So that’s how it works:

The outlook for New York City’s economy and its main engine, the financial services industry, had already taken a bleak turn before the sudden failure of Bear Stearns, the fifth-largest firm on Wall Street.

Investment banks and brokerage firms started cutting their payrolls last fall as the weakening market for mortgages translated into huge losses. Employment in the city’s securities industry dropped by about 8,000 jobs from August to January, a decline of about 4 percent.

Now, with the impending loss of several thousand high-paying jobs at Bear Stearns, city officials and economists are bracing for the downturn to steepen. How deep it will be and how long it will last are open questions.

“Who knows?” said William C. Thompson Jr., the city’s comptroller. “We had been preparing for tougher times. This means things are going to get a little tougher. We just don’t know how many jobs are going to be lost because of this.”

Bear Stearns had about 14,000 employees, and as many as 8,000 of them worked in the city. Last year, those workers collected more than $3.4 billion in pay and benefits, or an average of about $242,000 per employee.

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The comptroller’s office estimates that the city collects $20 million in taxes for every $1 billion paid out in cash bonuses. In 2007, year-end bonuses for city residents totaled about $30 billion, producing about $600 million in income tax revenue for the city.

A significant drop in profits on Wall Street has a direct and possibly painful effect on the city and state budgets.

“New York City and state are over-dependent on the financial industry for tax revenues,” said Kathyrn S. Wylde, president of the Partnership for New York City, a business-advocacy group. She estimated that Wall Street accounts for one-fifth of the business taxes collected in New York.

“Even a mild downturn on Wall Street causes tremendous problems, and this is much more than a mild downturn,” Ms. Wylde said. “This is potentially a sustained period of significant losses. That translates into the need to significantly revise budgets.”