For every employee in the grand duchy’s financial industry, 1.1 jobs are created in another sector, Luxembourg for Finance and Deloitte said in a report released on 17 January 2023. Library picture: Nicolas Mackel of Luxembourg for Finance is seen attending a fund industry conference, 20 September 2022. Photo: Romain Gamba/Maison Moderne

For every employee in the grand duchy’s financial industry, 1.1 jobs are created in another sector, Luxembourg for Finance and Deloitte said in a report released on 17 January 2023. Library picture: Nicolas Mackel of Luxembourg for Finance is seen attending a fund industry conference, 20 September 2022. Photo: Romain Gamba/Maison Moderne

What exactly does the financial industry add to the grand duchy’s economy? A paper published this week says just under 30% of all jobs are tied, directly or indirectly, to the sector.

The financial sector represents roughly 26% of Luxembourg’s value-added GDP and billions of euros in tax revenues, according to figures featured in a report issued by Luxembourg for Finance and Deloitte on Tuesday.

The paper highlighted the financial sector’s contribution to Luxembourg’s economy and social fabric.

“There are a number of benefits to Luxembourg’s society that stem from the significant presence of many financial services firms,” , CEO of Luxembourg for Finance, told Delano prior to the report’s release.

Mackel stated: “Given that many of the financial firms that are set up here in Luxembourg are international firms operating globally, their employees often reflect this. Therefore the industry has certainly greatly contributed to the internationalisation of Luxembourg’s population, which has in turn also created a number of other benefits for our society. These range from the cultural arena to the gastronomic arena, given the increased variety in restaurants to cater to different tastes, and a host of others.

“Further, it’s worth remembering that many people who work in Luxembourg’s financial services industry live in the country and as such they have wants and needs that go beyond their job. In this way, the financial centre creates more jobs than those directly employed by institutions in this sector. As the report shows, the trickle-down effect of the financial sector includes 70,927 jobs created via indirect or induced effects. This essentially means that for every 1 job directly created by the financial services sector, 1.1 jobs are created in other areas of Luxembourg’s economy. These jobs are also not only in one specific area of economic activity, but span the entire value chain, from engineers and architects to hairdressers and menuisiers [carpenters], from restaurant staff and teachers to food suppliers, security staff and so much more.”

There were 459,864 at the end of 2021. The 135,519 finance-linked positions represented, based on Luxembourg for Finance’s formula, 29.5% of national employment.

Mackel continued: “The success of our financial centre clearly benefits Luxembourg’s state and its people. The tax revenues make an important contribution to government spending, be it for investments to public infrastructure or salaries. Additionally, our excellent social security, pension and health insurance systems have directly benefitted from the presence of the financial centre.”

“The banking sector provided the most significant contribution, representing a 51.8% share of the overall financial industry’s added value” in 2021, the report stated. That was followed by the fund sector (30.8%), insurance sector (13.2%), and consulting, audit and legal services (4.2%).

The report defined “added value” as the combination of net profits, staff costs and total taxes paid.

“Audit, consulting, and legal services for the financial sector saw the most prominent growth in employees between 2011 and 2021,” averaging +5.8% a year, the report stated. The funds sector was close behind, growing +5.1% a year. Including the payments sector, “at the end of 2021, the number of people employed by the financial industry in Luxembourg reached 64,592”.

Overall financial sector employment rose by 2.5% each year between 2011 and 2021.

Asked if he expected the same growth rate this year and in the coming decade, Mackel stated: “The financial sector has continued to grow strongly over the last decade and should we maintain that growth we can also expect job creation to grow in Luxembourg. Whether it will be 2.5% per annum, or more or less, is difficult to say as we cannot judge future growth on the basis of the past; however, as long as Luxembourg remains competitive we expect continued job growth.”

Growth in added value tracked growth in employment, rising by an average +5.2% annually.

The banking sector contributed the most to public finances (€2.7bn in 2021), followed by the funds sector (€1bn).

Corporate banking led the banking category in terms of added value, with annualised growth of 16.5%. Corporate banking “activities include, among others, trade finance, cash management, deal structuring (structured/syndicated loans), services to PE-RE funds and head office functions.” On the other hand, retail banking, private banking and fund-related banking activities all posted declines in added value.

The private banking segment came under particular pressure, with revenue margins down -2.9% per annum over the 10-year period.

Employment in the funds sector “experience limited but steady growth”, rising by an annualised 2.3% between 2011 and 2021. Growth was “predominantly driven” by specialised professionals of the financial sector (PFS), authorised investment fund managers () and investment firms, which collectively recorded a +5.1% increase in headcount.

Luxembourg-domiciled investment funds had roughly €5.9trn in assets under management at the end of 2021.

The amount raised by the subscription tax roughly doubled between 2011 and 2021. The levy is paid by investment funds based on assets under management.

Added value contributed by the insurance sector spiked in 2021. This was, the report stated, “primarily due to the notable increase in gross premiums (+14.4%) and net profit (+197.6%) in the nonlife business in 2021 compared to 2020”.

Notable gains in the insurance sector were “partially” due to Brexit, Mackel said.

“The impact of Brexit on the insurance sector is certainly captured in the data series of this report. However, most Brexit moves were made well before the 2020 Brexit deadline as players needed to prepare. Therefore, it’s not the only factor explaining increased gains. Insurance firms have made significant efforts to develop their portfolios and sustain profitability of existing portfolios through price adjustment measures,” Mackel stated.

The proportion of Luxembourg’s workforce directly employed in the financial industry has remained steady--about one in seven of all employees in the country--between 2011 and 2021.

“The financial sector added value per employee is approximately two times higher on average than the other sectors of the economy,” according to the report.

The financial industry creates an estimated 1.1 jobs in addition to direct employment, the report claimed. This includes 52,300 indirect positions at service providers and suppliers, and at their service providers and suppliers. It also includes 18,500 jobs induced by personal spending by financial sector staff and investment made by financial firms and suppliers.

The report called the figure a “relatively conservative estimate”. It does not include, for example, spending made possible by the taxes paid by financial industry employees. “Income tax can be used to finance public employment or public investments that contribute to increase the construction sector’s workforce. Yet, these impacts are not taken into account in the calculations.”

Similar track likely for 2022

Luxembourg for Finance is an economic development agency backed by the state and several industry associations. “” was compiled by the consultancy Deloitte, based on data from financial regulators, trade association surveys, government and parliamentary reports, thinktank calculations, company statements and the national statistics agency.

The report covered the decade to 2021. (Official annual figures for 2022 are not yet available.) Asked if he had observed any notable changes in trajectory last year, Mackel replied: “2022 was a notably volatile year, both macroeconomically and geopolitically, meaning that asset values took a hit. That being said, Luxembourg’s financial centre remained resilient and we do not foresee notable trajectory changes for 2022 data. For example, despite significant volatility, Luxembourg AuM saw a fall of 9.1% between January and November, compared to the S&P 500 index which fell by over 17% in the same period or the MSCI World Index which fell by over 18%. We also do not expect a significant deterioration in banking assets either.

“However, it could be possible that the non-life insurance segment could be exposed to higher losses than in previous years depending on how the war in Ukraine evolves given contingencies are high and therefore potential liabilities could also rise. Property and casualty portfolios are likely to remain relatively unaffected; however, depending on the war’s evolution we could see aviation and marine portfolios see potentially colossal losses.”

Mackel concluded: “Given that we have not analysed 2022 numbers yet, we cannot make any specific comments on how they are likely to shift.”