High Cost of Living Puts Region’s Fat Paychecks on a Srtict Diet
San Francisco Chronicle
Many Bay Area workers are earning paychecks far bigger than their
counterparts with comparable jobs in other states.
So why are they struggling to make ends meet?
It turns out that while most workers in the region earn more on paper
than workers elsewhere, their purchasing power is slashed by the high
cost of living, according to an analysis of Labor Department and other
The department’s August unemployment report Friday showed a slight
dip in the U.S. unemployment rate to 4.9 percent and a solid but not
spectacular 169, 000 new payroll jobs added nationwide. But that backward
look at the labor market is clouded by uncertainty about how Hurricane
Katrina will affect the job outlook.
Meanwhile, on a statewide basis in California, wages have failed to
keep up with inflation, UC Berkeley labor economists say. And although
payrolls have been growing, job creation has become heavily dependent
on the boom — some would say bubble — in housing.
"The good news is that we did add 300,000 jobs to the state labor
force in the last 12 months," said economist Arin Dube with the
Institute of Industrial Relations at UC Berkeley. "The bad news
is we’re three years into this recovery, and we should be creating
more jobs, and real wages should be rising, not falling."
Jim Wunderman, chief executive of the Bay Area Council, a business-backed
public policy group, was more optimistic, saying the continuing rebound
from the dot-com crash is slowly persuading employers large and small
to turn on the hiring spigot.
"From a regional perspective, you’re looking at a place that
had an economic meltdown," he said. "Now things are turning
around, and the turnaround is focused more on the higher-paying jobs."
Roughly 14.8 million Californians are counted in the labor force —
that is, people over 16 who either hold jobs or are actively seeking
work. The Bay Area’s three metropolitan zones — the East Bay, West
Bay and San Jose area — have a total labor force of about 3.1 million
Wages are the statistical indicator economists consider the best single
barometer of job conditions because they measure the balance between
supply and demand for labor.
At The Chronicle’s request, Charlotte Yee, regional economist for
the U.S. Labor Department’s Bureau of Labor Statistics, calculated
the average wages for the three main metropolitan areas: San Francisco
and vicinity, the East Bay counties of Alameda and Contra Costa, and
greater San Jose. She then compared those wages with paychecks in
other metropolitan areas nationwide.
Yee found that San Jose topped the nation with an average annual wage
of $55,830, San Francisco ranked third at $51,570 and Oakland came
in seventh with a $46,490 paycheck — all far above the national average
But what kind of living standards do those fat paychecks support?
To find out what they actually buy, Yee blended the Labor Department
wage data with a cost-of-living index created by the Council for Community
and Economic Research. The council, a nonprofit group headquartered
at George Mason University in Alexandria, Va., is a national authority
on cost-of-living studies.
Once deflated for cost of living, the wage picture changes substantially.
The average annual wage in San Jose fell to $32,385 after the adjustment.
The East Bay ranked next in the region with an average cost-adjusted
paycheck of $30,235, surpassing metropolitan San Francisco, where
big salaries actually buy a mere $28,418 in cost-deflated goods and
services. All three areas trail the national average annual wage of
$37,020, the statisticians said.
Erol Yildirim, who runs the council’s cost-of-living analysis program,
said the biggest single reason for the Bay Area’s poor showing in
purchasing power is obvious to anyone with a mortgage.
"Housing in San Francisco is three times as expensive as the
national average," he said. Food is also more costly. A dollar’s
worth of groceries nationwide costs $1.50 in San Francisco, according
to his figures.
At the risk of ruining barbecues up and down the length of California,
the UC Berkeley researchers offered another disturbing finding: After
adjusting for inflation, wages statewide fell during the first half
of 2005. According to Dube, the UC Berkeley economist, this was the
second year in a row that real wages fell in California.
"What that tells you is that the labor market is still soft,”
he said. In other words, there is not yet enough demand for workers
— although there are always spot shortages of certain skills — to
force wages higher.
The Berkeley labor economists noted that the state’s economy has gotten
a huge boost from housing. Construction and related fields such as
real estate or lending, all related to the housing boom, accounted
for half of all the net job growth in the state between 2002 and 2005.
With job creation dependent on housing, which is in turn dependent
on interest rates, that puts a question mark over the state’s labor
market, Dube said.
Wunderman, with the Bay Area Council, said his group’s quarterly surveys
of regional business leaders convince him that local job creation
is on a broad-based upswing.
He said more venture capital is flowing to startups, which have long
been local job drivers. Large and midsize firms, which had been using
temporary or contract workers, are finally gaining the confidence
to crank up permanent hiring.
"We’re in a cautious economy and a cautious world," he said,
characterizing local job growth as "not huge but moderate."
Another insight into the dynamics of the regional job market comes
from UC Berkeley researcher Steven Pitts’ study of the earnings of
Pitt’s data are old. He examines wage patterns of Bay Area black males
from 1970 to 2000. But the trends he notes are based on a changing
job mix that has probably continued in more recent years, much to
the detriment of African American men.
In 2000, Pitts found, 27 percent of black men working in the Bay Area
held low-wage jobs — defined as twice the California minimum wage
or less. In 1970, the comparable statistic was 14.9 percent.
Pitts said the biggest single reason for this "tremendous deterioration"
has been the changing nature of local jobs. Thirty years ago, black
men without higher education could earn decent livings in manufacturing
and warehousing. Today many of those jobs have migrated elsewhere,
replaced by lower-paid positions in the services, a trend exemplified
by the recent case of 11,000 people lining up for 400 vacancies at
a Wal-Mart in Oakland, Pitts said.
Living costs reduce Bay Area paychecks
Average annual wages in the Bay Area’s three main metropolitan areas
rank among the top seven metro regions nationwide, but when average
paychecks are deflated to account for the local cost of living, those
big city paychecks shrink.