Can you have a service economy without service workers?
The U.S. is overwhelmingly a service economy — services account for about 80 percent of U.S. economic activity. Yet in some of the most prosperous areas of the U.S., it is becoming increasingly difficult for the professionals who make the economy function — police officers, firefighters, civil servants, waiters, teachers, customer service representatives, and entry-level workers of all types — to live anywhere near their place of employment.
In recent weeks, the press has been filled with stories about the extreme lengths people in the San Francisco region go to in order to get to work, and to maintain residences in the general vicinity of their workplaces. On Medium, a low-level Yelp employee described how she paid $1,245 monthly in rent so that she could maintain a job that paid $733 every two weeks. So expensive has housing in the Silicon Valley region become that, as the Wall Street Journal noted last week, “15 of the Menlo Park Fire Protection District’s firefighters live at least 100 miles away, compared with one in the 1980s.” Meanwhile, a guy in San Francisco has constructed a bedroom pod within a small apartment. The monthly rent: $500.
San Francisco provides the most concentrated version of this dilemma. But similar situations can be seen in London, Hong Kong, and New York, where the salaries for vital jobs and positions that make the economy hum simply don’t seem to be enough to pay for housing in the region.
In theory, technology and markets should relieve these problems. If it doesn’t make sense economically for employees to live sufficiently close to the place where labor is required, companies can reengineer the business to require less labor. At the Port of Los Angeles, as the Wall Street Journal reported Monday, robots are playing a greater role in moving cargo. A restaurant in San Francisco specializing in (what else?) quinoa is largely automated. There is certainly more of this to come. But, as I’ve noted, the robots may not to be as quick to take all our jobs as people think. Companies and governments can’t simply flip a switch and turn over the responsibility for teaching, or fighting fires, or cleaning offices, or repairing roads, to machines.
A restaurant in San Francisco specializing in (what else?) quinoa is largely automated.
And while they are remarkably powerful, market forces can’t magically solve the persistent mismatches between the population growth and job availability in areas where it is very expensive to live and the comparative lack of population growth and job availability in places where the cost of living is much lower. Economic rationality would dictate that we redistribute people and jobs from San Francisco and Manhattan to Wichita, Kans. and upstate New York. That’s not really happening.
Market forces alone have limited ability to deal with the two factors that exacerbate these problems: housing and transit infrastructure. Thanks to zoning regulations, the high cost of land, and resistance to new development, it is difficult to build new housing of any kind in the San Francisco region. And it is particularly difficult to build affordable housing. Prosperity has a procyclical effect on regions — it makes cities more desirable, boosting housing and land prices, which brings in more capital, which drives housing prices up further.
Highly functioning, affordable, and pervasive transit infrastructure can go a long way toward making it easier for people to get from where they can afford to live to where they can work. In New York City, a 15-mile commute can theoretically be completed in 30 minutes with a $2.75 subway ride. (But the region’s creaking, overtaxed train and bus system frequently falls short and doesn’t reach into every corner of the region.) In other parts of the country, however, the only option for getting from Point A to Point B is to drive a car you own through dense traffic.
In most regions, there isn’t much employers can do, on their own, to connect areas with lots of housing opportunities to areas with lots of service job opportunities. And that means companies and governments are going to have to become more imaginative. If the business model can’t support higher wages for service jobs, it may make sense to locate more functions away from the headquarters from the outset. And more organizations may have to get involved in building or maintaining housing. In fact, a trend of regions developing “workforce housing” is already well underway (the Los Angeles School District, for example, is developing apartment complexes for its employees). Instead of cities building more firehouses, we may have to see more construction of houses for firefighters.