Further Observations on the Economic Effects on New York City of the Attack on the World Trade Center

We review our earlier studies that estimated the overall economic cost of the 9-11 attacks on New York City. Since the attack took place during a national and local recession, we emphasize the importance of controlling for economic conditions to obtain a precise estimate of the attack's effects. First, we estimate the physical capital loss, based on the cost required to clean up the site and repair and replace the destroyed and damaged infrastructure. The estimated foregone lifetime earnings of the workers killed in the attack are used to gauge the loss of human capital. The total physical capital loss was estimated to be $21.6 billion and the lifetime earnings loss was estimated to be $7.8 billion, yielding a total estimated loss of $29.4 billion ($2001). We provide estimates of the disruptive effect on employment and earnings by comparing the actual path of employment following the attack with a counter-factual path constructed from an auto-regressive model that predicts trends in NYC private-sector employment. We find a net job shortfall of roughly 65,000 jobs immediately after the attack, converging to near zero by the end of 2002. Over this period it is estimated that wage and salary income was roughly $6 billion ($2006) lower than it would have been if the attack had not occurred. In addition to these short run costs, we also investigate the extent to which the attack may have adversely affected the city's longer-term economic growth potential by examining real estate markets. With the possible exception of downtown commercial real estate, we find little evidence that perceptions of the city as a place to live or do business were adversely affected by the attack.