartments."*^ 

Since the mid-1980s, the main source of fi- 
nancing for the groups, and the main source of 
their close ties to banks and other corporations, 
has been the Federal Government's program of 
corporate housing tax credits, which are limited 
and divided among the States. The program en- 
ables businesses that provide money to the 
housing groups to recoup their investment. 



'o* Jeffrey Kutter, "Monde.x Draws Sparse Crowd on the 
Hill," American Banker, Mar. 14, 1996, p. 16. 

105 Greenidge Testimony, New York Hearing, vol. Ill, p. 
1128. 

'OS Thomas J. Lueck, "$15 Million In a Fund Will Provide 
Housing Aid," New York Times, May 22, 1997, p. B-9. 

10- Ibid. 

108 Ibid. 



208 



sometimes with interest, through reductions in 
their corporate income taxes over 15 years.""* 

Community Development Financial Institu- 
tions come in many forms, including community 
development banks, community development 
loan funds, and community development credit 
unions. ''° Ideally, the operations of a CDFI will 
be a direct reflection of its community's needs. 
They may engage in a wide variety of lending 
and business-related activities, such as ac- 
counting, financial planning and management, 
marketing, housing development, and credit 
counseling. The main goal of a CDFI is not to 
maximize profits for its shareholders, but to 
build and rebuild the economic infrastructure of 
its community. 

Although CDFIs are not new to the banking 
environment, they have proliferated in recent 
years due in part to the CRA; banks can help 
satisfy their obligations under the act by in- 
vesting in the development and maintenance of 
CDFIs.m In addition, based on the findings that 
economic opportunity was still lacking in many 
communities, and that CDFIs have proven their 



109 In New York City, the tax credit program is administered 
by two organizations, the Enterprise Foundation and the 
Local Initiative Support Corporation, both of which have 
contributed to the £15 million fund. Executives of both 
groups said they considered the fund a logical extension of 
the corporate investments that have already been made, 
even though contributors will not receive the tax credits 
that have attracted them in the past. Ibid. 

"0 In her testimony, Lillian Bent, director of Union Settle- 
ment Federal Credit Union, discussed the difference be- 
tween a credit union and a bank: "[T]here is a personal in- 
volvement in your credit union. You have bought a stake of 
your credit union when you have deposited your money 
there. Our investors are our depositors. And that is different 
than the bank. We keep our costs extremely low. We only 
look to cover our expenses, we don't look to make a profit. 
The profit we do make is returned to our membership, not to 
anyone else. So, the members have a very strong affiliation 
and dedication to their credit union." Lillian M. Bent, testi- 
mony. New York Hearing, vol. Ill, pp. 1014-15 (hereafter 
cited as Bent Testimony); see also Griffith Testimony ("What 
is structurally unique about a credit union is that again it is 
owned and operated by its membership and our membership 
is constituted by those people who live, work, do business, 
worship, or have any type of vital connection to the Central 
Brooklyn community"), New York Hearing, vol. Ill, p. 1192. 

'" Richard D. Marsico, "Fighting Poverty Through Commu- 
nity Empowerment and Economic Development: The Role of 
the Community Reinvestment and Home Mortgage Disclo- 
sure Acts," New York Law School Journal of Human Rights, 
vol. 12 (1995), p. 281; see also Rochelle E. Lento, 
"Community Development Banking Strategy for Revitalizing 
Our Communities," University of Michigan Journal of Law 
Reform, vol. 27 (1994), p. 773. 



ability to identify and respond to community 
needs, "2 Congress passed the Community De- 
velopment Banking and Financial Institutions 
Act in 1994."^ The act was intended to help de- 
velop a national network of financial institutions 
dedicated to community development. Its pri- 
mary purpose was to create a fund to provide 
financial support in the form of matching loans, 
grants, investments, and deposits made to 
CDFIs. i'-" Although the fund is too new to pre- 
dict its success or failure, CDFIs have applied for 
assistance in record numbers. For fiscal year 
1995, 262 applications were submitted request- 
ing more than $300 million, about 10 times the 
amount available for actual funding. "^ 

President Chnton, speaking on January 15, 
1998, in New York City at Jesse Jackson's 3-day 
Wall Street diversity conference, '^^ stated that 
his 1999 budget would include a proposal to in- 
crease funding for Community Development Fi- 
nancial Institutions by 50 percent. The President 
said he wanted to "help famdies with good histo- 
ries of paying their rent to move into homes of 
their own.''^'^ 

In addition to Federal funding, a group of 
banks and foundations led by Bankers Trust and 
J. P. Morgan announced a $15 milUon fund to 
subsidize New York City's community develop- 
ment corporations. The fund is intended to sup- 
port these community groups at a time when the 
Federal Section 8 program and other forms of 
government housing assistance are being cut, 
thus increasing the demand for the groups' 
services in poor areas. As an incentive, banks 
that contributed to the fund received credit un- 
der the Community Reinvestment Act. 



112 12 U.S.C. § 4701(a) (1998). 
113M §§4701-4718. 
11^ /d. §4707. 

115 Olaf de Senerpont Domis, "Community Development 
Program Has $300M in Applications and $31M to Spend," 
American Banker, Feb. 6, 199G, p. 4. 

116 See Charles Gasparino and Joseph N. Boyce, "Jackson, 
Wall Street Have Their Big Day, But Will It Fuel Minority 
Opportunities?" Wall Street Journal, Jan. 16, 1998, p. C-1. 

'1' White House Briefing, Remarks by President Clinton at 
Wall Street Project Conference, World Trade Center, New 
York City, Federal News Service, Jan. 15, 1998. 



209 



Section III. CRA as Catalyst to 
Small Business Enterprise 

Small Business Lending 

Small businesses have traditionally been an 
engine of job growth. They have created ap- 
proximately 65 percent of new jobs nationwide in 
the 1970-1990 time period. Projections from the 
Bureau of Labor Statistics and the Small Busi- 
ness Administration suggest that industries 
dominated by small businesses may generate 68 
percent of new, nonfarm jobs through the year 
2005.118 

UnUke large businesses, small businesses 
cannot obtain necessary capital through the 
stock or bond markets, and must turn to lenders 
to help finance startup or expansion costs. When 
small businesses in low-income neighborhoods 
have difficulty obtaining needed credit, they are 
unable to create jobs, increase wages, and ex- 
pand the base of capital in their neighborhoods. 
The lack of employment opportunities, in turn, 
shrinks the local tax base and lowers the quality 
of life, compelling the financially able working- 
class famihes to flee the neighborhood. This 
leaves behind concentrated pockets of poverty 
lacking even the most basic and essential busi- 
nesses such as grocery stores. n^ 

In an interview with U.S. Banker, Carol 
Parry, executive vice president at Chase Man- 
hattan Bank, noted the importance of small 
business lending and stated: 

The new CRA regulations look at three types of lend- 
ing — mortgages, small businesses and community 
development, construction-type projects. So small 
business is a big item on the agenda. There is not a 
bank around . . . that is not doing small business lend- 
ing and seeing it as an attractive market in general, i^" 

Banks are even turning to nonprofit organi- 
zations to help them find small business loan 
prospects. "The key to our success is the not-for- 
profits, the churches," said Gregory Garden, 
Chase Manhattan Corporation's district man- 
ager for the South Bronx and Northern Manhat- 



tan, i^i According to Mr. Garden, "They build 
houses, run bus companies, help supermarkets 
move to the neighborhood." 122 Chase, the Na- 
tion's biggest bank and the market-share 
heavyweight in the Bronx, with 35 branches and 
$2.7 billion of deposits, uses its nonprofit organi- 
zation contacts to find small business loan pros- 
pects.123 

In addition to Chase, Marine Midland Bank, 
with 10 branches in the Bronx and 7.8 percent of 
the county's banking market, also looks to the 
nonprofits. "Banks need to respond to the com- 
munity," said Martin Liebman, Marine's regional 
president for New York City, Westchester 
County, and Long Island. He stated, "We have 
three people working in our loan production of- 
fice in the Bronx. They all speak Spanish. They 
all belong to community groups."i2'' 

Such efforts by banks are clearly increasing 
lending in historically underserved areas. In 
fact, the banking industry was enthusiastic 
about the results of a study released by the Fed- 
eral Financial Institution Examination Council 
(FFIEC) in September 1997, which found that 
small business lending patterns generally are 
comparable to the distribution of census tracts 
by income. The data showed that 6.5 percent of 
census tracts that are low-income received 4.6 
percent of small business loans. Regarding the 
FFIEC study, the American Banker published a 
story titled "New Data Back Denials of Industry 
Redlining Against Small Business," and some 
industry representatives concurred, hailing the 
study as evidence of decreased redlining of small 
businesses in underserved areas. i^^ 



'21 Gold, "The South Bronx," p. 1. 
'22 Ibid. 



'"* "Community Development: A Profitable Market Oppor- 
tunity," Office of the Comptroller of the Currency, 1997, p. 
13. 

"" ACORN, "Small Business Loans More Likely." 

'20 "Assessing The New Direction of CRA," U.S. Banker, 
August 1997, p. 44. 



'23 Ibid. 

12^ Ibid. 

'25 ACORN, "Small Business Loans More Likely." John 
Taylor, president of the Washington, DC-based National 
Community Reinvestment Coalition, pointed out regarding 
the FFIEC data, "Unless you have a full accounting of what 
is happening, you can't really draw any conclusions from 
this. You really need to look at the incomes of the people 
who are getting the loans and where the money is going. All 
the data show is simply the need for more detail." Ibid. Mr. 
Taylor also stressed that important pieces of information are 
still lacking. First, the CRA regulations do not require that 
the income levels of the small businesses or the race of the 
small business owners be reported. Thus, it is difficult to 
determine whether loans are being received by locally 
owned businesses or franchises of corporate chains. Second, 
the data only include loan approvals, not denials. Thus, goes 
the argument, how can it be known whether small business 



210 



However, at least one community organiza- 
tion conducted its own investigation in 30 cities 
across the country, including New York City, to 
measure the access that low-income communi- 
ties have to small business loans. The group — 
Association of Community Organizations for Re- 
form Now (ACORN), the country's oldest and 
largest grassroots community organization — 
analyzed nearly 700,000 loans totaUng $42.2 bil- 
lion in more than 17,600 census tracts in 1996. 
The findings were: 

1. When controlling for the prevalence of upper 
income census tracts, 3 times as many loans 
and 2V2 times more money went to upper in- 
come neighborhoods than to low-income 
neighborhoods. 

2. 26.7 percent of the census tracts studied 
were upper income, but those tracts received 

36.4 percent of the small business loans and 

39.5 percent of the dollars. Low-income 
neighborhoods made up 10.8 percent of the 
census tracts but received only 5.1 percent of 
the loans and 6.3 percent of the dollars. 

3. For New York City, 36.8 percent of the cen- 
sus tracts studied were upper income, but 
those tracts received 56.8 percent of the 
small business loans and 55.3 percent of the 
dollars. Low-income neighborhoods made up 
12.2 percent of the census tracts but received 
only 4.6 percent of the loans and 4.7 percent 
of the dollars. 126 

These data directly contradict the data re- 
leased in the September 1997 FFIEC study men- 
tioned above. Conflicting data such as these pro- 
vide ammunition for both sides of any debate on 
the effectiveness of — and therefore the need to 
fortify, dismantle, or let stand still — current 
CRA regulations. 

credit needs in low-income areas are being met if it is not 
known whether these businesses are being rejected for loans 
at higher rates than their counterparts in wealthier areas? 
Third, the data include only a subset of banks. Only those 
institutions with assets of greater than $250 million, or 
those owned by a holding company with assets of $1 billion 
or more, must report. This means that only 2,078 lenders, or 
about one-fifth of all lenders covered by CRA, are small 
business data reporters. Without data on the performance of 
all CRA-covered lenders, definitive conclusions cannot be 
drawn. Ibid.; see Jaret Seiberg, "New Data Back Denials of 
Industry Redlining Against Small Business," American 
Banker, Oct. 1, 1997, p. 2. 

"26 Ibid. 



Venture Capital Funds 

New York City has become increasingly de- 
pendent on the expansion of the small business 
sector for its continued vitality and future job 
growth and tax revenues. To address the short- 
age of long-term capital available to finance 
small business and entrepreneurial growth, the 
New York Community Investment Company 
(NYCIC)i27 announced that in its first year, it 
had produced investments and loans of $3.5 mil- 
lion for five small businesses in New York 
City. '28 As a result, these companies, a majority 
of which are owned by women and minorities, 
can now operate and provide their respective 
services. Howard Sommer, president, expressed 
satisfaction with the start of NYCIC's invest- 
ment portfoUo: 

These five companies are characteristic of our target 
market and representative of small business opportu- 
nity not adequately serviced by conventional capital 
sources. They include a start-up business requiring 
additional capital to support bank credit, a business 
with insufficient history or equity to attract expansion 
capital, a rapidly growing technology business previ- 
ously dependent on family and firiends for funding, an 
early-stage company unable to raise capital without 
losing ownership control, and a more mature company 
looking for expansion capital at a reasonable cost. We 
are particularly pleased that NYCIC's investment 
created added comfort for banks to participate and 
leverage our funds by more than one hundred per- 
cent. '29 

In short, NYCIC is filling a need ignored by 
traditional investors and managers of venture 
capital funds, who pursue larger opportunities. 

Microlending 

"Microlending" programs typically provide 
self-employment training and small amounts of 
credit to groups that are underrepresented in 
the small business community. For example, 41 
percent of U.S. microlending programs target 



'27 Member banks include: Bank of New York, Bankers 
Trust, Chase, Citibank, EAB, Fleet, Marine Midland, J.P. 
Morgan, Republic, and U.S. Trust. Member community or- 
ganizations include: Abyssinian Development Corp., 
ACCION New York, Bronx Overall Economic Development 
Corp., and Jamaica Business Resource Center. 

128 "Pive Small Businesses in New York City Receive $3.5 
Million from New York Community Investment Company 
Activities," PR Newswire, Feb. 3, 1997. 

129 Ibid. 



211 



women, and 38 percent target a specific racial or 
ethnic group. Microenterprise assistance has 
prohferated in the past decade, and more than 
200 programs are now active in the United 
States. 130 

These programs — in which loans are smaller, 
typically in the $2,500 to $25,000 range— can be 
implemented with more flexible terms. They are 
oftentimes administered and funded by banks in 
conjunction with neighborhood development 
groups and local governments. Working to- 
gether, the banks can offer below-market terms 
(such as below-prime interest rates, longer am- 
ortization periods, temporary principal payment 
deferrals, and relaxed credit standards), and the 
community development organizations can offer 
counseling (including business, technical, and 
financial counseling). By providing small busi- 
nesses with startup funds and by enabling them 
to establish credit records, these businesses are 
able to obtain conventional credit in the future. i^' 

Accion International, a private nonprofit 
based in San Diego, is an example of a mi- 
crolender that has found a way to make loans to 
the "unbankable." One of its chents opened a 
small salad bar and quickly exhausted his 
$16,000 savings in startup costs. To keep the 
restaurant open, the owner needed a small infu- 
sion of capital, approximately $750, to expand 
his menu and print advertising flyers. Such a 
small loan is too small for a bank to make a 
profit; moreover, the entrepreneur had no credit 
history and very little to offer as collateral. 

Accion International was able to make the 
loan and, after partial repayment, was able to 
extend a new loan for $1, 500.132 Accion Interna- 



'30 Timothy M. Bates and Lisa J. Servon, "Why Loans Won't 
Save the Poor," Inc., April 1996, p. 27. 

'31 See Christopher Serb, "Advocacy Group Urging Shift in 
CRA Focus from Housing to Small Business," American 
Banker, Nov. 29, 1995, p. 4; Joe Dean, "Development Corpo- 
rations, Non-Profits Offer Financing," Arizona Business 
Gazette (Phoenix), Feb. 29, 1996, p. 12; Elaine Chamis, 
"First-Time Loan Program Succeeds, Borrowers Shunned by 
Traditional Lenders," Knoxville News-Sentinel, Jan. 23, 
1996, p. C-1. 

132 William Burrus, "A Little Credit Can Go A Long Way," 
Credit World, May/June 1997, pp. 18-20. This is called a 
"stepped" system of lending, where borrowers begin with a 
small amount of credit for working capital — as little as 
$200 — and through prompt repayments work their way up 
to increasingly larger amounts. Microlenders will also accept 
nontraditional forms of collateral, such as a television set, a 
piece of equipment, or a car. Ibid. 



tional has loaned over $8 million to more than 
1,700 clients in San Diego, San Antonio and El 
Paso, Texas, New York, Chicago, and Albuquer- 
que, New Mexico. The average loan is $2,600, 
and in 1996 the network received one of the first 
Presidential Awards for Excellence in Microen- 
terprise for its work. Evidence of the program's 
success is plain: with just three microloans each, 
more than 200 of the program's clients increased 
their business assets by an average of 51 per- 
cent, business revenue by 37 percent, and take- 
home income by 40 percent over a 2-year pe- 
riod. '^^ 

The network's lending methodology is based 
on the model it developed during the past 20 
years while microlending in Latin America, 
where they have loaned over $1 billion to more 
than 1 million people. To overcome the usual 
requirement of collateral, individuals with no 
means to guarantee their loans are asked to 
form "solidarity groups," in which three or more 
individuals cross-guarantee one another's loans. 
The result is, if one member becomes delinquent 
on a loan, the others must make up the difference. 

Currently, program operating costs are cov- 
ered by donations from banks, i^^ corporations, 
foundations, and individuals. Over time, how- 
ever, an increasing portion of costs will be cov- 
ered by direct revenue generated through the 
interest and fees on the microloans. The ulti- 
mate goal for the program is financial self- 
sufficiency, which half of the program's Latin 
American affiliates have attained. '^s 



'33 Ibid. While some argue that microlending is a potential 
cure for urban poverty, others point out that running a 
small business in the United States requires a broad range 
of skills, and most of the people served by such programs 
have a personal safety net — an education, a support network 
of family and friends, and experience in their line of busi- 
ness. Microlending programs, then, appear to do more to 
help those who exist at the margins of the mainstream 
economy — those who have found themselves jobless, and 
those who cannot make ends meet from part-time and tem- 
porary work — than they do to help those who are completely 
cut off. See Bates and Servon, "Why Loans Won't Save the 
Poor," p. 27. 

'3'' Banks have an incentive to participate in the partnership 
because (1) it helps raise a bank's profile with certain mi- 
nority groups and in communities where the banks often 
have little presence, (2) many of the borrowers are potential 
future direct customers for the bank, and (.3) partnering 
with such programs can qualify for credit under the Com- 
munity Reinvestment Act. See Burrus, "A Little Credit," pp. 
18-20" 
135 Ibid. 



212 



The Role of Immigrants 

Immigrants have been streaming into the 
New York City area from Latin America, the 
Caribbean, and Korea, oftentimes bringing with 
them a strong entrepreneurial bent. This immi- 
gration provides a low-cost labor force for 
startup businesses that need to keep costs under 
control. Many of these immigrant-owned small 
businesses operate largely on a cash basis but 
yearn to do more sophisticated banking. 

North Fork Bancorp, which has eight 
branches in the Bronx, is offering small busi- 
nesses revolving credit lines under $50,000 that 
require no documentation. Many of the banks in 
the area — especially the smaller banks like 
Banco Popular, North Fork, and Marine Mid- 
land — are attempting to cater to the unique 
needs of a community where 25 percent of the 
households do not have telephones or personal 
computers. "The big banks — they don't hke to 
touch people, paper, cash . . . We can fill that gap 
very nicely," said Joseph E. Vincent, senior vice 
president at North Fork.^^e 

Statistical Scoring and Small Business Loans 

According to the Consumer Bankers Associa- 
tion, half of all small business lenders used 
credit scoring to process loans in 1996. In 1997 
the practice spread to two-thirds of the indus- 
try. i^^ Chemical Banking Corporation uses a sta- 
tistical scoring technique to assess small busi- 
ness loans of up to $100,000. The technique, 
from Fair, Isaac & Company, a pioneer in devel- 
oping credit scoring systems for consumer lend- 
ing, assigns greater weight to the financial re- 
sources and credit history of the business owner, 
rather than concentrating strictly on the finan- 
cial numbers of the business, the past business 
custom. The scoring system has sped up Chemi- 
cal's approval cycle, enabled lenders to spend 
more time prospecting for new customers, and 
contributed to a 44 percent increase in small 
business loan volume. ^^8 



'36 Gold, "The South Bronx," p. 1. 

'■'" ACORN, "Small! Business Loans More Likely." 

'■■»* Jeffrey Zack, "Scoring System Clicks for Chemical's 
Small Business lenders," American Banker. Feb. 12, 1996, 
p. 12-A. Chemical Banking reports that the time it takes to 
make a small business loan decision has been cut from 2 or 
3 days to less than 24 hours. However, experts note that 
while the "scoring" technology is an important tool, it is not 
applicable to all categories of small business loans. Loans 
that require complex collateral requirements are not an easy 



As a result of credit scoring, bank executives 
say that more companies are qualifying for loans 
now than before, and credit quality is expected 
to remain high.'^^ In a statement to the Com- 
munity Forum on Community Reinvestment and 
Access to Credit, Chairman of the Board of Gov- 
ernors of the Federal Reserve System Alan 
Greenspan asserted that credit scoring technol- 
ogy has the potential to allow banks located out- 
side local markets to compete against within- 
market institutions for small business lending.'""* 

However, there has been some criticism of the 
new tool. The National Community Reinvest- 
ment Coalition, an umbrella research and lob- 
bying organization representing more than 600 
community groups working "to increase fair and 
equal access to credit and banking services," 
claimed that credit scoring "may contain meth- 
odological rigidities which may not be able to 
properly assess nontraditional or hmited credit 
histories of minority or low-income loan appli- 
cants."'^' 

To further support this point, ACORN has 
evidence that the recent trend toward credit 
scoring and automated underwriting by the 
lending industry has exacerbated racial dispari- 
ties in lending. In a recent report, ACORN 
stated that credit scoring forces lenders to be 
less flexible in underwriting and less patient in 
pursuing the more complex lending agreements 
that lower income areas sometimes require. ''*2 
The report continues: "This cookie-cutter under- 
writing cannot accurately assess the incomes, 
credit histories, savings, employment histories, 
debt ratios and, most importantly, character of 
low-income borrowers. Consequently, reliable, 
creditworthy borrowers are denied credit be- 



fit, for example. Another reason is that the scorecard pre- 
dicts creditworthiness, not actual losses on loans that go 
bad. It predicts the probability of default, but it does not 
predict how much one may default, or how much damage a 
bad loan will do to the bank. Ibid. 

'39 Ibid. 

''"' "Greenspan Community Reinvestment Statement," p. 4. 
'■" "Lending in America's Underserved Neighborhoods," 
Reinvestment Works, vol. 6, no. 1 (winter 1998), p. 11 
(hereafter cited as "Lending in America's," Reinvestment 
Works). 

'■■^ "Transformation of Lending Industry Benefits Whites at 
Expense of Minorities," Association of Community Organiza- 
tions for Reform Now, Sept. 10, 1997, Washington, DC 
(hereafter cited as ACORN, "Transformation of Lending 
Industry"). 



213 



cause they are more complex applicants than the 
credit scoring can handle."^''^ 

Small Business Administration 

The more conventional lending programs of- 
fered by banks utilize the Small Business Ad- 
ministration (SBA), which guarantees 90 percent 
of most small business loans (those under 
$100,000) made to low-income residents. To ob- 
tain SBA backing, the borrower must have fewer 
than 500 employees, less than $5 million in 
revenue, and request a loan less than $1 mil- 
lion.!^'' For the year ending Septemoer 30, 1995, 
the SBA approved $1.6 billion in guarantees on 
more than 10,000 loans to minority-owned small 
businesses, most in low-income areas. '■'^ "A lot of 
that has to do with CRA," said Jerre Glover, 
chief counsel in the SBA's advocacy office in 
Washington. '^s 

New York consistently ranks third or fourth 
nationwide in the number of SBA loans — usually 
behind cities, such as Minneapolis and San 
Francisco. It has been suggested that part of the 
blame for the low New York ranking lies with 



'« Ibid. 

""> Matt Shulz, "SBA Guarantees Help DC. Bank Boo.st 
Assets — And Its CRA Rating," American Banker, Feb. 29, 
1996, p. 5. 

'■•^ Bloomberg News Service, "Federal Law Makes Small 
Business," p. E^l. Note that because banks used to reveal 
very little about their small business lending, statistics were 
very difficult to compile. However, the new CRA regulations 
went into effect in July, 1997, and now large banks must 
report their small business loans by census tract, including 
the size of the loan and size of the borrower. See 12 C.F.R. 
§§ 25 (OCC), 228 (FRB), 345 (FDIC), and 563e (OTS) (1998). 

Despite that most SBA loans in low-income areas go to mi- 
nority businesses, there is evidence to suggest that, overall, 
more SBA loans go to affluent areas than to poor areas. The 
Woodstock Institute, a Chicago-based community research 
organization, recently reported that an SBA program pro- 
vides more than twice as many economic development loans 
to affluent areas than to low-income areas. In comparing 
lending statistics from various zip codes in the greater Chi- 
cago area arranged according to household income, it was 
found that between 1992 and 1996, upper middle and high- 
income areas received 67 percent of SBA manufacturing 
loans while lower middle and low-moderate areas received 
33 percent. Likewise, upper middle and high-income areas 
received 70 percent of retail and wholesale loans, though 
lower middle and moderate-low income areas received 30 
percent. Daniel Immergluck and Erin Mullen, "Economic 
Development Where It's Needed: Directing SBA 504 Loans 
to Lower-Income Communities," June, 1997, Woodstock 
Institute, Chicago, IL. 

•'"' Bloomberg News Service, "Federal Law Makes Small 
BusineSo," p. E-1. 



the banks, which can be slow to devote resources 
specifically to SBA lending. During 1995 only 
eight banks in New York made more than 50 
SBA loans each.^'*'' Given that the key charac- 
teristic to getting a SBA-backed loan in New 
York is being an aggressive bank, the banks 
need to be more proactive. Audrey Rogers, direc- 
tor of the SBA's New York district office stated, 
"A bank has to be organized for SBA lending. An 
SBA lender is not interchangeable with other 
lenders, and many banks have not committed 
enough SBA-type lenders to the task."'"** 

New York banks have historically complained 
about the onerous paperwork associated with 
SBA-backed loans, paperwork that slows down 
the loan approval process. '■'^ Nonetheless, banks 
are quick to assert that their small business and 
SBA lending has increased in the past several 
years. The introduction of the popular LowDoc 
loan program has sent SBA lending soaring at 
several local institutions. 

However, some experts point out that New 
York banks do an unimpressive job of lending to 
small business in general. During his New York 
hearing testimony, Timothy Bates, professor of 
urban, labor, and management affairs at Wayne 
State University, testified, "In New York City, 
banks across the board have a really below- 
average record of small business lending." His 
studies indicate that while nationwide, more 
than 25 percent of all manufacturing startups 
receive some sort of financing from chartered 
lending institutions, that number falls to less 
than 10 percent in New York City.^^'' 

At the same time, Mr. Bates pointed out that 
many cities, aside from New York City, fall short 
in small business lending. "Wherever you've got 
a few huge dominant banks, you tend to get less 



'" Lisa Goff, "Takeout Small Business; Home-Grown Loans: 
Banks' Foot-Dragging and Lax Marketing by Local SBA 
District Are The Reasons Why New York Lags Other Re- 
gions In Making Small Business Loans," Grain's New York 
Business, Mar. 11, 1996, p. 19. 

H8 Ibid. 

"" Local banks are also discouraged by the promulgation of 
stricter regulations, as well as the institution of higher fees, 
that has been coming out of SBA headquarters in Washing- 
ton, DC. 

I'"''' Bates Testimony, New York Hearing, vol. Ill, p. 1195. 
Mr. Bates also stated in testimony that while the average 
loan size, nationwide, for a black business startup was 
$25,704, that figure climbed to $55,803 for nonminorily 
startups. Ibid., p. 1197. 



214 



small business lending," he said.i^i Another 
quirk of big cities is a tendency for very small 
borrowers to end up in local, city-run loan pro- 
grams instead of at the SBA.i^z 

In his testimony, Mr. Bates also suggested 
that, while it might seem irrational in an eco- 
nomic sense, capital market discrimination does 
exist: 

[I]n 1985, [a] research paper was published show[ing] 
that the rational investor should be risk averse be- 
tween a typical minority and a typical nonminority 
firm or investment if you hold certain things constant. 
So, . . . there should be no difference in the perception 
of liquidity. Unfortunately, there is, which gets to what 
I am saying: There is capital market discrimination. ^^^ 

Several years ago, small business experts 
complained that SEA lending efforts were on a 
downward trajectory and had been for the pre- 
ceding 20 years. Lending support to this notion 
is Mr. Bates' testimony that SBA lending levels 
had dropped to one-fifth of what they had been 
in the 1970s. i^'' However, it is clear that action is 
being taken to reverse this decades-long trend. 
Between 1992 and 1997, under the SBA's largest 
program, the 7(a) program, loans to African 
Americans increased by 154 percent nationwide, 
and loans to Hispanics increased 144 percent 
nationwide. 15^ 

As further proof of this reversal, the Small 
Business Administration has approved the 
Bronx Overall Economic Development Corpora- 
tion (BOEDC) as the first certified development 
company in New York. Therefore, during the 
next 5 years, the BOEDC will make $50 million 
worth of fixed-rate loans to small businesses in 
the Bronx to help them make the investments in 
building the machinery they need to succeed, i^s 



15' Ibid. 
152 Ibid. 

'53 Ibid., p. 1207. 
'S-i Ibid., p. 1201. 

155 Eugene A. Ludwig, comptroller of the currency, state- 
ment before Congresswoman Maxine Waters' Forum on 
Community Reinvestment and Access to Credit: California's 
Challenge, Jan. 12, 1998, p. 3 (hereafter cited as "Ludwig's 
Community Reinvestment Statement"). 
"56 Transcript of Clinton Remarks to People of the Bronx, 
U.S. Newswire, Dec. 10, 1997. When he made this an- 
nouncement, President Clinton added that he was going to 
put "$45 million more in my [fiscal year 1999] budget to 
expand the Community Development Financial Bank, so we 
can make more loans to individuals who can start their own 



Section IV. CRA as Catalyst to 
Affordable Housing 

Home Mortgage Lending and Affordable 
Housing Initiatives 

Throughout the State of New York, and 
throughout the country, more and more low- 
income individuals are securing home mort- 
gages. "The rise in lending is most striking in 
hard-hit inner-city and rural areas, heavily 
populated by minorities, that long were under- 
served by banks and mortgage companies."'^'' 
Although minorities in New York City are still 
declined mortgage loans twice as often as 
whites — even if they have the same income'^s — 



businesses or hire people to create an economy where very 
often there isn't one." Ibid. 

'57 John R. Wilke, "Giving Credit: Mortgage Lending to Mi- 
norities Shows a Sharp 1994 Increase," Wall Street Journal, 
Feb. 13, 1996, p. A-1. 

158 "Home Mortgage Redlining Denies American Dream to 
Minorities," a study of 48,000 home mortgage applications in 
New York City, commissioned and released by then U.S. 
Representative Charles Schumer (D-NY), Oct. 6, 1997. 
Lenders counter that these and similar statistics cannot be 
used as evidence of discrimination, because they fail to re- 
flect many key elements of a credit underwriting decision, 
such as property values, savings rates, and employment and 
credit histories; But see Dennis Glennon and Mitchell 
Stengel, "An Evaluation of the Federal Reserve Bank of 
Boston's Study of Racial Discrimination in Mortgage Lend- 
ing," Office of the Comptroller of the Currency, April 1994, 
in which the authors conclude that "race of the applicant 
continues to have a large and highly significant effect on the 
outcome of the lending application process." The authors 
state: "[0]ur analysis supports the Boston Fed's conclusion 
[in the now well-known study of mortgage lending practices 
in the Boston Metropolitan Statistical Area] that approxi- 
mately half the difference in denial rates can be attributed 
to differences in the financial characteristics of the borrow- 
ers and the neighborhood characteristics of the property; the 
remaining half can be attributed to differences in treatment 
by race" (emphasis added). Ibid.; see also "Lending in Amer- 
ica's, Reinvestment Works," p. 11 ("The denial rate for Blacks 
surged fi-om 40.5% to 48.8% from 1995 to 1996"); Warren 
Traiger, "Comment: Mortgage Discrimination: Get to the 
Bottom of It Now," American Banker, Nov. 4, 1997, p. 4; 
Andrew LePage, "Mortgage Applications Are Down for Mi- 
norities; Hispanics and Blacks Also Had Twice as Many 
Loan Rejections as Whites," Orange County Register, Nov. 
18, 1997, p. C-2; Jim Morgo, "Quiet Revolution in Banking 
Has Worked," Newsday, Nov. 5, 1997, p. A-45; Williams 
Testimony, New York Hearing, vol. Ill, p. 998 (In investi- 
gating the relationship between lending and building aban- 
donment, "[w]hen we did the race calculation by itself, we . . 
. found a disparity there. When we look at race and income, 
we still find a disparity. When we look at race and owner 
occupancy, we found a disparity . . ."); Karen Phillips, execu- 
tive director, Abyssinian Development Corporation, testi- 
mony. New York Hearing, vol. Ill, pp. 1017-20 ("We must 
acknowledge the role of discrimination and racism that has 



215 



the aggressive targeting of minority borrowers is 
beginning to change the makeup of the mortgage 
market. 

The surge in credit is also a result of in- 
creased enforcement of fair lending laws. For 
example, before 1993 the Office of the Comp- 
troller of the Currency (OCC) had referred only 
one fair lending case to the Department of Jus- 
tice. Since 1993 it has adopted updated fair 
lending procedures, conducted more than 3,000 
fair lending examinations, and referred 25 cases 
of violations of fair lending law to the Justice 
Department and the Department of Housing and 
Urban Development for prosecution. '^^ 

Data from 1993 to 1996 show increases in 
mortgage originations for Hispanic Americans 
and African Americans of 56 percent and 55 per- 
cent, respectively, more than 3 times the 14 per- 
cent increase for white borrowers. 1^° Similarly, 
the rate of increase for low-income borrowers 
was more than 1/4 times the rate of increase for 
middle- and upper income borrowers. Further 
statistics revealed that during this time period, 
home loans in low- and moderate-income com- 
munities increased 33 percent, while gaining 
only 21 percent in upper income communities.^^' 

These statistics lead to record rates of home- 
ownership for minorities, female-headed house- 
holds, and households with less than median 
family incomes. Nationwide, blacks bought 
350,000 new homes in 1996, a 7.5 percent gain 
from 1993, and Hispamcs bought 460,000, a 16.3 
percent increase from 1993.'^- Almost 46 percent 
of all minority group members in the United 
States now own their own homes — the highest 



created this situation. . . . [GJenerally the people who are 
making those decisions ... if they are not famihar with the 
community, the area, . . . they prejudge, which is what 
prejudice is . . ."); Ketcha Testimony, New York Hearing, vol. 
Ill, p. 114.3 ("Maybe years ago you would have seen more 
blatant discrimination; now we are finding it is subtle, it is 
maybe unintended, but we have found it in some of our Fair 
Lending exams"). 

159 Eugene A. Ludwig, comptroller of the currency, testi- 
mony before the Subcommittee on Financial Institutions 
and Regulatory Relief of the Senate Banking, Housing and 
Urban Affairs Committee, May 1, 1997. See also Eugene A. 
Ludwig, comptroller of the currency, remarks before the 
Neighborhood Housing Services of New York City, Oct. 21, 
1997 (hereafter cited as "Ludwig's Housing Services Re- 
marks"). 

"•" "Ludwig's Community Reinvestment Statement," p. 23. 

"■' "Ludwig's Housing Services Remarks." 

162 Morgo, "Quiet Revolution," p. A-45 



level ever. '63 Moreover, a survey taken at the 
end of 1996 reflected that 95 percent of afford- 
able-mortgage customers — families that would 
never have received home purchase loans under 
conventional standards — were meeting their ob- 
ligations on time and in full."''' 

Despite this seemingly favorable statistical 
picture of minority homeownership over the past 
5 years, ACORN recently released a study that 
found a sudden "loan slowdown" for minorities 
for the first time in 5 years. The study found 
that: 

1. From 1995 to 1996, lending to whites in- 
creased 19 percent; however, during the 
same period, the number of loans to African 
American and Latino borrowers fell 1 per- 
cent. 

2. The share of loans to African American and 
Latino borrowers declined between 1995 and 
1996, from 6.7 to 5.7 percent for African 
Americans and from 7 to 6 percent for Lati- 
nos. 

3. Almost one in three African Americans and 
one in four Latino applicants were rejected 
for conventional mortgages in 1996. African 
Americans were more than twice as likely to 
be rejected as whites, and Latinos were 70 
percent more likely to be rejected. '^^ 

The president of ACORN, Maude Hurd, con- 
cluded, "While the regulators have been busy 
congratulating themselves over the improve- 
ments over the past few years, the lending in- 
dustry has instituted harsh new lending stan- 
dards which all but preclude lower income and 
minority borrowers from secviring a home."'^^ 
The organization's study suggested that the new 
underwriting standards and increased reliance 
on computerized credit scoring has created a 
rigid measurement of creditworthiness which 
many minority applicants cannot meet.'^'' 

Despite ACORN's conclusion, it is clear that 
some formerly blighted areas are being revital- 
ized. For example, the Bronx — the borough of 
New York City that became lodged in the na- 



'63 Ibid. 

"'■' Ibid. 

"■' ACORN, "Transformation of Lending Industry." 

i»c Ibid. 

!'■' Ibid. 



216 



tional consciousness as the picture of urban 
blight — is making a comeback, partly due to the 
increase in the availability of credit. "The South 
Bronx has changed dramatically in the last 10 
years," said Joseph E. Vincent, senior vice presi- 
dent at North Fork Bancorp, who is responsible 
for opening the bank's eight Bronx branches, i^* 

While the Bronx is still very poor,'^^ nearly 
30,000 new arid rehabilitated housing units — 
using more than $2 billion in State and Federal 
housing money!'"' — have been created in the 
Bronx since 1987, said Kevin Nunn, president of 
the Bronx Overall Economic Development Cor- 
poration. In the same period, the county has net- 
ted 5,500 new private-sector jobs at a time when 
New York City as a whole has lost 190,000 posi- 
tions, ^^i 

The neat single-family houses on Charlotte 
Street in the South Bronx are a good example of 
the revitahzation that has occurred. Heavily 
subsidized by public money, the houses sold for 
$49,500 in 1985. Started under the city admini- 
stration of former mayor Edward 1. Koch, the 
project almost died in 1983, after the first 10 
houses were built. The city considered cutting off 
financing, but prodding by the South Bronx De- 
velopment Organization ceased their efforts, and 
construction of all 89 houses was completed in 
1986. Today, the homes are valued at 
$185,000."2 

Home Mortgage Disclosure Act 

Statistical information with regard to home 
mortgage lending is available because of the 
Home Mortgage Disclosure Act (HMDA).i''3 This 
act sets forth the type and format of information 



'68 Gold, "The South Bronx," p. 1. 

169 According to 1990 census data, median annual income 
hovers at $16,381 in the Bronx, compared with $49,197 for 
Manhattan, home to New York's biggest banks. Of course, 
banks can successfully make home loans in some of the most 
impoverished areas of the country. For example. First Chi- 
cago Bank has made loans for new single-family homes in 
Grand Boulevard, where the median household annual in- 
come was $7,900 in 1990. See Seiberg, "N.Y. Activist," p. 1; 
see also Brett Chase, "Chicago Banks Seek, Find Profits in 
the Inner City," American Banker, July 23, 1997, p. 1 
(hereafter cited as Chase, "Chicago Banks"). 

'™ Jim Yardley, "Clinton Praises Bronx Renewal As U.S. 
Model," New York Times, Dec. 11, 1997, p. A-1. 

'" Gold, "The South Bronx," p. 1. 

"^ Yardley, "Clinton Praises Bronx," p. A-1. 

'" 12 U.S.C. §§ 2801-2810 (repealed 1988). 



that lenders must record about lending applica- 
tions. Lenders must report the number and dol- 
lar amount of loans made in each census tract, 
the number of applications received, and the 
number denied. An applicant's race, sex, and 
income level must be noted. This disclosure law 
covers all nondepository institutions and those 
depositories (i.e., banks, savings and loans, and 
credit unions) with assets of more than $10 mil- 
hon."4 

Armed with HMDA data, community-based 
organizations'''^ have been able to file CRA 
challenges, similar to the bank merger chal- 
lenges, that have led to settlements, funneling 
billions of dollars of loans into low-income com- 
munities. The process has been described as 
blackmail by the banking community and as the 
only way to get a bank's attention by community 
activists. '^^ 

Whatever is thought of the process, market 
forces might soon work to make community 
group protests unnecessary. Demand for me- 
dium and large mortgages has slowed in growth, 
and the lower income borrower market is the 
only market showing significant growth. More 
importantly, banks are profiting from that mar- 
ket. Thus, although the driving force behind 



174 12 U.S.C. § 2808. 

'■'S In her testimony, Doreen Greenidge stated, "The locally 
based community network in [New York City] is extremely 
important. They are the backdrop and the support to help do 
policies at the grass[roots] level in the trenches; they are 
there every day to try to make the changes. They see what 
we conceptualize about, and I applaud this vast network of 
community-based organizations." New York Hearing, vol. 
Ill, p. 1094. 

'■'S Saul Hansell, "2 Big Banks In Merger Set Aid for Poor," 
New York Times, Nov. 1, 1995, p. D-1; Jaret Seiberg, "CRA 
20th Anniversary: 275-Page Regulation Sprouts from 2-Page 
Act," American Banker, Oct. 22, 1997. One person who was 
an aide to Senator William Proxmire in 1977 at the time the 
CRA was passed into law said the legislation was very con- 
troversial because of the notion of credit allocation. She 
reports that Senator Proxmire "watered down" the bill on its 
way to becoming law, and that he created legislative history 
"about how this was not credit allocation and not intended to 
be burdensome." The aide blames the banks and regulators 
for the increase in protests over the years. She argues that 
banks yielded to community pressure and agreed to make 
below-market-rate loans, which emboldened activists to 
protest more banks. She also argues regulators never inter- 
vened, urging banks instead to settle disputes rather than 
force the regulators to decide if the bank had done enough 
low-income lending. The aide concludes, "This created a tool 
for the community groups and they used it a lot more skill- 
fully than we intended. Having the protest become a central 
event was never intended." Ibid. 



217 



such lending programs appears to be community 
lending laws such as CRA, banks are now start- 
ing to realize that low-income lending is simply 
good business. This new realization has led to 
banks targeting low-income customers through 
neighborhood advertisements, community devel- 
opment groups, and through other informal set- 
tings, such as home fairs and conventions.'^" 

The fact that dehnquencies for low- to moder- 
ate-income home buyers are lower than the na- 
tional averages adds to their profitabihty. On 
the other hand, such loans are still not as profit- 
able as those made to more affluent borrowers, 
because there is more underwriting work to be 
done — more education with respect to repay- 
ment, more counseling, more collection expenses, 
etc.i'^^ To keep the home mortgage loan pro- 
grams operating and the default rates down, 
nonprofit support organizations have emerged to 
counsel low-income borrowers. Such groups offer 
prequalification services to determine whether a 
prospective borrower is hkely to obtain a loan 
and postpurchase counseling to ensure that bor- 
rowers stay abreast of their financial obliga- 
tions. ''^9 

Mary Decker, senior vice president for com- 
munity affairs at First Chicago, the city's largest 
bank, reported that opening a branch in a low- 
income area means supporting nonprofit groups, 
providing community space, entering partner- 
ships, offering education about personal finance 
and business finance, '8° and adopting area 



'■''' Uri Berliner, "Realizing the Dream of Home Ownership," 
San Diego Union-Tribune, Mar. 24, 1996, p. H-1. See also 
Wilke, "Giving Credit," p. A-1. 

"8 Lawrence Toal, chairman and chief executive officer of 
Dime Bancorp, interview in New York, "Assessing the New 
Direction of CRA," U.S. Banker, August 1997, p. 44. 

"9 Wilke, "Giving Credit," p. A-1. But see ACORN, 
"Transformation of Lending Industry." The study suggested 
that Fannie Mae and other lenders are dismissing the posi- 
tive impact high-quality loan counseling has on mortgage 
applicants. The report states; "The most effective tool for 
getting minority and low-income borrowers into home own- 
ership has been high quality loan counseling by community 
organizations, but over the past two years there has been an 
erosion of lenders' commitment to loan counseling. Lenders, 
realtors, and the secondary mortgage market rely instead on 
workbooks, videos, and generalized classroom educational 
programs. Lenders increasingly are making no distmction 
between high quality loan counseling and merely filling out 
the Fannie Mae handbooks or attending two hour mortgage 
seminars." Ibid. 

•80 See Williams Testimony, New York Hearing, vol. Ill, p. 
1002, where Peter Williams, director of housing and com- 
munity development, National Urban League, argues for 



schools for support programs.'^' The concept of 
"adopting" a community is one that can lead 
bank regulators to award extra CRA points. '82 
As Ms. Decker put it, "No matter how you feel 
about banks, the provision of credit is not the 
single issue ."'^3 

Fair Lending Enforcement by tiie 
Department of Justice 

During the summer of 1997, the Department 
of Justice (DOJ) announced a $9 million settle- 
ment with the New York-based Albank Financial 
Corporation. DOJ accused Albank of redlining 
several cities in the State of Connecticut as well 
as southern Westchester County, New York. '8'' 
According to the complaint filed by DOJ, Albank 
excluded minority borrowers in the affected 
communities without considering the borrowers' 
credit histories; further, it failed to drop the re- 
strictions even when some of the thrift's own 
brokers asked it to do so. Finally, DOJ alleged 
that of 203 loan applications taken by Albank in 
Westchester County from 1992 to 1996, only 7 
applications, or 3.4 percent, were from African 
American or Hispanic borrowers. The DOJ con- 
cluded that Albank's policies toward minority 
borrowers constituted violations of the Fair 
Housing Act and the Equal Credit Opportunity 
Act. '85 

To settle the matter, an agreement was 
reached, whereby Albank agreed to (1) contrib- 
ute $700,000 to a homeownership counseling 
program; (2) make at least $20 million in below- 
market loans in the areas of Westchester 
County, an area with more than 50 percent mi- 
nority populations; (3) provide fair lending edu- 



increased education with respect to fair lending laws: "The 
problem is very few people in the public know that CRA files 
exist. Very few people in the public understand their rights 
under the Equal Credit Opportunity Act, the [Fair] Housing 
Act and CRA. So there has to be a mechanism to let people 
know that they have a right to complain and understand 
what avenues of redress they have." Ibid. 

"" Chase, "Chicago Banks," p. 1. 

•82 Ibid. Although the "adoption" idea can earn a bank extra 

CRA points, it cannot substitute for a lack of lending. 

'8-' Ibid. 

'8' "Justice Department Accuses Albank of Redhning: Se- 
cures $9 Million Settlement," Reinvestment Works, vol. G, 
no. 1 (winter 1998), pp. 13-14. 

185 Ibid. 



218 



cation to employees;'^^ and (4) work with com- 
munity development organizations to promote 
affordable lending programs. 'S" 

Low-income Housing Tax Credit 

Ninety-four percent of the total affordable 
units around the country have been developed 
through the low-income housing tax credit pro- 
gram. ^88 President Clinton has proposed ex- 
panding the pro'gram by 40 percent. It is esti- 
mated that such an expansion would create be- 
tween 150,000 and 180,000 new rental units.iss 
Enterprise Foundation'^" estimates that the 
plan, which has been included in the Admini- 
stration's fiscal year 1999 budget, would provide 
an extra $134 million annually for low-income 
housing. Under the proposal, States would be 



'88 See testimony of Nicholas Ketcha, Jr., regional director, 
New York Region Office of the FDIC, who described infor- 
mation his office attempts to convey to loan officers to en- 
sure that "subtleties" do not lead to discrimination against 
minorities: "If a nonminority comes in and sits down with a 
loan officer, they may not qualify for the mortgage loan, but 
there will be some counseling, you know, 'but if you woi-ked 
on getting this or if you gave us a letter on this, or if you 
could get somebody from the family to get you a little extra 
on this you could cure it.' Where if it might be a minority 
applicant doing the same thing, that level of either trust, 
comfort or whatever you want, may not get that same coun- 
seling, and you don't get the improvement on it. . . . you've 
got to have a good training program within your institution 
to be sure that those type of subtleties don't happen . . ." 
New York Hearing, vol. Ill, p. 1144. 

'8' Jerry Seper, "Bank Offers Cut-Rate Mortgages to End 
Redlining Probe," Washington Times, Aug. 14, 1997, p. B-9. 
Note that despite settling the dispute, Albank stands by its 
practices and looks at the settlement not as an admission of 
guilt but as a tool that "will assist in better serving all 
members of the communities where it funds mortgages 
through its [brokers]." Ibid. Note also that the Albank situa- 
tion suggests that banker-broker relationships could use 
more scrutiny. The Department of Justice alleged in its 
complaint that Albank failed to listen to its own brokers, 
some of whom apparently saw a promising market that the 
bank allegedly refused to enter. If actions such as this occur 
within financial institutions, community development in 
low-income areas can be hindered. 

'*8 "Assessing the New Direction of CRA," U.S. Banker, 
August 1997, p. 44. 

189 White House Briefing, Remarks by President Clinton at 
Wall Street Project Conference, World Trade Center, New 
York City, Federal News Service, Jan. 15, 1998. 

""• Enterprise Foundation administers New York's tax credit 
program. 



allocated $1.75 per resident in tax credits, up 
from $1.25.191 

President Clinton recently traveled to the 
South Bronx where he joined representatives of 
the New York Equity Fund (NYEF) for the an- 
nouncement of the $250 million "2000 Fund," a 
corporate investment fund for affordable housing 
development. NYEF uses the Federal low- 
income housing tax credit to raise corporate in- 
vestments for the development of low-income 
rental housing provided by nonprofit community 
development corporations. As of December 1997, 
NYEF had raised and invested more than $585 
million to create nearly 12,000 homes. '^^ The 
$250 million raised for the "2000 Fund" wiU be 
invested over the next 3 years to build approxi- 
mately 5,000 new, affordable rental homes. It is 
the largest single-city equity fund ever assem- 
bled. i93 

The innovative HOME program, run through 
the U.S. Department of Housing and Urban De- 
velopment, is another vital catalyst for corporate 
investment in community-based development. 
President Clinton recently announced the re- 
lease of $96 milhon to help create affordable 
housing in New York City through the HOME 
program. i^"! 

While Federal resources are key, much of the 
credit for the successes in America's cities hes 
with State and local governments. In New York 
City, for example, the Department of Housing 
Preservation and Development has not only pro- 
vided community development corporations with 
abandoned and vacant properties for rehabihta- 
tion, but has been an extraordinary financial 
partner as well, offering access to nearly $4 bil- 
Hon in crucial low-interest loans. i^^ Entire blocks 
in distressed communities Uke the South Bronx, 
Harlem, East New York, and Jamaica have been 
revitalized as a result of these investments. 

Of course, some argue that too much advo- 
cacy on behalf of low-income residents toward 



'3' Dean Anason, "Banks Get Round of Praise From Treas- 
ury Secretary For Increased CRA Lending," American 
Banker, Jan. 16, 1998, p. 2. 

'"^ Marilyn Katz, "Clinton Joins Announcement of Fund for 
NYC Affordable Housing," U.S. Newswire, Dec. 11, 1997. 

'M Ibid. 

'5' Transcript of Clinton Remarks to People of the Bronx, 

U.S. Newswire, Dec. 10, 1997. 

"5 "Assessing the New Direction of CRA," U.S. Banker, 
August 1997, p. 44. 



219 



the goal of homeownership can result in hard- 
ship for certain people. According to Carol Parry, 
executive vice president at Chase Manhattan 
Bank in New York: 

[T]here is a lot of pressure from advocates to keep 
pushing the envelope here. I think if you will stand 
up and say, "Enough, we don't want to push people 
into foreclosures. Some people aren't ready to become 
homeowners; they need 100% financing" — that would 
be helpful to everybody in the marketplace."* 

Section V. Conclusion 

The continued existence of the CRA is not as- 
sured. During the past several years, some 
members of Congress have tried to implement 
legislation to curtail the law, including exempt- 
ing small banks (those with less than $250 mil- 
lion of assets) from CRA coverage; eliminating or 
reducing opportunities for public comment with 
regard to bank mergers, acquisitions, and con- 
sohdations; prohibiting the regulatory- agencies 
from collecting bank data on their small busi- 
ness lending; and raising the exemption level 
from $10 million to $50 million for reporting on 
discriminatory mortgage lending patterns, pur- 
suant to the HMDA.197 

The congressional sponsors of legislation to 
alter the CRA argue that the CRA imposes credit 
allocation similar to a quota, that it promotes 
regulatory request delays, and that it produces 
significant financial burdens on banks. '^* Simi- 
lar views were expressed by William A. 
Niskanen, chairman of the Cato Institute, when 
he testified before Congress urging the repeal of 
the CRA: 



loe Ibid. 

I''' See Economic Growth and Regulatory Paperwork Reduc- 
tion Act, S. 650, 104th Cong. (1995); Financial Services 
Holding Company Act, H.R. 2520, 104th Cong. (1995); Credit 
Opportunity Amendments Act, H.R. 1699, 104th Cong. 
(1995); Financial Institutions Regulatory Relief Act, H.R. 
1858, 104th Cong. (1995); Financial Institutions Regulatory 
Relief Act, H.R. 1362, 104th Cong. (1995). 

'S's 141 Cong. Rec. E1116-17 (daily ed. May 24, 1995) 
(statement of Rep. McCoUum) and 141 Cong. Rec. S4928-29 
(daily ed. Mar. 30, 1995) (statements of Senators Shelby and 
D'Amato). The Independent Bankers Association of America 
claims community banks spent more than $1 billion in 1992 
complying with CRA. That computes to $63,448 per institu- 
tion and represents a third of all compliance costs incurred 
by community banks, the IBAA said. See Seiberg, "CRA 20th 
Anniversary," p. 3. 



The proposed new regulations would be very costly to 
the economy, to the banking system, and to the com- 
munities they serve. Congress should be most critical 
of proposals to use regulatory powers to reallocate 
credit, either across neighborhoods or among groups. 
The primary long term effect of such measures would 
be to further contract the banking system, increasing 
the number of neighborhoods dependent on check 
cashing outlets and pawnshops.'*^ 

So far, none of the legislation proposed in the 
Congress to alter the CRA has been passed. Re- 
cently, however. Senator Phil Gramm from 
Texas introduced a Senate bill that would ex- 
empt banks with assets of less than $100 miUion 
from their obligations under the act. 2°'' Demo- 
crats opposing the move asserted that it would 
take a large part of the banking industry out of 
reach of the community lending law. 201 While 
many Republicans, such as Senator Gramm, 
push for an amendment to the CRA, President 
Chnton has threatened to veto any bank bill that 
would undermine the current law. 202 

In the meantime, House Banking Chairman 
Jim Leach and ranking Democrat Representa- 
tive John J. LaFalce, have crafted a compromise 
bill203 that attempts to maintain the status quo 
on the matter. 204 Their bill attempts to appease 



199 William A. Niskanen. chairman, Cato Institute, testi- 
mony before the U.S. Senate Subcomm. on Finan. Institut. 
and Consumer Credit Comm. on Banking and Finan. Serv., 
Mar. 8, 1995. Of course, there are those who strongly sup- 
port the CRA and who vehemently oppose weakening or 
dismantling the law. In the words of one supporter, "[The 
CRA] declared that banks are chartered by governments to 
serve public purposes — including community credit needs. It 
observed that banks, unlike ordinary businesses, benefit 
firom deposit insurance, access to central bank credit, gov- 
ernment examinations, and seals of approval. They exist not 
just to siphon money out of communities, but to put the 
money back in." Robert Kuttner, "An Investment in Com- 
munities," Boston Globe, Nov. 9, 1997, p. D-7. See also 
Morgo "Quiet Revolution," p. A^5 ("It is not hyperbole to 
call the reinvestment law the civil rights act for lending that 
brought about the true democratization of credit"). 

200 "Mischief from Mr. Gramm," New York Times, Mar. 17, 
1999, p. A-20. 

201 Ibid. Opponents of the proposal assert that it would ex- 
empt approximately 37 percent of banks and thrifts from 
CRA. Richard S. Carnell, Assistant Secretary for Financial 
Institutions, U.S. Department of the Treasury, to Ruby G. 
Moy, Staff Director, U.S. Commission on Civil Rights, June 
1, 1999, U.S. Commission on Civil Rights files. 

202 Bloomberg News, "House GOP Sidesteps Move to Curb 
CRA in Banking Bill," Buffalo News, Mar. 11, 1999, p. 5-E. 

203 H.R. 665 was introduced on Feb. 10, 1999. 

204 Ibid. 



220 



conservatives who do not want the law expanded 
while satisfying a basic demand of President 
Clinton and Democrats who are opposed to a 
repeal. 

While the future of the CRA is unknown, it is 
clear that the past 4 years have been unprece- 
dented in the amount of money committed 
through CRA endeavors. The Office of the Comp- 
troller of the Currency reports that during 1997, 
pursuant to the Community Reinvestment Act, 



banks and thrifts committed $314 billion to 
loans and other projects, a sevenfold increase 
since 1993.-05 Treasury Secretary Robert Rubin, 
speaking recently in New York at a Rain- 
bow/Push Coalition conference on expanding 
economic opportunities for minorities and 
women, stated, "In the last four years, national 
banks have invested four times as much in 
community development as they did in the pre- 
vious 30 years."206 



205 Anason, "Banks Get Round of Praise," p. 2. 

206 Ibid. 



221 



Chapter 6 

Findings and Recommendations 



Chapter 2. Immigrants in New York City 
and Low-sl(ill Labor iVIarkets 

Exploitation of the Undocumented 

Findings 

2.1 Workplace exploitation of low- and unskilled 
immigrants is commonly manifested in the form 
of subminimum wages, overtime work without 
appropriate pay, unsafe and unsanitary working 
conditions, and abuse or harassment. Most sus- 
ceptible to such abuses are undocumented immi- 
grants, whose fear of disclosure to the INS 
makes them an attractive work pool for employ- 
ers in low-profit industries. 

2.2 These extreme working conditions are exac- 
erbated by employers and smugglers who 
knowingly and willfully profit from a vulnerable 
and abundant undocumented immigrant work 
force. 

2.3 Labor law violations against the undocu- 
mented also affect documented immigrants and 
competing native-born workers, who often must 
accept the same or diminished working condi- 
tions and wages in order to secure employment 
in industries that rely on a vvdnerable work 
force. 

Recommendations 

• Workplace violations in these industries 
should be addressed in a multifaceted man- 
ner that emphasizes effective border control 
policies, rigorous enforcement of labor stan- 
dards laws and the knowing-hire component 
of the employer sanctions provision, and pro- 
tections for undocumented employees who 
turn their violating employers over to proper 
authorities. 

• IRCA enforcement should emphasize com- 
pliance of the knowing-hire provision of the 
law, which prohibits any person or entity 
from knowingly hiring, recruiting, or refer- 
ring or employment of any alien who is ineli- 
gible for employment in the United States. 



• Immigration laws should be amended to en- 
sure protection of all immigrants who come 
forward to turn in employers who are vio- 
lating labor laws or IRCA. An assurance 
against deportation, similar to the S-visa 
provision of the Immigration and Naturali- 
zation Act of 1990, should be given to any 
undocumented immigrant whose tip or tes- 
timony leads to the conviction of an em- 
ployer found to have violated labor or immi- 
gration laws, or to the conviction of a smug- 
gler or other facilitator of illegal entry into 
the United States. 

Encouraging undocumented immigrants to 
turn over those who violate immigration or labor 
laws would serve a dual purpose. First, it would 
reduce the frequency of conflicts of interest by 
State and Federal departments of labor by rely- 
ing on the immigrants themselves to uncover 
employers violating laws. Second, it would pro- 
vide undocumented workers with some recourse 
against victimization by employers or smugglers. 
Over time, immigrant reporting of immigration 
law violators would discourage rehance on un- 
documented workers and reduce the number of 
employers and smugglers willing to trade in un- 
documented labor. 

Labor Law Violations in the Restaurant Industry 

Finding 

2.4 The lack of a concerted effort by Federal and 
State labor departments to target worker exploi- 
tation in the restaurant industry exacerbates the 
abuse of labor laws. Whereas abuses in the gar- 
ment industry have led to specialized task forces 
in both the Federal and New York departments 
of labor designed to target violations by apparel 
producers, there are no equivalent, specialized 
programs to address violations in the restaurant 
industry. 



222 



Recommendation 

• The U.S. Department of Labor should con- 
sider the feasibihty of speciaHzed task forces 
to target other industries known to have a 
high degree of labor law violations, such as 
the restaurant industry. 

Cooperation among States and Localities and 
tlie Immigration and Naturalization Service 
Findings 

2.5 Both the Personal Responsibility and Work 
Opportunity Act and the Illegal Immigration 
Reform and Immigrant Responsibility Act pro- 
hibit States and localities from restricting or 
prohibiting any Federal, State, or local govern- 
ment from sending to or receiving from the Im- 
migration and Naturalization Service, informa- 
tion regarding the immigration status of any 
immigrant in the United States. At least one 
court has construed these provisions as attempts 
simply to vest State and local authorities with 
discretion over whether to turn over the names 
of suspected undocumented immigrants seeking 
services by prohibiting blanket statutory and 
regulatory bars against such cooperation. 

2.6 The Federal and New York departments of 
labor express concerns over the impact of INS 
intervention on their abihty to protect fully and 
enforce labor laws and standards. Both allude to 
potential conflicts of interest arising from man- 
datory disclosure to the INS of undocumented 
immigrants' identities. 

2.7 Provisions granting individual State or local 
entities authority to disclose information about 
undocumented immigrants to the INS will likely 
discourage undocumented immigrants from 
seeking public services, such as public education 
for children or police assistance in the event of 
an emergency, or from reporting violations of 
laws, including fair labor standards laws. Such a 
chilling effect on the exercise of individual rights 
denies this group fundamental protections af- 
forded by law. 

Recommendation 

• The provisions in the immigration and wel- 
fare laws prohibiting restrictions by States 
and locahties against disclosing information 
about undocumented immigrants to the INS 
should be repealed. These provisions should 
be preserved only for undocumented immi- 
grants convicted of crimes. 



Immigration Policy's Effect on Wages, Jobs, 

and Racial and Ethnic Tensions 

Finding 

2.8 Concerns over the award of employment- 
based visas for skilled aliens center around fears 
that sustained entry of high-skilled immigrants 
reduces the incentive to train native and estab- 
lished immigrant workers in these fields. In re- 
sponse to these concerns, proponents recommend 
targeting native workers for education and 
training in technical fields that suffer from a 
shortage of trained workers domestically. An 
early version of the Immigration Act of 1990 con- 
tained a section requiring employers who receive 
labor certification to import foreign workers to 
pay a fee. The proposal called for depositing the 
fee into a separate account within the general 
fund of the U.S. Treasury and using it to educate 
and train unemployed or underemployed U.S. 
citizens in fields experiencing a shortage of em- 
ployees. The provision was deleted from the final 
version of the 1990 act. 

Recommendation 

• Congress should require employers seeking 
labor certification for foreign skilled workers 
to pay a fee upon award of the labor certifi- 
cation. The fee would be used to offset the 
cost to a potential U.S. employee of obtaining 
the requisite training or education needed to 
qualify for the job. 

Chapter 3. Minorities and Women in 
New York City's Finance Industry 

Employment of Minorities and Women 

Finding 

3.1 The finance industry is a large, prominent, 
and well-paying industry in New York City, pro- 
viding outstanding opportunities for employ- 
ment. The financial industry has changed since 
the Commission focused attention on the lack of 
diversity in the best and highest paying jobs on 
Wall Street at its racial and ethnic tensions 
hearing in 1994 and documents hearing in 1995. 
Firms have changed their structure, consolida- 
tions have taken place and minority- and 
women-owned firms have increased in visibility. 
A few people of color and women have been 
hired at higher levels in the industry in recent 
years. There is some evidence that firms have 
adopted measures or made commitments to in- 
crease the inclusion and advancement of women 



223 



and people of color in prominent roles in the se- 
curities industry. 

Recommendation 

• The finance industry should continue to take 
strong measures to counteract the industry 
forces that may reduce the number of people 
of color and women in this industry. 

Job Classifications for Equal Employment 

Opportunity 

Finding 

3.2 The job classifications the Equal Employ- 
ment Opportunity Commission (EEOC) uses to 
track employment of minorities and women in- 
clude a wide range of jobs. In the finance indus- 
try, officials and managers include presidents, 
vice presidents, managers, and supervisors. But 
among at least some banks and securities firms, 
officials and managers also include the director 
of human resources, supervisor of building main- 
tenance, supervisor of word processing, and 
mailroom manger. On the one hand, such a 
range of jobs in the officials and managers classi- 
fication provides wider opportunities for minori- 
ties and women to obtain high status jobs in this 
industry. On the other hand, some of these jobs 
are unrelated to the substance of finance and 
may not carry the lucrative salaries of the indus- 
try. The numbers of women and minorities who 
have access to the finance industry per se may 
be less than the EEOC data indicate. 

Recommendations 

• EEOC should monitor employers' use of the 
Job Classification Guide to ensure that jobs 
are properly classified in EEO-1 reports. 
The EEOC should offer technical assistance 
to employers on the use of this guide in filing 
EEO-1 reports. 

• EEOC should conduct a study of their EEO- 
1 reporting system to determine whether it 
and the job classification scheme are the best 
means of tracking the employment opportu- 
nities of minorities and women. 

Job Qualifications 
Finding 

3.3 A review of job requisitions, vacancy an- 
nouncements, job postings, advertisements, and 
position descriptions indicated that at least some 
banks and firms state minimvim job quahfica- 



tions in terms of the required knowledge and 
skills rather than specifying required levels of 
education or years of experience that might un- 
necessarily exclude otherwise qualified minori- 
ties and women. However, other banks and firms 
did state job requirements for particular levels of 
education and years of experience. 

Recommendation 

• Banks and securities firms should review the 
job qualifications stated in their job requisi- 
tions, vacancy announcements, job postings, 
advertisements, position descriptions, and 
other documents. The minimum job re- 
quirements should be revised, if necessary, 
to reflect critical knowledge and skills re- 
quired for the job. 

Recruitment, Hiring, and Promotions 
Findings 

3.4 At least one bank or firm had clearly docu- 
mented procedures for hiring and promoting 
staff. A human resources manual outlining 
guidelines for recruitment was one mechanism 
for ensuring that searches for candidates were 
conducted so as to reach minorities and women. 

3.5 Banks and securities firms had systems for 
hiring and promotion with features that may 
unfairly exclude minorities and women. Em- 
ployee referral systems, systems designed to fill 
vacancies from within the company, or simply to 
give advantages to internal candidates are some 
of those features. 

3.6 Recruitment at historically black schools 
doubled the number of black and Hispanic train- 
ees in one company's programs. 

3.7 Some banks and securities firms are adver- 
tising for job candidates through minority media 
such as the professional magazines Minority 
MBA and Black Enterprise. Some of their adver- 
tisements were more appealing to minorities 
than others. The least appealing gave a company 
profile. The most appealing pictured happy mi- 
nority employees and included quotes from them 
describing their success with the company. 

3.8 Not all banks and firms made an effort to 
direct their recruitment efforts toward minori- 
ties or women. One company's proposed strate- 
gies for increasing the numbers of minorities 
included increasing minority representation in 
summer intern and entry-level training pro- 
grams; increasing the participation of minorities 



224 



in the recruitment process both on campuses and 
with interviewing candidates at the company; 
estabhshing partnerships with historically black 
colleges; creating and expanding affiliations with 
professional organizations such as the National 
Society of Hispanic MBAs; increasing the com- 
pany's presence at expositions and special events 
targeted toward minorities; and providing col- 
lege scholarships to minority students. 

Recommendation 

• Banks and security firms should continue to 
review their procedures for recruiting, hir- 
ing, and promoting employees. If in their re- 
view firms find certain procedures exclude or 
discourage minorities and women from ap- 
plying, these procedures should be dis- 
carded. The review should consider strate- 
gies for increasing the recruitment of minori- 
ties and women including, for example, 
making job advertisements more appealing 
to minorities and women and recruiting at 
historically black, or female, schools and 
colleges. Procedures should be written and 
available to human resources staff to ensure 
continued use of fair practices. 

Other Policies and Programs 
Finding 

3.9 Some companies had policies and programs 
designed to make a more hospitable environ- 
ment for minorities and women. Written and 
widely disseminated equal employment oppor- 
tunity (EEO) policies and affirmative action pro- 
grams and diversity training were some of the 
measures to do this. One sample of an EEO pol- 
icy charged all employees with the responsibility 
to treat their fellow employees with respect and 
clearly spelled out the role of managers with re- 
spect to disseminating the pohcy, hiring, pro- 
moting and transferring employees, harassment 
or other problems, and complaints. Another 
sample gave instructions for disseminating the 
EEO policy and addressed the president's policy 
statement; meetings of supervisors, managers 
and employees; company publications and adver- 
tisements; recruitment and employment agen- 
cies; and vendors, suppliers, and contractors. 
One company provided diversity training to all 
employees with a curricula to help program par- 
ticipants recognize diversity, value it as an en- 
richment, and, for managers, take advantage of 



a diverse work force to enhance company com- 
petitiveness. 

Recommendation 

• Banks and security firms should examine 
policies and programs that make their work 
environment more hospitable for minorities 
and women. Are EEO and affirmative action 
policies written and widely disseminated? Do 
they clearly identify the persons responsible 
for practicing as well as enforcing these poli- 
cies? Are procedures in place to ensure that 
company publications and agents abide by 
the policy? Have employees been offered 
training to help them create a compatible 
work environment? Companies should ad- 
dress these issues. 

Finding 

3.10 Some companies had professional develop- 
ment programs to help minorities and women 
reach their potential. Examples of these pro- 
grams are a management training program for 
women developed through a consortium of cor- 
porations and offered at a local college, a career 
development program for minorities to identify 
developmental needs and complete assignments 
in those areas, and a highly structured mentor- 
ing program. The mentor program matched men- 
tees to mentors on the basis of the mentees' de- 
velopmental needs and the mentors' strengths. 

Recommendation 

• Banks and securities firms should increase 
the number of professional development pro- 
grams designed to help all employees reach 
their full potential. Management training, 
career development, and mentoring pro- 
grams should be considered. 

Industry Testing and Certification 
Finding 

3.11 In the securities industry and among banks 
engaged in investment banking, job require- 
ments for many positions are partly dictated by 
the organizations that regulate this industry, for 
example, the New York Stock Exchange (NYSE) 
and the National Association of Securities Deal- 
ers (NASD). The NYSE and NASD, along with 
other self-regulating organizations, require that 
their members pass an examination. In fact, 
more than 30 examinations are used in this in- 



225 



dustry. The NYSE follows professionally ac- 
cepted standards and practices in developing its 
tests to ensure that they are job related. Yet 
prior to the Commission's study, their tests had 
not been examined for adverse impact on minori- 
ties and women. The Series 7 examination, a 
widely used test to become a general securities 
registered representative, shows a smaller per- 
centage of people of color and women who pass if 
the group is measured by the number of people 
in the group who take the test. For example, 
from November 1994 to July 1995, 73 percent of 
whites who took the test passed, but only 45 per- 
cent of blacks did. Similarly, 74 percent of men 
passed, but only 60 percent of women did. 

Recommendations 

• Even though the finance industry's examina- 
tions are job related, the self-regulating or- 
ganizations that require and administer 
these tests should examine them regularly to 
ensure against biases against people of color 
and women. 

• The Securities Exchange Commission, which 
currently reviews securities industry exami- 
nations, should monitor the impact of these 
tests and encourage efforts to examine and 
remove test biases. 

Chapter 4. Impact of Securities 
Industry Rules on iVIinority and Women 
Securities Professionals 

Arbitration Forums 

Findings 

4.1 Although the obUgation to arbitrate is no 
longer coupled with the duty to register at the 
exchanges, the mandatory arbitration require- 
ment likely will persist because it can be placed 
in individual employment contracts. Many secu- 
rities professionals are still required to agree, as 
a condition of employment, to arbitrate any em- 
ployment discrimination disputes that may arise. 
Thus, the goal of providing the most fair and cost- 
efficient arbitration forum remains important. 

4.2 The SROs' arbitration rules and procedures 
were written with investor disputes in mind and 
mostly do not impose separate requirements for 
the resolution of employment discrimination 
disputes. 



Recommendation 

• The SROs should reassess the arbitration 
rules used for the resolution of employment 
discrimination disputes to ensure that the 
procedures are suitable for employment law 
cases. Separate rules, specifically tailored for 
and only applicable to employment discrimi- 
nation cases, should be written. In crafting 
new rules, the SROs should follow the 
American Arbitration Association's National 
Rules for the Resolution of Employment Dis- 
putes. 

Arbitration Discovery Procedures 
Findings 

4.3 The securities industry arbitration forum 
was created to achieve two sometimes conflicting 
goals: providing a cost-efficient means of resolv- 
ing disputes and achieving equitable outcomes in 
individual cases. 

4.4 Discovery procedures before arbitration pan- 
els are more limited than before courts, and ar- 
bitrators are permitted to exercise discretion 
when determining whether information is rele- 
vant to the issues and therefore must be dis- 
closed. Arbitrators are provided with a manual 
that lists several documents that are often rele- 
vant in employment cases. However, the manual 
does not limit arbitrators' discretion to deter- 
mine relevancy on a case-by-case basis. 

Recommendations 

• The SROs should craft discovery rules for 
employment discrimination cases that pro- 
vide arbitrators with intelligible standards 
to use in determining whether requested in- 
formation is relevant to the issues involved. 
Providing a standard, rather than a short 
list of documents that are often relevant, 
would assist the arbitrators when faced with 
unique requests based on particular factual 
claims. 

• Standards used to guide arbitrators han- 
dhng discovery requests should be derived 
from the case law that has evolved under the 
employment discrimination statutes. How- 
ever, when using case law to craft standards 
for arbitrations, the cost saving goals of arbi- 
tration should be kept in mind. Thus, the 
discovery rules for arbitration may differ 
somewhat from the rules found in court 
cases. 



226 



Arbitration Panels 
Findings 

4.5 The pool of arbitrators available to decide 
employment discrimination cases is composed of 
a disproportionately large number of white 
males. Few arbitrators are minorities or women. 

4.6 The SROs do not require the arbitrators se- 
lected for employment discrimination disputes to 
have knowledge of employment discrimination 
law. 

Recommendations 

• The SROs should implement an explicit re- 
quirement that its pool of arbitrators avail- 
able to decide employment discrimination 
cases remains diverse in gender, race, and 
ethnicity. 

• The SROs should require that all arbitrators 
chosen to decide employment discrimination 
cases have knowledge of employment law. 

Arbitration Awards 
Findings 

4.7 Advocates disagree about whether SRO arbi- 
tration awards favor employers or employees. 
SRO records reveal that between 1990 and 1994, 
between 32 and 39 percent of employees were 
victorious. The amounts of the awards given to 
victorious employees varied and often were not 
discernible when multiple claims were the sub- 
ject of a single award. 

4.8 Arbitrators are not required to provide writ- 
ten explanations for the outcomes reached and 
the amounts of any awards given. 

Recommendations 

• The SEC or the EEOC should implement a 
study of the arbitration forums on Wall 
Street to determine whether the outcomes 
are warranted and the awards fair. 

• The SROs should begin requiring the arbi- 
trators to provide written reasons for the 
outcomes and the methods of arriving at the 
amounts of the awards. Providing explana- 
tions will help alleviate parties' potential 
concerns that the arbitrators acted improp- 
erly or unfairly. 

• The SROs should require their arbitrators, 
in multiclaim arbitrations, to allocate the 
awards among the various claims. 



Rule G-37 
Findings 

4.9 Minority- and women-owned firms have 
maintained a stronger presence in the municipal 
securities market than in the private securities 
market. In addition, these firms tend to be rela- 
tively small and are more likely to participate 
only in public securities. 

4.10 Traditional firms, on the other hand, are 
larger and more likely to participate in private 
securities business in addition to any municipal 
securities services they perform. 

4.11 Securities professionals disagree regarding 
the impact Rule G-37 has had on minority- and 
women-owned firms. Some opine that these 
smaller firms have been harmed by the ban 
against engaging in business with certain mu- 
nicipalities. Others assert that Rule G— 37 has 
had no adverse impact. 

4.12 The impact Rule G-37 has had on minority 
and women politicians seeking office in local 
municipaUties is also uncertain. However, some 
have opined that the rule has impaired their 
ability to raise sufficient campaign funds. 

4.13 In approving Rule G-37, the SEC consid- 
ered comments that predicted these very con- 
cerns. However, the SEC "gave overriding 
weight to" its concern for the well-being of the 
municipal securities market. 

Recommendations 

• The SEC should commission a study to de- 
termine the impact the rule has had on mi- 
nority and women municipal securities pro- 
fessionals and political candidates. If Rule 
G-37 is having a disparate impact that could 
be avoided without undermining the effec- 
tiveness of the rule, the SEC should amend 
the rule. 

• In giving "overriding weight to" market con- 
siderations, the SEC should not fail to con- 
duct a thorough analysis of every proposed 
rule to ensure that any unnecessary dispa- 
rate impact is obviated to the greatest extent 
possible while still fuUy achieving the goals 
of the rule. 



227 



Chapter 5. The Role of Community 
Reinvestment 

The Federal Community Reinvestment Act 

Finding 

5.1 There appears to be grade inflation in the 
CRA composite performance evaluations being 
conducted by the four CRA regulatory agencies. 
According to one estimate, from 1990 to 1996 the 
percentage of institutions receiving "satisfactory" 
or "outstanding" overall performance ratings 
rose from 87 to over 98 percent. Moreover, of the 
three test scores that are added together for the 
composite score (the "lending test" score, the 
"investment test" score, and the "service test" 
score), the lending test is currently weighted so 
heavily that any institution receiving an 
"outstanding" on that component is assured a 
composite evaluation of "satisfactory" even if it 
receives "substantial noncompliance" on the 
other two tests. 

Recommendation 

• Because of possible grade inflation, the CRA 
regulatory agencies should delay the 
awarding of overall "outstanding" ratings 
until they conduct enough evaluations 
throughout the industry to determine what a 
"normal" or "average" CRA evaluation re- 
veals. Moreover, to ensure that financial in- 
stitutions do not entirely neglect the 
"investment test" and "service test" compo- 
nents of a CRA overall performance evalua- 
tion, the regulations should be changed to 
mandate that institutions receive a mini- 
mum grade of "low satisfactory" on all three 
tests. 

Finding 

5.2 Because of the continuing quick pace of 
mergers and acquisitions, approximately one- 
third of the banks hsted in the Washington, 
D.C. -based National Community Reinvestment 
Coalition's roster of CRA agreements no longer 
exist. It is clear, then, that current restructuring 
can make any given agreement, as well as any 
given branch of an acquired bank, vulnerable. It 
is sometimes not known during the course of the 
merger whether a CRA agreement will be hon- 
ored by the acquiring bank, or whether all of a 
bank's branches will be kept open by the ac- 
quiring bank. 



Recommendation 

• Currently, the Office of the Comptroller of 
the Currency (OCC) is the only one of the 
four CRA regulators to: (1) require the sur- 
viving bank in a merger to indicate in its ap- 
plication — on the public record — whether it 
will honor the commitments made by the 
target bank to community organizations (or 
similar entities) and if not, to explain the 
reasons and the impact on the affected com- 
munities; and (2) require merger applicants 
to identify in the application — on the public 
record — any branches that they know will be 
closed as a result of the merger, and to de- 
scribe whether they will discontinue or sig- 
nificantly reduce services to any customers 
and, if so, to explain the reasons and the im- 
pact on the affected communities. The other 
three CRA regulatory agencies should have 
these same two requirements. Moreover, if 
an acquiring bank indicates it does not plan 
to honor the commitments made by the tar- 
get bank, and/or if an acquiring bank indi- 
cates that a branch (or branches) will be 
closed or services will be discontinued or sig- 
nificantly reduced, then the regulatory 
agency should remove the application from 
any "expedited review" process the regula- 
tory agency might employ and investigate 
the situation more closely. 

Finding 

5.3 Recent court rulings make it clear that com- 
munity groups currently have no legal standing 
to ask a court of law to review regulators' bank 
merger approvals. It is therefore very important 
that community groups' views be taken into con- 
sideration by CRA regulators when they are re- 
viewing bank merger applications. Currently, 
with respect to the merger review process of the 
Federal Reserve Board, it is the pohcy that when 
a community group comments on a merger 
within the official comment period, the Fed di- 
rects the bank to submit a response. The Fed, 
however, will not allow the community group to 
respond to the bank's response if the comment 
period has expired. 

Recommendation 

• The CRA comment process of all four Fed- 
eral regulators should be reformed and mod- 
eled on the Federal Communication Com- 
mission (FCC) comment process. (When the 



228 



FCC receives a protest to an application to 
transfer a license or buy a station, the 
agency establishes a pleading cycle: the ap- 
plicant's response is due 2 weeks after the 
protest is made, and the protester's reply is 
due 1 week after that.) With this policy, 
community groups would have an opportu- 
nity to point out any inaccuracies they be- 
lieve are part of the apphcant's response. 
This could, of course, be extended yet again 
to give the apphcants an additional week to 
comment on what the community groups 
have said. 

Economic Development as the Driving Engine 
Finding 

5.4 Private-public economic development col- 
laborations are the country's best hope for urban 
revitalization. Although housing has led trou- 
bled neighborhoods toward prosperity, it will be 
assured only with an infusion of capital, com- 
mercial development, and small business devel- 
opment to create jobs. 

Recommendation 

• To increase the flow of funds into and within 
low- and moderate-income communities, 
there must be collaborative partnerships be- 
tween community nonprofits, financial insti- 
tutions, private-sector organizations, and 
Federal, State, and local government agen- 
cies. Moreover, the investment must be done 
in a way to give members of these communi- 
ties a "stake in the renaissance." This will 
require financial institutions to be more 
flexible. For example, they might be willing 
to accept different ways of measuring cash 
flow, or they might agree to make loans to 
startup businesses that can thrive in the 
area but that the lender has historically 
deemed unworthy of a loan (e.g., child-care 
centers or hair-braiding studios). The lender 
might also estabhsh advisory boards made 
up of representatives of neighborhood 
groups, nonprofit housing advocacy and de- 
velopment organizations, and minority or- 
ganizations to review and evaluate various 
efforts and opportunities, including CRA- 
related initiatives. Finally, New York City 
and New York State have to lead the private 
sector into the low- and moderate-income 
communities, giving some security that there 



is a serious effort underway to rebuild and 
revitalize these areas. The past few years 
have clearly demonstrated that the private 
sector will follow the lead with billions of 
dollars of their own. 

Finding 

5.5 It is clear that banks no longer hold the great 
majority of assets in the financial industry; cur- 
rently, Americans have invested $4 trillion in 
mutual funds, while they hold $3 trillion in bank 
and thrift deposits. Thus, it could be argued that 
if the CRA is not allowed to evolve with the 
evolution of the financial industry, it will cover 
fewer and fewer assets. It is likely that mergers 
among depository and nondepository institutions 
will accelerate, and that the distinctions among 
products offered by financial institutions will 
thereby become blurred. For example, mutual 
funds currently offer checking accounts that are 
not regulated by CRA; and insurance companies 
now want to establish thrifts. It could be argued 
that if the CRA is not expanded, then bank 
holding companies will find it very tempting to 
switch their assets from their CRA-covered sub- 
sidiaries (banks and thrifts) into their CRA- 
exempt affiliates (mortgage companies, insur- 
ance companies, etc.) Without an expansion of 
CRA, the major lenders in poor communities 
(banks and thrifts) will no longer have the finan- 
cial wherewithal to continue increasing access to 
capital and credit to traditionally underserved 
communities. 

Recommendation 

• Congress should conduct a thorough investi- 
gation into the possibihty of extending the 
CRA to all financial services — not just feaer- 
ally insured lenders. Thus, the CRA would 
apply to the reinvestment performance of 
banks, savings and loans, mortgage compa- 
nies, insurance companies, finance compa- 
nies, mutual funds, credit unions, and stock 
brokerages; after all, in many respects these 
entities are now all beginning to merge. It is 
important that all communities have access 
to this capital. 



229 



Availability of Deposit Facilities and Services 

in Low-income Areas 

Finding 

5.6 Many low-income residents have no relation- 
ship at all with banking institutions, which 
makes it still more difficult to foster the compli- 
cated relationship required for small business 
lending. Bankers' unfamiliarity with these com- 
munities and borrowers leaves them unable to 
appreciate the credit needs and business plans of 
low-income borrowers. 

Recommendation 

• Industry should aggressively market its 
products in low-income areas. Banks should 
participate in community and faith-based 
events, which draw many potential borrow- 
ers who are currently outside the financial 
mainstream. Banks could reach more poten- 
tial small business borrowers by taking such 
simple steps as reaching out to first-time 
home buyers and estabhshing basic banking 
services. One important step would be to 
have loan officers who are representative of 
and can communicate with the members of 
the low-income community, particularly in 
terms of culture, race, and language. (This is 
especially true as more and more ATMs are 
placed outside bank branches, because those 
who actually bring their business inside the 
branch normally do so because it is too com- 
plicated for the ATM.) ATMs could be in- 
stalled in places that are frequented by low- 
income residents, even if this means uncon- 
ventional installations like in churches. 
Banks can also target low-income customers 
through neighborhood advertisements, com- 
munity development groups, and other infor- 
mal settings (e.g., home fairs and conven- 
tions). 

Finding 

5.7 In Central Brooklyn alone, there are twice as 
many check-cashing operations as there are 
banks. Such operations, however, do not provide 
the traditional banking services that allow peo- 
ple to save money, earn interest, and develop a 
banking history. 

Recommendation 

• Congress should consider giving more power 
to — and requiring more accountability from — 



the check-cashing businesses that are filling 
the vacuum left by banks. These enterprises 
can be enhanced and regulated. 

Small Business Lending 
Finding 

5.8 Currently, with respect to small business 
loan requirements, the CRA only requires the 
disclosure of the number and value of small 
business originations to each census tract. 

Recommendation 

• While this new disclosure requirement is an 
improvement over the nondisclosure policy 
of the past, it should be further improved to 
be as comprehensive and valuable as the in- 
formation provided by the Home Mortgage 
Disclosure Act (HMDA). For example, HMDA 
discloses the race and income of appUcants, 
thereby providing information about poten- 
tially underserved markets, as well as infor- 
mation that can be used to develop new 
products to meet legitimate credit demand. 

Finding 

5.9 In 1997 nearly two-thirds of small business 
lenders used credit scoring to process loans. The 
system assigns greater weight to the financial 
resources and credit history of the business 
owner, rather than concentrating strictly on the 
financial numbers of the business as was done in 
the past. Supporters of the technology say it 
speeds up the approval cycle, enabling lenders to 
spend more time prospecting for new customers, 
and contributes to increased loan volume. They 
also say it has the potential to allow banks lo- 
cated outside local markets to compete against 
within-market institutions for small business 
lending. However, detractors of the new technol- 
ogy argue that it may contain methodological 
rigidities which make it unable to properly as- 
sess nontraditional, or limited, credit histories of 
minority or low-income loan apphcants, thereby 
denying credit to reliable, creditworthy borrow- 
ers and exacerbating racial disparities in lending. 

Reco/77/77endaf/on 

• CRA regulators should investigate credit 
scoring and automated underwriting to de- 
termine if they have a racially disparate im- 
pact upon low-income and minority commu- 
nities. It is not yet clear what impact these 



230 



techniques have on lending patterns to lower 
income and minority borrowers. Moreover, 
credit scoring and automated underwriting 
could be tempered with the use of commu- 
. nity-based "second look" programs that allow 
a reassessment of rejected loan applications. 
These reassessments could be done locally — 
they might even include onsite visits of the 
businesses — rather than at a distant office 
where the evaluation can miss the nuances 
of an applicant, neighborhood, or business 
venture. 

Home Mortgage Disclosure Act 
Finding 

5.10 One of the most effective tools for getting 
minority and low-income borrowers into home- 
ownership has been high-quahty loan counseling 
by community organizations. However, during 
the past several years, there has been an erosion 
of lenders' commitment to loan counseling. In- 
stead, lenders. Realtors, and the secondary 
mortgage market are coming to rely more and 
more on workbooks, videos, and generalized 
classroom educational programs. 

Recommendation 

• Community groups and government agen- 
cies must continue to provide high-quality 
counseling programs to prepare potential 
borrowers to go through the mortgage appli- 
cation process. This counseling should also 
continue after the initial purchase is made. 
Thus, it should include prequalification 
services to determine whether prospective 
borrowers are likely to obtain a loan, as well 
as postpurchase counsehng to ensure that 
borrowers stay abreast of their financial obh- 
gations. There has also been success with 
community groups entering into partnerships 



with area banks, whose experts can pro- 
vide — while earning CRA credit for the 
bank — seminars and classes on personal fi- 
nance for present and prospective home buy- 
ers. 

Fair Lending Enforcement by the Department 
of Justice 
Finding 

5.11 During the summer of 1997, the Depart- 
ment of Justice (DOJ) announced a $9 milhon 
settlement with the New York-based Albank Fi- 
nancial Corporation. DOJ accused Albank of 
redlining several cities in the State of Connecti- 
cut as well as southern Westchester County, 
New York. The Department of Justice alleged 
that Albank excluded minority borrowers in the 
affected communities without considering the 
borrowers' credit histories, and that it failed to 
drop the restrictions when some of the thrift's 
own brokers asked it to do so. The matter was 
settled; Albank continues to stand by its prac- 
tices. 

Recommendation 

• State and Federal fair lending agencies must 
increase testing programs for all lenders. 
"Matched pair" testing can identify banks 
who screen minority and lower income bor- 
rowers out of their lending business. Addi- 
tionally, testing can determine if banks are 
steering potential borrowers from applying 
for loans or to alternate lending products. 
Lenders are required to accept and evaluate 
all applications, but if a bank discourages 
some people from submitting applications for 
a loan, the potential applicant is not dis- 
closed. Testing can uncover this discrimina- 
tion which is not revealed through Home 
Mortgage Disclosure Act data. 



231 



Additional Statement of Chairperson Mary Frances Berry 
and Vice Chairperson Cruz Reynoso 



This is a carefully reasoned report that pro- 
vides a great deal of important information re- 
garding immigration, the employment of women 
and people of color in the finance industry, and 
capital investment in low-income, people of color 
communities. The report examines the connec- 
tion between racial and ethnic tensions and eco- 
nomic opportunity in New York City. 

The report has benefited from reviews and 
additional information provided by securities 
firms since the 1995 hearing. It applauds the 
progress that has been made in recent years in 
the employment of women and people of color on 
Wall Street. It also identifies areas where dis- 
parities continue to exist and offers recommen- 



dations to target additional efforts. It does so 
while avoiding any determination that the un- 
derrepresentation and disparities described are 
evidence of invidious discrimination. In order to 
make such an assessment, we would need infor- 
mation concerning the qualified applicant pool 
which the firms did not make available. 

We thank the staff, the consultant, experts, 
and the summer interns — who are always valu- 
able assets in the Commission's work — for the 
production of this significant report. We hope 
that this report will provide useful information 
in the effort to secure equal opportunity in our 
society. 



232 



Dissenting Statement of Commissioner Russell G. Redenbaugh 
and Commissioner Carl A. Anderson 



It is unfortunate that it has taken the Com- 
mission 5 years to produce this report. The 1994 
hearing in New York ehcited testimony from 
several witnesses as well as a large volume of 
subpoenaed documents from 35 selected banking 
and investment firms. This might have been a 
good report, but much of the research and statis- 
tical work has been conducted by summer in- 
terns and outside consultants. It does not reflect 
the kind of work that our internal staff is capa- 
ble of producing and it fails to measure up to our 
standards. As presented here and now in 1999, 
the report and its data are incomplete and insuf- 
ficient for gauging either the progress achieved 
or any problems that remain regarding the re- 
cruitment, hiring, and promotion of women and 
minorities on Wall Street. 

The major problem with the report, and the 
principal reason we voted against it, is that it 
exaggerates and distorts that which can be con- 
cluded from the material presented. The intro- 
ductory chapter, for example, provides an over- 
reaching and highly politicized characterization 
of New York City as "a city plagued by increas- 
ingly frequent racial and ethnic conflict . . . well- 
publicized interethnic violence . . . [and] ine- 
quality and discrimination at all levels." The 
first mention of the finance industry comes at 
the very end of the overview, which argues that 
the industry somehow contributes to the myriad 
of interracial and interethnic conflicts and ten- 
sions in New York — an argument that the statis- 
tics presented later on in the report simply do 
not support. 

We wish to stress that our dissent by no 
means signals a behef that there are no prob- 
lems on Wall Street or that racial and ethnic 
tensions do not exist in New York City. It is just 
that this report cannot be the factual basis for 
the findings and recommendations it provides. 
Some of the specific concerns we have with the 
report include the following: 

Ancient Data and Bogus Conclusions 

For the most part, the sections on the em- 
ployment of minorities and women in New York 
City's finance industry are based on analyses 
that are old, incomplete, and tortured to reach 



conclusions that are not supported by the data 
we collected. For example, the first section of the 
analysis of the finance industry jumps back and 
forth in terms of sources and chronology 
(research studies, news articles, EEOC and Cen- 
sus data anywhere from 1974 to 1996 and back 
again) to support the claim that the securities 
industry is "potentially the worst offending seg- 
ment of the finance industry" with respect to 
employment of minorities. The section that im- 
mediately follows then proceeds to relay a sepa- 
rate set of data suggesting that "minorities and 
women are well represented in the finance in- 
dustry as a whole. . . ." 

The report's fatal flaw is that it rests its 
claims about "disparities" and "underrepre- 
sentation" mainly on the basis of "past research 
studies as well as current news reports sug- 
gest[ing] that minorities and women, when com- 
pared with their numbers in the population 
[emphasis added], were not well represented in 
the finance industry, or at least some segments 
of it." However, as Chairperson Berry herself 
acknowledged during the Commission's last dis- 
cussion, "we cannot technically say there is un- 
derrepresentation" because the only way we can 
point to underrepresentation is if we know what 
the talent pool is and if we measure hiring pat- 
terns against the qualified pool of applicants. 
Yet, undeterred by the lack of factual or statisti- 
cal support for its claims, the report mixes and 
jumbles data (most of which are 10 years old) in 
order to derive an argument that there is under- 
representation. This kind of approach is highly 
misleading and discredits the entire report. 

No Statistical Procedure Used 

No vaUd statistical procedure was used in the 
report to establish whether the data studied 
adequately represent the finance industry as a 
whole. Particularly in regard to the examination 
of the industry's employee pool, a statistical test 
is required to draw a firm conclusion, yet none is 
presented. As a result, there is no way to deter- 
mine the extent to which we have or have not 
captured the industry with the 35 banks and 
firms that received subpoenas. It is also not clear 



233 



to what extent the subpoenaed sample may or 
may not differ from the rest of the industry. 

Perception as Reality 

Because of the lack of a valid statistical pro- 
cedure, the report frequently must rely on infer- 
ence, suggestion, and even allegation to try to 
build its case. For example, long before it gets 
into any discussion of employment practices on 
Wall Street, the report cites certain high-profile • 
incidents involving police-community relations, 
most of which have taken place since the time of 
the Commission's 1994 hearing. In relating the 
brutal police beating of Abner Louima in 1997, 
the report makes much of a claim that the victim 
was "quoted in the press" as having made at the 
time of the assault, and then concedes that the 
claim had been made falsely to the grand jury. 
By repeating false claims of this nature and in 
the way it does, the report diminishes the tragic • 
significance of these events, and certainly does a 
disservice to the pubhc we are supposed to in- 
form. 

Inference and implication are also used 
throughout the discussion of hiring, recruitment, 
and promotion policies on Wall Street. The re- 
port itself concludes we cannot conclude that 
there is discrimination in the finance industry, 
and it acknowledges that it was unable to pro- 
duce any valid conclusions as to whether dispari- 
ties actually exist. At the same time, it states 
unequivocally that "Race/ethnicity and bias still 
haunt access to the multitude of economic pros- 
pects for New York residents"; and, in referring 
to the role of the financial institutions, goes so • 
far as to suggest that "industry forces" may ac- 
tually be reducing the number of minorities and 
women in the industry. 

Specific examples of how the report attempts 
to conclude through inference or conjecture what 
it is unable to prove through factual or statistical 
analysis: 

• On demographic changes in New York City • 
(chapter 3, section II) — "Asian American 
and Pacific Islanders and Hispanics were 
immigrating to the city and possibly bringing 
about similar changes in the qualified work 
force available to the finance industry there." 

• On job qualifications (chapter 3, section III) • 
— "The position description review did not 



provide any hard evidence to explain the 
high percentages of white males as officials 
and managers among depository institu- 
tions. However, considering the unrealistic 
job descriptions submitted by the depository 
institutions and the wide latitude accorded 
employers, other factors [not specified] must 
be at play here." 

On the General Securities Registered Repre- 
sentative (or "Series 7") Examination 
(chapter 3, section III) — "The stark differ- 
ences in the pass rates suggest that, despite 
the efforts to ensure that the test is job re- 
lated, some additional analyses should be 
performed by the NYSE to determine 
whether the test contains biases against mi- 
norities and women that can be removed." 

On "benchmarks" for the racial and gender 
composition of the qualified work force 
(chapter 3, section V) — "... the differences 
in representation of minorities in banking 
and savings institutions versus 'other fi- 
nance' [securities firms, insurance compa- 
nies, nondepository institutions, real estate 
companies, and holding companies] may in- 
dicate that New York City's securities indus- 
try has greater bias toward minorities and 
women than elsewhere in the Nation, or that 
industry firms in New York City require 
more of the benchmarks on which minorities 
and women have lower representation." 

On educational "benchmarks" for race and 
gender (chapter 3, section V) — "Because 
education represents only one potential fac- 
tor used to determine employability, and its 
import differs according to both job classifi- 
cation and industry, it is difficult to ex- 
trapolate much from these numbers, and 
they may or may not represent bias." 

On changes in employment in the finance 
industry (chapter 3, section VI) — "These de- 
creases in employment of women and blacks 
could be because of discrimination or be- 
cause of other changes over time in the types 
of jobs that were not captured here." 

On efforts to increase employment of women 
and minorities in the securities industry 
(chapter 4) — "Despite these and other ef- 



234 



forts, there remains a prevailing perception 
that few women and minorities find well- 
paying jobs in the securities industry." 

The discussion of arbitration is another major 
area in which the report presents an unfair pic- 
ture of reality. Specifically, arbitration agree- 
ments are portrayed here as an example of 
"[sjecuritie^ industry rules designed to avoid 
litigation [which] may not adequately protect 
civil rights and may adversely affect communi- 
ties of color and women." 

Chapter 4 is devoted almost entirely to arbi- 
tration, yet it gives an extremely one-sided and 
misleading presentation of the issue. First, it 
centers mainly on the testimony of one witness, 
a plaintiffs' attorney, whose criticisms of the ar- 
bitration process have been specifically rejected 
by the courts and Congress. Second, its signifi- 
cance is greatly diminished in light of recent rule 
changes by both the NYSE and NASD eliminat- 
ing their mandatory arbitration rules as they 
pertain to employment discrimination. The re- 
port's apparent acceptance of the notion that 
arbitration agreements involve a waiver of sub- 
stantive rights is simply wrong and was refuted 
by the Supreme Court in its landmark decision, 
Gilmer u. Interstate / Johnson Lane (1991). 

Compliance with the Subpoena 

The report also contains several troubling 
references to the response of the firms that the 
Commission subpoenaed in order to ascertain if 
the firms' hiring patterns reflected their appli- 
cant pool. Specifically, the report complains 
about the "absence of data" from the subpoenaed 
firms regarding the race and gender of appli- 
cants for certain positions. The explanation 
(contained in a footnote) is that "[t]he firms con- 
tend that as a matter of business practice, they 
do not keep, and thus do not have, such data to 
provide to the Commission." The issue of the 
firms' response is a crucial one, given the ar- 
gument that is made (in chapter 3) that one 
reason the report was unable to prove employ- 



ment discrimination in the finance industry 
was because "the firms did not provide suffi- 
cient information. . . . " 

By framing the complaint the way it does 
("Many securities firms indicated that applicant 
data were not available . . . Given that applicant 
data were not provided for analyses". . . , etc.), 
the report implies that there was a failure on the 
part of the institutions to comply with the sub- 
poena. It suggests that such data exist but were 
not provided. That is a serious charge, since 
there is no evidence that the firms' inability to 
provide such information was based on any de- 
sire to avoid the scope of the subpoena. It ap- 
pears that the staff refuses to accept the results 
of its own investigations — i.e., that the existence 
of discrimination cannot be proven — by implying 
that information that might prove otherwise is 
somehow being withheld. 

Conclusion 

As the report itself acknowledges, much has 
changed since the time of our hearing in 1994. 
We trust that, by focusing on this issue, the 
Commission already has played a role in encour- 
aging some of the positive developments that 
have occurred in the industry in recent years. At 
the same time, it is important to recognize that 
success is far more likely to occur if we rely on 
market forces rather than on good intentions. 
The labor shortage in the finance industry is a 
far more powerful inducement to a diversified 
work force than a report that is inconclusive at 
best and, at worst, a distortion of reality. 

A more focused report, one based on sound 
statistical methodology, with findings supported 
by the data and delivered within 15 months of 
the hearing, likely could have made a valuable 
contribution to an area dynamic enough to ac- 
commodate a more rapid expansion in employ- 
ment of minorities and women. What we have 
instead, however, is a report that can do no more 
than render a potentially inaccurate history of 
conditions as they might have existed 7 years 
before its ultimate publication. 



235 



Appendix A: Definitions 



Major Groups of the Finance Industry 

Depository Institutions — Institutions that are engaged in deposit banking or closely related func- 
tions, including fiduciary activities: central reserve depository institutions, commercial banks, sav- 
ings institutions, credit unions, foreign banking and branches and agencies of foreign banks, nonde- 
posit trust companies, and other establishments primarily engaged in functions related to depository 
banking. 

NONDEPOSITORY CREDIT INSTITUTIONS — Establishments engaged in extending credit in the form of 
loans, but not engaged in deposit banking: Federal and federally sponsored credit agencies, personal 
credit institutions, business credit institutions, mortgage bankers and brokers. 

Security and Commodity Brokers, Dealers, Exchanges, and Services— EstabHshments engaged 
in the underwriting, purchase, sale, or brokerage of securities and other financial contracts on their 
own account or for the account of others; and exchanges, exchange clearinghouses, and other services 
allied with the exchange of securities and commodities. Security brokers, dealers and flotation com- 
panies, commodity contracts brokers and dealers, security and commodity exchanges, and services 
allied with the exchange of securities or commodities are included. 

Insurance Carriers — Carriers of insurance of all types, including reinsurance. Life insurance; acci- 
dent and health insurance and medical service plans; fire, marine, and casualty insurance; surety 
insurance; title insurance; pension, health, and welfare funds; and other insurance carriers. Agents 
and brokers dealing in insurance and organizations rendering services to insurance carriers or to 
policyholders are classified in the group below. 

Insurance Agents, Brokers, and Service — Agents and brokers deaUng in insurance, and also or- 
ganizations offering services to insurance companies and to pohcyholders. 

Real Estate — Real estate operators, and owners and lessors of real property, as well as buyers, sell- 
ers, developers, agents, and brokers. Title abstract offices and land subdividers are included. Estab- 
lishments primarily engaged in the construction of buildings for sale (operative builders) are not in- 
cluded. 

Holding and other Investment Offices — Investment trusts, investment companies, holding com- 
panies, and miscellaneous investment offices. 

Job Classifications^ 

Officials and Managers — Company officers and managers who are exempt from the minimum 
wage and overtime provisions of the Fair Labor Standard Act, including, for example, bank manag- 
ers or officers and financial managers. 

Professionals — Employees concerned with the theoretical or practical aspects of such fields as sci- 
ence, art, law, and business relations where substantial postsecondary educational preparation, or 



' OfSce of Program Operations, Program Research and Surveys Division, U.S. Equal Employment Opportunity Commission, "Job 
Classification Guide to be Used with Employer Information Report EEO-1 (Standard Form 100)," 1987. 

236 



equivalent on-the-job training or experience is required. Management support occupations, such as 
accountants, and subject matter occupations, such as law or systems analysis, are included. Under- 
writers and management analysts fall in this category. 

Sales — Cashiers and sales workers including those in securities and financial services sales occupa- 
tions (e.g., traders), real estate sales occupations, and insurance sales occupations. 

Office and Clerical Workers — Employees performing office clerical tasks, such as typing, filing, 
computer operating, and personnel, stock, production, and billing recordkeeping. Enumerators and 
interviewers, such as loan interviewers, and clerical estimators and investigators, such as insurance 
adjusters and real estate appraisers are included. Bank tellers are in this category. 

Geographic Area 

New York City Primary Metropolitan Statistical Area (PMSA)— An area covering New York 
City, White Plains, NY, Newark and Jersey City, NJ, and certain contiguous areas. New York coun- 
ties included are: Bronx, Kngs, Queens, Nassau, New York, Putnam, Richmond, Rockland, Suffolk, 
and Westchester. New Jersey counties included are: Bergen, Essex, Hudson, Hunterdon, Middlesex, 
Monmouth, Morris, Ocean, Passaic, Somerset, Sussex, Union, and Warren. Pike County, PA, is also 
part of the New York City PMSA. Parts of Connecticut that are well within commuting distance of 
New York City, such as Stamford and Greenwich, are excluded. 

Race/Ethnic Identification 

Black (Not of Hispanic origin) — All persons having origin in any of the black racial groups of Africa. 

Hispanic — ^All persons of Mexican, Puerto Rican, Cuban, Central or South American, or other Span- 
ish culture or origin, regardless of race. 

ASIAN American and Pacific Islander— All persons having origins in any of the original peoples of 
Asia, Southeast Asia, and the Indian Subcontinent. This definition includes aboriginal, indigenous, 
native peoples of Hawaii and other Pacific Islands. This area includes, for example, China, India, Ja- 
pan, Korea, the Philippine Islands, and Samoa. 

American Indian or Alaskan Native— All persons having origins in any of the original peoples of 
North America, and who maintain cultural identification through tribal affiliation or community rec- 
ognition. 

Minority — Black, Hispanic, Asian American and Pacific Islander, or American Indian or Alaskan 
Native. 

White (Not of Hispanic origin) — ^All persons having origins in any of the original peoples of Europe, 
North Africa, or the Middle East. 



237 



Appendix B: Tables 



Table B.1 

Newspaper Reports of the Representation of Women in Selected Wall Street Firms 
in 1984 and 1993 

1984' 1993^ 

Total Women 

Firm and executive position # # % * # % 

Salomon Bros. 

Managing directors 74 0.0% 155 5 3.2% 

Bear, Stearns & Co. 

General partners 

Morgan Stanley & Co. 

Managing directors 75 0.0% 195 11 5.6% 

Drexel Burnham Lambert Inc. 
Directors 



Total 
# 


Women 
# % 


74 





0.0% 


50 





0.0% 


75 





0.0% 


37 





0.0% 



Goldman, Sachs & Co. 








Partners, department heads, 








& regional office managers 


75 





0.0% 


Vice presidents 


643 


55 


8.6% 


Professionals 


1,957 


489 


25% 



161 6 3.7% 

- 18.0% 



Kidder Pea body 

"Top executive positions" _ _ _ 115 4 3.5% 

Sources: 

' Taking a Shot at Another Male Bastion; Investment Banking," Business Week, Aug. 27, 1984, Executive Suite Section, p. 28. 

' Dottie Enrico and Theodore Spencer, "Goldman, Sachs Suit Raises Issue of Sexism on Wall Street: Pay and promotion disparity 

asserted," Newsday, Nassau and Suffolk Edition, July 18, 1993. Business Section, p. 66; Jay Mathews, "The Street With a Glass 

Ceiling: Brokerages See Gains. A Fired Goldman Sachs Executive and Other Women See Othenwise." Washington Post. Aug. 15, 

1993, p. H-1. 

Discrepancies occur in the numbers reported in the two articles, which increase the percentage of women by about 0.8 percent in 

two instances. In one larger difference, the latter article reports that 21 percent of Goldman's vice presidents were women, not 18 

percent, and 22 percent of associates were. 



238 



Table B.2 

Size and Composition of New York City's Finance Industry over Time, 1987 to 1996 



1987 1989 1991 1992 1993 1994 1995 1996 



Number of employees 



Depository institutions 151,623 143,736 120,773 107,382 105,532 93,255 95,438 90,179 

Nondepository institutions 13,290 13,334 14,095 9,709 8,774 7,256 6,805 6,427 
Security and commodity 

brokers ' 92,952 80,645 72,642 78,735 97,825 105,597 108,394 110,082 

Insurance carriers 62,152 57,835 54,757 52,927 49,064 46,676 44,462 42,661 
Insurance agents, brokers, 

and service 7,450 6,895 10,910 10,373 9,674 10,745 12,571 12,077 

Real estate 7,444 9,526 6,979 7,063 6,089 8,994 8,107 7,220 

Holding companies 1,846 1,938 4,704 5,474 5,295 3,832 5,218 4,680 

Finance Industry 336,757 313,909 284,860 271,663 282,253 276,355 280,995 273,326 

Percent of industry employment 

Depository institutions 
Nondepository institutions 
Security and commodity 

brokers 
Insurance carriers 
Insurance agents, brokers, 

and service 
Real estate 
Holding companies 

Number of establishments 

Depository institutions 339 312 315 294 288 258 248 245 

Nondepository institutions 42 49 56 26 24 28 24 19 
Security and commodity 

brokers 150 135 152 154 179 191 195 205 

Insurance carriers 155 166 163 168 152 142 139 143 
Insurance agents, brokers, 

and service 37 39 50 45 39 59 60 59 

Real estate 30 36 33 39 34 46 45 42 

Holding companies 16 20 23 26 28 28 40 43 

Finance Industry 769 757 792 752 744 752 751 756 

* 1987 and 1989 data exclude figures from an industry category no longer used by the EEOC. For 1987, this category comprised 1,075 employ- 
ees. 0.3 percent of industry employment, and had two establishments. For 1989, this category comprised 1.517 employees, 0.5 percent of In- 
dustry employment, and had two establishments. 

Source; EEOC data 



44.9 


45.6 


42.4 


39.5 


37.4 


33.7 


34.0 


33.0 


3.9 


4.2 


4.9 


3.6 


3.1 


2.6 


2.4 


2.4 


27.5 


25.6 


25.5 


29.0 


34.7 


38.2 


38.6 


40.3 


18.4 


18.3 


19.2 


19.5 


17.4 


16.9 


15.8 


15.6 


2.2 


2.2 


3.8 


3.8 


3.4 


3.9 


4.5 


4.4 


2.2 


3.0 


2.4 


2.6 


2.2 


3.3 


2.9 


2.6 


0.5 


0.6 


1.7 


2.0 


1.9 


1.4 


1.9 


1.7 



239 



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241 



Table B.6 

Employment of Protected Groups in New York City's Finance Industry, 1987 to 1996 



1987 



1989 



1991 



1992 



1993 



1994 



1995 



1996 



Number of employees 



Depository 


institutions 
















Total 


151,623 


143,736 


120,773 


107,382 


105,532 


93,255 


95,438 


90,179 


Minorities 


58,713 


57,629 


48,725 


43,693 


43,319 


38,415 


37,869 


36,883 


Blacks 


36,702 


34,854 


27,839 


24,109 


23,505 


19,819 


18,614 


17,864 


Hispanics 


14,155 


13,835 


11,756 


10,686 


10,506 


9,464 


9,510 


9,370 


Asians 


7,515 


8,704 


8,950 


8,744 


9,165 


8,984 


9,597 


9,503 


Women 


84,836 


80,017 


65,608 


56,522 


54,877 


47,200 


47,629 


45,359 


Security and commodity 


brokers 














Total 


92,952 


80,645 


72,642 


78,735 


97,825 


105,597 


108,394 


110,082 


Minorities 


20,135 


16,450 


16,443 


17,804 


22,662 


27,696 


27,969 


28,588 


Blacks 


11,693 


8,838 


8,487 


8,722 


10,826 


13,325 


12,641 


12,426 


Hispanics 


5,293 


4,475 


4,415 


4,702 


6,010 


7,219 


7,521 


7,648 


Asians 


3,059 


2,874 


3,456 


4,289 


5,679 


6,990 


7,609 


8,322 


Women 


39,023 


32,760 


28,899 


31,347 


39,282 


42,841 


42,928 


43,219 


Finance industry 
















Total 


337,832 


315,426 


284,860 


271,663 


282,253 


276,355 


280,995 


273,326 


Minorities 


108,720 


105,583 


97,098 


90,729 


93,035 


94,290 


93,299 


91,608 


Blacks 


66,222 


61,505 


54,240 


48,817 


48,907 


48,073 


45,184 


43,610 


Hispanics 


27,550 


27,291 


24,734 


23,254 


23,810 


24,600 


24,807 


24,349 


Asians 


14,219 


15,911 


17,641 


18,216 


19,846 


20,886 


22,532 


23,059 


Women 


176,347 


163,200 


144,817 


134,248 


136,758 


131,693 


131,847 


127,527 


Percent of total employees 















Depository institutions 

Minorities 38.7 40.1 40.3 40.7 41.0 41.2 39.7 40.9 

Blacks 24.2 24.2 23.1 22.5 22.3 21.3 19.5 19.8 

Hispanics 9.3 9.6 9.7 10.0 10.0 10.1 10.0 10.4 

Asians 5.0 6.1 7.4 8.1 8.7 9.6 10.1 10.5 

Women 56.0 55.7 54.3 52.6 52.0 50.6 49.9 50.3 



Security and commodity brokers 



Minorities 


21.7 


Blacks 


12.6 


Hispanics 


5.7 


Asians 


3.3 


Women 


42.0 


Finance industry 




Minorities 


32.2 


Blacks 


19.6 


Hispanics 


8.2 


Asians 


4.2 


Women 


52.2 


Source: EEOC data 





20.4 

11.0 

5.5 

3.6 

40.6 



33.5 

19.5 

8.7 

5.0 

51.7 



22.6 

11.7 

6.1 

4.8 

39.8 



34.1 

19.0 

8.7 

6.2 

50.8 



22.6 

11.1 
6.0 
5.4 

39.8 



33.4 

18.0 

8.6 

6.7 

49.4 



23.2 

11.1 

6.1 

5.8 

40.2 



33.0 

17.3 

8.4 

7.0 

48.5 



26.2 

12.6 

6.8 

6.6 

40.6 



34.1 

17.4 

8.9 

7.6 

47.7 



25.8 

11.7 

6.9 

7.0 

39.6 



33.2 

16.1 
8.8 
8.0 

46.9 



26.0 

11.3 

6.9 

7.6 

39.3 



33.5 

16.0 

8.9 

8.4 

46.7 



242 



Table B.7 

Employment of Protected Groups as Officials and Managers in New York City's 
Financial Industry, 1987 to 1996 



1987 



1989 



1991 



1992 



1993 



1994 



1995 



1996 



Number of employees 



Depository 


institutions 
















Total 


46,621 


44,844 


41,371 


35,180 


32,409 


28,894 


32,404 


31,319 


Minorities 


8,463 


8,892 


8,652 


7,618 


7,166 


6,498 


7,217 


7,501 


Blacks 


4,324 


4,136 


3,617 


3,191 


2,998 


2,453 


2,599 


2,733 


Hispanics 


2,161 


2,267 


2,122 


1,817 


1,686 


1,538 


1,680 


1,744 


Asians 


1,932 


2,453 


2,895 


2,591 


2,463 


2,486 


2,918 


3,000 


Women 


17,012 


16,471 


15,011 


12,132 


11,256 


9,952 


1 1 ,328 


1 1 ,206 


Security and commodity brokers 














Total 


12,258 


13,143 


13,564 


14,855 


18,269 


19,686 


21,680 


22,285 


Minorities 


1,255 


1,149 


1,477 


1,651 


2,106 


2,837 


3,057 


3,189 


Blacks 


548 


546 


669 


725 


924 


1,337 


1,346 


1,377 


Hispanics 


327 


318 


381 


396 


516 


661 


724 


727 


Asians 


371 


272 


422 


524 


656 


828 


974 


1,073 


Women 


2,517 


3,026 


3,061 


3,417 


4,399 


5,100 


5,631 


5,778 


Finance industry 
















Total 


75,747 


75,673 


74,240 


68,238 


67,896 


64,840 


70,946 


69,895 


Minorities 


12,051 


12,506 


12,922 


11,814 


11,615 


11,653 


12,668 


13,045 


Blacks 


6,075 


5,886 


5,677 


5.189 


5,049 


4,888 


5,025 


5,149 


Hispanics 


3,129 


3,232 


3,205 


2,825 


2,750 


2,767 


2,944 


3,042 


Asians 


2,759 


3,288 


3,991 


3,763 


3,768 


3,950 


4,635 


4,796 


Women 


24,781 


25,443 


24,600 


21,606 


21.436 


20,541 


22,867 


22,694 


Percent of total employees 
















Depository i 


institutions 
















Minorities 


18.2 


19.8 


20.9 


21.7 


22.1 


22.5 


22.3 


24.0 


Blacks 


9.3 


9.2 


8.7 


9.1 


9.3 


8.5 


8.0 


8.7 


Hispanics 


4.6 


5.1 


5.1 


5.2 


5.2 


5.3 


5.2 


5.6 


Asians 


4.1 


5.5 


7.0 


7.4 


7.6 


8.6 


9.0 


9.6 


Women 


36.5 


36.7 


36.3 


34.5 


34.7 


34.4 


35.0 


35.8 


Security and commodity brokers 














Minorities 


10.2 


8.7 


10.9 


11.1 


11.5 


14.4 


14.1 


14.3 


Blacks 


4.5 


4.2 


4.9 


4.9 


5.1 


6.8 


6.2 


6.2 


Hispanics 


2.7 


2.4 


2.8 


2.7 


2.8 


3.4 


3.3 


3.3 


Asians 


3.0 


2.1 


3.1 


3.5 


3.6 


4.2 


4.5 


4.8 


Women 


20.5 


23.0 


22.6 


23.0 


24.1 


25.9 


26.0 


25.9 


Finance industry 
















Minorities 


15.9 


16.5 


17.4 


17.3 


17.1 


18.0 


17.9 


18.7 


Blacks 


8.0 


7.8 


7.6 


7.6 


7.4 


7.5 


7.1 


7.4 


Hispanics 


4.1 


4.3 


4.3 


4.1 


4.1 


4.3 


4.1 


4.4 


Asians 


3.6 


4.3 


5.4 


5.5 


5.5 


6.1 


6.5 


6.9 


Women 


32.7 


33.6 


33.1 


31.7 


31.6 


31.7 


32.2 


32.5 


Source: EEOC data 

















243 



Table B.8 

Employment of Protected Groups as Professionals in New York City's Finance Industry, 
1987 to 1996 



1987 1989 1991 1992 



1993 



1994 1995 



1998 



Number of employees 



Depository 1 


nstitutions 
















Total 


21,345 


21,048 


16,852 


18,610 


21,103 


19,613 


20,322 


19,664 


Minorities 


5,952 


6,090 


5,391 


6,017 


6,371 


6,048 


6,519 


6,489 


Blacl<s 


3,239 


3,163 


2,677 


2,786 


2,731 


2,456 


2,536 


2,456 


Hispanics 


1,397 


1,359 


1,155 


1,280 


1,320 


1,295 


1,402 


1,473 


Asians 


1,263 


1,537 


1,530 


1,922 


2,298 


2,272 


2,557 


2,537 


Women 


10,882 


10,923 


8,336 


8,859 


9,547 


8,473 


9.062 


8,762 


Security and commodity 


brokers 














Total 


19,674 


17,100 


19,580 


23,033 


30,062 


32,819 


33,473 


36,462 


Minorities 


1,969 


2,097 


2,822 


3,797 


5,638 


6,912 


7,439 


8,347 


Blacks 


836 


773 


1,028 


1,277 


1,906 


2,276 


2,378 


2,560 


Hispanics 


392 


404 


547 


716 


1,100 


1,330 


1,461 


1,675 


Asians 


724 


845 


1,229 


1,790 


2,606 


3,267 


3,554 


4,071 


Women 


6.719 


5,984 


6,724 


8,085 


10.712 


11,568 


11,872 


12,832 


Finance indi 


jstry 
















Total 


63,078 


59,706 


60,332 


64,949 


73,361 


72,553 


74,748 


76,197 


Minorities 


12,465 


12,967 


14,221 


15,596 


17,861 


18,294 


19,470 


20,203 


Blacks 


6,659 


6,519 


6,939 


7,053 


7,646 


7,493 


7,597 


7,650 


Hispanics 


2,768 


2,784 


2,893 


3,185 


3,600 


3,750 


4,065 


4,299 


Asians 


2,917 


3,477 


4,277 


5,263 


6,499 


6,954 


7,680 


8.135 


Women 


28,405 


27,254 


27,046 


28,693 


31,528 


30,308 


31,543 


31.789 


Percent of total employees 















Depository institutions 

Minorities 27.9 28.9 

Blacks 15.2 15.0 

Hispanics 6.5 6.5 

Asians 5.9 7.3 

Women 51.0 51.9 

Security and commodity brokers 

12.3 
4.5 
2.4 
4.9 

35.0 



21.7 

10.9 

4.7 

5.8 

45.6 



Minorities 


10.0 


Blacks 


4.2 


Hispanics 


2.0 


Asians 


3.7 


Women 


34.2 


Finance industry 




Minorities 


19.8 


Blacks 


10.6 


Hispanics 


4,4 


Asians 


4.6 


Women 


45.0 



32.0 

15.9 

6.9 

9.1 

49.5 



14.4 
5.3 
2.8 
6.3 

34.3 



23.6 

11.5 
4.8 
7.1 

44.8 



32.3 
15.0 
6.9 
10.3 
47.6 



16.5 
5.5 
3.1 
7.8 

35.1 



24.0 

10.9 

4.9 

8.1 

44.2 



30.2 


12.9 


6.3 


10.9 


45.2 


18.8 


6.3 


3.7 


8.7 


35.6 


24.3 


10.4 


4.9 


8.9 


43.0 



30.8 


32.1 


12.5 


12.5 


6.6 


6.9 


11.6 


12.6 


43.2 


44.6 


21.1 


22.2 


6.9 


7.1 


4.1 


4.4 


10.0 


10.6 


35.2 


35.5 


25.2 


26.0 


10.3 


10.2 


5.2 


5.4 


9.6 


10.3 


41,8 


42.2 



33.0 
12.5 
7.5 
12.9 
44.6 



22.9 

7.0 

4,6 

11.2 

35.2 



26.5 
10.0 
5.6 
10.7 
41.7 



Source: EEOC data 



244 



Table B.9 

Employment of Protected Groups as Sales Workers in New York City's 
Financial Industry, 1987 to 1996 



1987 



1989 



1991 



1992 



1993 



1994 



1995 



1996 



Number of employees 



Depository institutions 
















Total 1,612 


2,114 


1,662 


1,665 


3,033 


3,183 


3,918 


3,504 


Minorities 411 


661 


424 


414 


992 


881 


1,194 


1,074 


Blacks 271 


307 


268 


240 


476 


330 


459 


396 


Hispanics 83 


268 


85 


88 


269 


276 


429 


418 


Asians 55 


85 


70 


85 


245 


269 


299 


249 


Women 860 


1,090 


877 


835 


1,480 


1,395 


1,717 


1,493 


Security and commodity brokers 














Total 10,522 


14,311 


8,757 


9,492 


11,709 


11,717 


13,802 


13,341 


Minorities 516 


695 


548 


626 


867 


927 


1,210 


1,342 


Blacks 224 


207 


177 


222 


298 


300 


361 


374 


Hispanics 104 


198 


124 


146 


205 


250 


377 


441 


Asians 186 


280 


244 


253 


356 


371 


466 


515 


Women 1,977 


2,551 


1,548 


1,816 


2,206 


2,144 


2,572 


2,664 


Finance industry 
















Total 16,540 


20,096 


14,410 


15,594 


18,672 


18,817 


24,702 


20,907 


Minorities 1,716 


1,972 


1,788 


2,052 


2,884 


2,874 


3,513 


3,726 


Blacks 872 


780 


781 


834 


1,130 


1,005 


1,164 


1,197 


Hispanics 426 


643 


414 


494 


732 


783 


1,062 


1,146 


Asians 410 


537 


589 


711 


1,002 


985 


1,196 


1,322 


Women 4,198 


4,517 


3,421 


3,867 


4,836 


4,728 


5,330 


5,497 


Percent of total employees 

















Depository institutions 

Minorities 25.5 31.3 

Blacks 16.8 14.5 

Hispanics 5.1 12.7 

Asians 3.4 4.0 

Women 53.3 51.6 



Security and commodity brokers 



Minorities 


4.9 


Blacks 


2.1 


Hispanics 


1.0 


Asians 


1.8 


Women 


18.8 


Finance industry 




Minorities 


10.4 


Blacks 


5.3 


Hispanics 


2.6 


Asians 


2.5 


Women 


25.4 



4.9 
1.4 
1.4 
2.0 
17.8 



9.8 
3.9 
3.2 
2.7 
22.5 



25.5 

16.1 

5.1 

4.2 

52.8 



6.3 
2.0 
1.4 
2.8 
17.7 



12.4 
5.4 
2.9 
4.1 

23.7 



24.9 

14.4 

5.3 

5.1 

50.2 



6.6 
2.3 
1.5 
2.7 
19.1 



13.2 
5.3 
3.2 

4.6 
24.8 



32.7 

15.7 

8.9 

8.1 

48.8 



7.4 
2.5 
1.8 
3.0 
18.8 



15.4 
6.1 
3.9 
5.4 

25.9 



27.7 


30.5 


10.4 


11.7 


8.7 


10.9 


8.5 


7.6 


43.8 


43.8 


7.9 


8.8 


2.6 


2.6 


2.1 


2.7 


3.2 


3.4 


18.3 


18.6 


15.3 


14.2 


5.3 


4.7 


4.2 


4.3 


5.2 


4.8 


25.1 


21.6 



30.7 
11.3 
11.9 
7.1 
42.6 



10.1 
2.8 
3.3 
3.9 

20.0 



17.8 
5.7 
5.5 
6.3 

26.3 



Source: EEOCdata 



245 



Table B.10 

Employment of Protected Groups as Office and Clerical Workers in New York City's 
Finance Industry, 1987 to 1996 



1987 



1989 



1991 



1992 



1993 



1994 



1995 



1996 



Number of employees 



Depository 


institutions 
















Total 


70,921 


65,589 


53,518 


45,409 


42,830 


36,606 


34,002 


30,163 


Minorities 


39,111 


37,523 


30,951 


26,617 


25,933 


22,486 


20,585 


18,923 


Blacks 


26,005 


24,522 


19,450 


16,242 


15,806 


13,256 


11,895 


10,744 


Hispanics 


9,173 


8,815 


7,505 


6,657 


6,369 


5,624 


5,279 


4,878 


Asians 


3,723 


4,035 


3,878 


3,623 


3,667 


3,516 


3,320 


3,218 


Women 


52,463 


48,106 


39.265 


32,759 


30,986 


25,959 


24,338 


21,896 


Security and commodity brokers 














Total 


41,251 


32,179 


27,392 


26,552 


33,288 


36,248 


34,849 


33,252 


Minorities 


13,325 


11,087 


10,362 


10,071 


12,433 


14,829 


14,174 


13,574 


Blacks 


8,378 


6,621 


6,034 


5,750 


7,000 


8,434 


7,708 


7,257 


Hispanics 


3,643 


3,124 


3,018 


2,983 


3,707 


4,273 


4,320 


4,175 


Asians 


1,251 


1,183 


1,255 


1,283 


1,637 


2,025 


2,023 


2,027 


Women 


24,385 


20,229 


16,760 


16,491 


20,514 


22,531 


21,902 


21,019 


Finance industry 
















Total 


149,869 


133,349 


115,431 


103,030 


103,753 


99,460 


94,524 


87,302 


Minorities 


69,657 


65,893 


59,393 


53,005 


52,750 


51,504 


48,531 


45,404 


Blacks 


45,443 


41,843 


36,433 


31,764 


31,338 


30,000 


27,519 


25,498 


Hispanics 


17,135 


16,270 


15,220 


13,897 


13,893 


13,632 


13,321 


12,473 


Asians 


6,635 


7,256 


7,467 


7,089 


7,251 


7,587 


7,372 


7,158 


Women 


107,333 


96,961 


83,339 


73,885 


73,434 


69,548 


66,499 


61,820 


Percent of total employees 
















Depository 


Institutions 
















Minorities 


55.1 


57.2 


57.8 


58.6 


60.5 


61.4 


60.5 


62.7 


Blacks 


36.7 


37.4 


36.3 


35.8 


36.9 


36.2 


35.0 


35.6 


Hispanics 


12.9 


13.4 


14.0 


14.7 


14.9 


15.4 


15.5 


16.2 


Asians 


5.2 


6.2 


7.2 


8.0 


8.6 


9.6 


9.8 


10.7 


Women 


74.0 


73.3 


73.4 


72.1 


72.3 


70.9 


71.6 


72.6 


Security and commodity brokers 














Minorities 


32.3 


34.5 


37.8 


37.9 


37.3 


40.9 


40.7 


40.8 


Blacks 


20.3 


20.6 


22.0 


21.7 


21.0 


23.3 


22.1 


21.8 


Hispanics 


8.8 


9.7 


11.0 


11.2 


11.1 


11.8 


12.4 


12.6 


Asians 


3.0 


3.7 


4.6 


4.8 


4.9 


5.6 


5.8 


6.1 


Women 


59.1 


62.9 


61.2 


62.1 


61.6 


62.2 


62.8 


63.2 


Finance ind 


lustry 
















Minorities 


46.5 


49.4 


51.5 


51.4 


50.8 


51.8 


51.3 


52.0 


Blacks 


30.3 


31.4 


31.6 


30.8 


30.2 


30.2 


29.1 


29.2 


Hispanics 


11.4 


12.2 


13.2 


13.5 


13.4 


13.7 


14.1 


14.3 


Asians 


4.4 


5.4 


6.5 


6.9 


7.0 


7.6 


7.8 


8.2 


Women 


71.6 


72.7 


72.2 


71.7 


70.8 


69,9 


70.4 


70.8 



Source: EEOCdata 



246 



Appendix C: Subpoena Duces Tecum Used to Obtain Documents from 
Banks and Securities Firms 



Item 

1. Any and all documents, including but not limited to, memoranda, compilations or computer- 
generated print-outs, or other writings evidencing all position names and/or job titles for the 
most recent thirty-six (36) month period at [company name] that are classified on the Equal Em- 
ployment Opportunity Commission's (EEOC's) EEO-1 form as "officials and managers," 
"professionals" and "sales workers." 

2. Any and all documents including, but not limited to vacancy announcements, memoranda, com- 
pilations, administrative policies, regulations, or other writings setting forth or relating to the 
minimum qualifications, if any, for each of the positions/job titles provided in response to item 1 
above. 

3. Any and all documents, including but not hmited to, memoranda, compilations, administrative 
policies, regulations or other writings evidencing (a) the number of vacancies, if any, for each of 
the positions/jobs listed in response to item 1 for the most recent thirty six (36) month period for 
which you have such documents; (b) the race/ethnicity (Hispanic, Asian-American, African- 
American, or white) and gender of the applicants for these vacancies, and (c) the race/ethnicity 
and gender of all individuals hired for these positions/jobs. 

4. Any and all documents, including but not limited to, memoranda, compilations, administrative 
policies, regulations, or other writings which relate to procedures used by [company name] to ob- 
tain applicants for each of the positions/jobs identified in item 1 above, including but not limited 
to, recruitment programs. 

5. Any and all documents, including but not limited to, memoranda, compilations administrative 
policies, regulations, or other writings which relate to procedures used by [company name] to ob- 
tain minority and female applicants for each of the positions/jobs identified in item 1 above, if 
any, including, but not limited to recruitment programs. 

6. Any and all documents, including but not limited to, memoranda, compilations, administrative 
pohcies, regulations, or other writings which relate to the [company name]'s program(s) and/or 
practices, if any, to increase retention and advancement of minorities and women in and to pro- 
fessional and/or managerial positions, including but not limited to, internal mentoring programs. 

7. Any and all documents, including but not hmited to, memoranda, compilations, administrative 
policies, regulations, or other writings which describe [company name]'s current or most recent 
policy, practice, and/or requirements, if any, for the most recent thirty-six (36) month period re- 
garding the Series 6 and Series 7 examinations and any and all tests governed by the Municipal 
Securities Rulemaking Board, including but not limited to, employee-employer sponsorship ar- 
rangements or financial, leave or other assistance for employees to take the examinations. 



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