One Hedge Fund Honcho = 1,600 Ordinary Bankers

Bloomberg’s Michael J. Moore reports that Goldman Sachs is raising salaries for junior bankers by about 20 percent, giving the typical associate a pay raise of about $15,000. Bank of America has followed suit, and JPMorgan Chase is considering doing the same.

These raises for low-level banker make for an interesting data point in the long-running debate over inequality. It’s not a story about the rich getting richer than the poor. It’s about the not-quite-rich getting a bit richer so they don’t fall quite as far behind their truly rich colleagues.

A number of banks, especially in Europe, have changed the mix of bonus and salary to shift more away from bonuses (a word that sounds bad and arouses public ire) and more to salary. That isn’t exactly what’s going on here, though it’s an element of it. The basic issue is that New York is no longer too expensive for the non-banking classes to live in. It’s too expensive for low-level bankers.

Moore reports that investment banking associates earn a total of about $140,000 (pre-raise) in salary and bonus. Obviously, that’s a lot of money in much of the country. And the argument sometimes trotted out that the average junior banker represents the cream of America’s intellectual crop, swept from the froth of the world’s top universities is a convincing argument if … well, you’re an investment banker yourself.

Less debatable is that New York has become a stupendously expensive place to live. This post may be a little bit biased on the subject; home renovations have compelled The Market Now and his family to find a temporary place to live for the next two months. So this post has some sympathy for anyone, even bankers, who need to confront the New York real estate market. Here are some numbers to put that pay in perspective:

According to the surveys conducted by real estate firm Miller Samuel, the median price for a newly rented studio apartment in Manhattan is now $2,425 a month. For a one bedroom apartment, it’s $3,264. In Brooklyn, a one bedroom rents for a median of $2,650. Landlords in New York want an income of at least 40 times the rent, and more likely 50 if the income is heavily weighted toward bonus.

So basically for the newly arrived New Yorker pay of $140,000 can cover the rent on a one bedroom apartment. That’s great if you’re a new college grad, not so great if you have a family. An income that comfortably pays for a McMansion in many places just doesn’t go very far in New York, the native habitat of the ultra-rich.