At the same time that they're making a comeback, America's cities are becoming more economically divided, facing a new set of profound challenges. The San Francisco Bay Area metro in particular has seen a powerful influx of talent and tech investment, pulling startups and venture investment away from even Silicon Valley. But as housing in San Francisco has grown increasingly unaffordable, class divides have worsened, and tensions have erupted over the Facebook private bus and the "infiltration" of Google Glass-toting yuppies. The city's measurable level of inequality is comparable to that of El Salvador or the Philippines.
Now a new report head up by SPUR, an urban think tank in the San Francisco Bay Area, makes the case for a new and more inclusive kind of economic prosperity—one that would continue to stoke the engine of innovation and technology, but also address growing economic gaps and ensure that all workers and residents benefit from economic growth.
The report provides a compelling diagnosis of the economic divides and gaps the region faces. The chart below points to a key source of the problem. It dissects the region’s jobs and finds three key categories: low- and moderate-wage jobs in industries like hospitality, childcare and retail, which pay under $18 an hour; middle-wage jobs, in industries like construction and manufacturing, which pay $18 to $30 an hour; and higher-wage jobs, in high-skill sectors like technology and finance, which pay more than $30 an hour.
The chart shows the ongoing hollowing out of the region’s economy and job market, as the number of once high-paying middle class jobs have shrunk. There are only 850,210 regional jobs that pay between $18 and $30, out of a total 3.2 million—just 27 percent. There is no industry, the group finds, in which the majority of jobs are middle-wage.
The result is that the region’s job market has cleaved into high- and low-wage jobs. The good news is the region benefits from 1.2 million high-paying jobs, 38 percent of its total, which pay more than $30 an hour. The bad news is another 1.1 million, 36 percent, are low-wage jobs paying less than $18 an hour—about $36,000 a year. To put those numbers into perspective, consider that the estimated minimum annual income needed to support a two-adult, two-child household in the Bay Area is $65,000 per year, or about $30 an hour.
More troubling, the report finds many workers to be essentially trapped in low-wage jobs, with little prospects for economic mobility, finding that “there are too few jobs into which lower-wage workers might advance.” One half of the 155 occupations with median wages between $18 and $30 per hour require a bachelor's degree.
The report also documents the projected growth in these better middle-wage jobs. SPUR estimates that approximately 310,000 middle-wage jobs will open up between 2010 and 2020. That’s a third of current low-wage jobs. Meanwhile, low-wage jobs, or those that pay less than $18, appear to be a permanent fixture in the Bay Area economy—according to projections, they’ll grow by 500,000 positions by 2020.
As the report notes: "There are overwhelming applicants for an insufficient number of middle-wage jobs [and t]here are fewer clear career pathways for upward mobility within industries and occupations, particularly for those who start in low-wage jobs."
This worsening economic divide is imprinted upon San Francisco's economic geography. As I wrote at CityLab just a few weeks ago, the Bay Area is not unique in this aspect. Indeed, most of America's largest metros have sorted out in terms of social class, education, and income. The map below, from the SPUR report, shows the geographic concentrations of the region’s low-wage workers.
Low-wage and middle-wage workers, represented above by red dots, are spread across the Bay Area, including San Francisco proper, down the peninsula into San Mateo and Santa Clara counties, and into Oakland, across the bay. As the report points out, in "every city or town, at least 25 percent of residents are lower-wage workers.” While one-third of low-wage workers are concentrated in disadvantaged neighborhoods, the other two-thirds are scattered throughout the entire metro area. Indeed, a full 34 percent of all lower-wage workers live in the wealthiest 40 percent of San Francisco communities, surrounding (and probably serving) them.
Lower-wage workers are much more likely to live in the same county where they work (between 67 percent and 90 percent do, depending on the county), according to the report. While most low-wage workers (76 percent) drive to work, they do so at slightly lower levels than high-wage workers (82 percent). This is because low-wage workers often live by their jobs and are more likely to walk or take transit.
By far the most interesting part of the SPUR report is that it goes beyond diagnosis to propose solutions for a more inclusive economic prosperity that would begin to bridge these growing divides. It makes the important point that a more inclusive growth strategy will require working on all sides of the equation: improving low-wage jobs, creating pathways towards upward mobility for the less advantaged, and improving housing affordability by building more housing, especially affordable housing.
On the jobs front, SPUR advocates creating a new pathway to the middle that prepares more workers for middle-wage jobs. This means investing in sectors with growth potential; establishing more sector-based and industry-driven partnerships; as well as expanding basic jobs skills training and improving pathways at the K-12 level.
The report further recommends promoting economic security by improving the conditions in low-wage jobs. It calls for raising the minimum labor standards in the region; professionalizing industries to create clear career ladders and making benefits available; and establishing clear standards so that the public sector is spending money on strategies that truly stimulate all-around economic growth.
It is certainly high time to increase the minimum wage. Last December, I wrote that a regional minimum wage of $13.95 (50 percent of the local median wage), well above the current minimum of $10.75, is a reasonable place to start. A growing body of research shows that paying those low-wage service workers more leads to higher levels of job engagement, better customer service, and more on-the-job innovations. A higher minimum wage, then, would lift company profits while improving the effectiveness and efficiency of the local service economy as well.
The problem, however, extends beyond income and wages. My own analysis shows that San Franciscans on average take home more income than most Americans, even after they’ve covered their housing costs. The metro average is $40,000 per year, or $3,342 per month. This is the fourth best wage after housing of any metro; only Silicon Valley, Durham, North Carolina, and Washington, D.C., do better. But here’s the rub: While high-paid techies, professionals and knowledge workers make enough to cover these higher housing costs, the brunt of the affordability crisis falls on the working and service classes, whose wages and salaries are insufficient to meet rising housing costs. “There is a rising tide of sorts, but it only lifts about the most advantaged third of the workforce, leaving the other 66 percent much further behind," I’ve written. The end result is an accelerating dual migration: techies, software engineers and wealthy immigrants in, service workers, the less advantaged, and the city’s longstanding communities of artists and musicians pushed out.
Recognizing this growing gap, the report calls for acting on the housing side of the equation as well, developing a sensible land use plan that accommodates for growth by providing housing options for all income levels. As my colleague, the urban economist Will Strange, bluntly put it: “The ‘affordability’ issue calls for reconsideration of [San Francisco’s] aggressive regime of land use regulation. If it were cheaper to build housing, the problem would not be as severe.”
The report also points to the need to create infrastructure that can support economic growth and inclusive prosperity, especially for expanding and integrating the region’s transportation systems with its economic development plans. This is key. The region will not be able to address its large and growing affordability problem just by increasing density and building more housing in and around the core. It needs to invest in and expand transit, so that people can live more affordably further outside the city, and so that high-density mixed-use communities can emerge and evolve along the transit routes.
San Francisco is not yet the parasitic, gated city London is fast becoming. But thanks, ironically, to its very real economic advantages, it is lurching towards a very real crisis. The city and metro are becoming divided in ways that threaten its vital energy and diversity and may ultimately undermine its ability to innovate and grow.
SPUR’s recommendations provide a compelling and much-needed framework for a much more inclusive prosperity that would spread the benefits of its dynamic economy to many more of its workers and residents. Just one question remains: Can the city and region muster the political will to put something like it into action?
*CORRECTION: This caption has been amended to more accurately reflect the geography of San Francisco. Additionally, a previous version of this caption indicated that the high-rise pictured is being built; it's only under construction.