Tuesday, July 12, 2016

CityLab: How Expensive Cities Hurt Workers

For working class and service employees, wages matter less than what they can afford to buy.
Image Lucas Jackson/Reuters
Lucas Jackson/Reuters

We all know how expensive housing can be in cities such as New York, L.A., San Francisco, or Washington, D.C. But to what extent do those high prices eat away at the wages of workers in those cities? What kinds of workers and residents are hit harder that others?

recent report from the Bureau of Labor Statistics helps us better understand the real wages and living standards of workers and families across America’s metros, providing detailed data on “regional price parities” (RPPs)—the metro equivalent of purchasing power parity—which look at what workers’ wages can actually buy compared to the national standard. RPPs above 100 indicate that goods and services are more expensive than the national average, while RPPs below 100 indicate that they are less expensive. San Jose, for example, has an RPP of 122, so the wages of its workers fall from an average of $75,770 to $62,107 based on its RPP.

The following table shows the ten metros with the highest average wages based on purchasing power. Even with its RPP-reduced wage, San Jose still tops the list. But smaller tech hubs such as Durham, North Carolina, and Huntsville, Alabama, as well as Springfield, Illinois, appear among the nation’s top 10 metros for RPP wages. High-paying, high cost metros such as San Francisco, Boston, Washington, D.C., and Seattle appear on the list, while others like New York and L.A. do not.

U.S. Metros with the Highest Avg. Wages Adjusted for Purchasing Power

Avg. Wages Adjusted for Purchasing Power
San Jose–Sunnyvale-Santa Clara, CA
Durham-Chapel Hill, NC
Huntsville, AL
Hartford-West Hartford-East Hartford, CT
Boston-Cambridge-Quincy, MA-NH
Washington-Arlington-Alexandria, DC-VA-MD-WV
Springfield, IL
Trenton-Ewing, NJ
Seattle-Tacoma-Bellevue, WA
San Francisco-Oakland-Fremont, CA
These figures factor in both high- and low-paid workers. The reality, however, is that America’s labor force is split into three different groups: the shrinking ranks of blue-collar jobs, which now account for roughly 20 percent of all jobs; a growing third of highly skilled, highly paid knowledge, professional, and creative workers; and a much larger group of lower-paid service workers in fields such as food service, retail trade, and personal services, which make up as much as 45 percent of the workforce. To get at how their wages and livelihoods are affected, my Martin Prosperity Institute colleague Charlotta Mellander dug into the RPP-adjusted wages of these three groups of workers across America’s 350-plus metros. My MPI colleague Taylor Blake mapped the results. On the maps, dark purple represents the metros with the most purchasing power, while light blue reflects the metros with the least.

Let’s start with the advantaged class of knowledge, professional, and creative class workers. These workers take home a whopping $83,000 to $93,000 in average purchasing power-adjusted wages in the top ten metros across the country. Superstar cities like San Jose and San Francisco top the list, as well as smaller tech hubs like like Durham and Huntsville, and the energy hubs of Houston, Midland, and Odessa, Texas, as well as Charlotte, North Carolina; Hartford, Connecticut; and Peoria, Illinois. Again, New York and L.A. fail to make the top ten.

Where the Creative Class Has the Most Purchasing Power

Avg. Wages Adjusted for Purchasing Power (Creative Class)
San Jose-Sunnyvale-Santa Clara, CA
Huntsville, AL
Midland, TX
Durham-Chapel Hill, NC
Houston-Sugar Land-Baytown, TX
Charlotte-Gastonia-Rock Hill, NC-SC
San Francisco-Oakland-Fremont, CA
Peoria, IL
Odessa, TX
Hartford-West Hartford-East Hartford, CT
The next map and table highlight the metros where the service class has the most purchasing power. Even in these top 10 metros, service class workers make less than half of what their creative class peers make in the 10 leading metros (between $35,000 to $42,000). Strikingly, even though there is some purple on the coasts, not one expensive metro makes this list. The relatively high wages for service workers in expensive cities are completely eaten away by higher costs of living, led by higher housing costs. The metros where service class workers do the best financially are Rustbelt metros such as Springfield and Danville, Illinois, and Akron and Cleveland, Ohio. The list also includes a number of small California metros, as well as Charlotte, North Carolina, and Hartford and Trenton on the East Coast.

Where Service Workers Have the Most Purchasing Power

Avg. Wages Adjusted for Purchasing Power (Service Class)
Hanford-Corcoran, CA
Springfield, IL
Danville, IL
Hartford-West Hartford-East Hartford, CT
El Centro, CA
Cleveland-Elyria-Mentor, OH
Trenton-Ewing, NJ
Madera-Chowchilla, CA
Akron, OH
Charlotte-Gastonia-Rock Hill, NC-SC
The next map and table chart the purchasing power of the working class. In these metros, the working class tends to make anywhere from $48,000 to just over $51,000 in annual purchasing power—more than the service class, but far less than the creative class in its ten leading metros. Again, what is striking is that not a single expensive metro makes this list. In fact, there is very little dark purple anywhere on the East or West Coasts. In other words, when housing and living costs are taken into account, blue-collar workers are falling behind in expensive metros. The top 10 locations where blue-collar workers do the best financially tend to be metros with resource and energy economies. Two Alaska metros—Anchorage and Fairbanks—top the list, followed by Houma-Bayou Cane-Thibodaux, Louisiana, and Midland, Beaumont-Port Arthur, and Lake Charles, Texas.

Where the Working Class Has the Most Purchasing Power

Avg. Wages Adjusted for Purchasing Power (Working Class)
Anchorage, AK
Fairbanks, AK
Houma-Bayou Cane-Thibodaux, LA
Midland, TX
Beaumont-Port Arthur, TX
Longview, WA
Danville, IL
Bremerton-Silverdale, WA
Kokomo, IN
Lake Charles, LA
These maps show the growing divide among American workers both within and across metros. While the privileged third of knowledge, professional, and creative workers make more than enough to compensate for the higher housing costs of expensive metros, the working class and, to some extent, the service class—both of which make up the other two-thirds of the workforce—fall further behind in the pricey bi-coastal corridors.  

To delve further into what lies behind these growing divides, Mellander ran a basic correlation analysis that shows the relationship between the RPP-adjusted wages of the three major occupational classes and key demographic and socioeconomic characteristics of America’s metros. As usual, I remind readers that correlations do not imply causation, but only point to associations between variables. Still, the analysis points to several key factors behind these divides.

Our analysis finds that annual average wages for all three classes are higher in larger, denser, more educated, more tech-based, more affluent metros. But when adjusting these wages for purchasing power, the pattern changes substantially, and we can see how this picture is mostly related to the advantaged creative class. The wages of the creative class remain substantially higher in bigger, denser, more knowledge-based, and more expensive cities. When adjusted for purchasing power, creative class wages remain positively and significantly correlated to the size of metros (.45), high tech industry (.48), and monthly housing costs (.26).

When it comes to the service class, the correlations for its purchasing power are substantially weaker than for the creative class, in most cases around half as much (the correlations for population and high tech industry are both .27). The correlations for the adjusted wages of the working class are frequently negative and significant (for example, -.13 for population size, and -.17 for housing costs), signaling that its members are substantially worse off in larger, denser, more expensive metros.

There is one last wrinkle to the story, and it involves the geographic sorting of the three major economic classes. Where the creative class is larger, its purchasing power-adjusted wages are also larger. So where the creative class is more clustered and concentrated, its members tend to do better financially. And even though the working class is worse off in expensive metros, its members do better financially in metros where blue-collar workers make up a bigger share of the workforce. This likely reflects the fact that the working class is clustered and concentrated in distinct parts of the country, away from expensive creative class centers. Still, members of the service class are financially worse off in metros where the service class makes up a large share of the workforce. This is likely because the least advantaged service class is at least partially dependent on locating alongside the most advantaged knowledge, professional, and creative workers who generate the demand for their services.

When all is said and done, America’s class geography continues to sort into a distinctive and troubling pattern of winners and losers.

(Source: http://www.citylab.com/work/2016/07/how-expensive-cities-hurt-workers/490688/?utm_source=nl__link3_071216)

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