One of the most frequent arguments you’ll hear if you ask someone to try to justify Seattle’s high home prices is job growth. It usually sounds something like this: “We’ve got Boeing and Microsoft, and all these highly-paid, high-tech jobs are continually being added to our strong economy.”
Well, as you all know, we’ve beat this subject to death around here, but Seattle Times business reporter Drew DeSilver brought some excellent statistics to the table yesterday that simply cannot be ignored.
Four years into the recovery from the steep recession of the early 2000s, the state’s economy is by most accounts humming like a well-tuned V-6 engine. More Washingtonians are working than ever before, the state unemployment rate hovers near a 30-year low, and last year the state’s average wage rose 5.3 percent.
But those top-line measures don’t tell the whole story: A Seattle Times analysis of state jobs data shows that most of the new jobs created in the current expansion don’t pay all that well, and fewer high-wage jobs have been generated than during the late-1990s boom.
Of the 240,000 jobs created in Washington between 2002 and 2006, almost 70 percent were in fields where the average weekly pay was less than $832 a week (or $43,264 a year). That’s the income calculated as a “living wage” in Washington for a family of two adults and two children, according to Penn State’s Poverty in America project.
Several of the fastest-growing job categories — in retail, hospitality, agriculture and social services — were at the lower end of the wage scale.
For instance, more than 26,000 administrative and support jobs have been created, with an average weekly wage of $605 — about $31,500 a year. General retailers added almost 9,900 jobs, paying on average $460.53 a week, or less than $24,000 a year. Bars and restaurants generated more than 20,000 jobs, paying an average of about $280 a week, or $14,550 a year, though those workers rely on tips for much of their pay.
The current recovery has so far generated far fewer high-paying jobs than the last boom, which ran roughly from 1995 to 2000.
those heady dot-com years
During those heady dot-com years, businesses statewide created more than 99,000 jobs paying more than $50,000 a year — 30.6 percent of all new jobs — primarily in Internet, telecommunications and other high-technology fields.
But between 2002 and 2006, just 57,000 jobs paying above $50,000 were created in Washington — 23.7 percent of the total.
Many high-paying industries — notably telecommunications, electronics manufacturing and air transportation — have continued shedding jobs during the current recovery. Statewide, those three sectors combined to lose more than 11,000 jobs, with an average weekly wage of $1,275.59, between 2002 and 2006.
Keep in mind that in order to afford the median house in King County ($470,000 as of June), an family must have a gross yearly income of $95,000, assuming they have the $94,000 down payment. If they’ve only got enough for 5% down, it would take $115,000 in yearly income.
If the Times’ analysis is to be believed, there is pretty much no way that high-paying jobs have been the driving force behind Seattle’s housing boom. In fact, it’s just the opposite:
As a rule, economists say, higher-wage jobs support lower-wage ones: The Boeing machinist buying camping gear helps sustain the sales clerk who sells it to him. As high-paying jobs boomed during the 1990s, so did those further down the wage scale: The same tech boom that generated 14,485 software jobs (average pay, including options payouts: well over $250,000) created 36,430 administrative-support jobs (average pay: about $23,560).
But until fairly recently in the current expansion, lower-paying jobs were being created without much of a bump in higher-paying jobs. So where was the support coming from?
Housing. More specifically, the housing boom that has boosted home values across much of the state and sent Seattle-area home prices into the ionosphere.
As house values soared and mortgage rates fell, homeowners had the best of both worlds. Even if you lost your dot-com job and were temping to pay the bills, you could refinance your mortgage or tap into your home’s equity to maintain your spending levels. And tens of thousands of people did just that.
“The housing boom definitely brought about a different kind of growth,” said Andrew Gledhill, who tracks Washington for the research firm Moody’s Economy.com. Especially early in the recovery, he said, retail jobs grew much faster in Washington than in the nation at large.
“There’ve been few other periods in history when home values were appreciating so much and people were borrowing so aggressively on the value of their homes,” Gledhill said.
Until about 2005, the state’s fastest-growing job categories tended to be either real-estate related (construction, mortgage banking, real-estate brokers, etc.) or in the retail and hospitality industries.
But as Kriss Sjoblom, an economist at the business-oriented Washington Research Council noted, “Construction can carry an economy in the short term, but not in the long term.”
That sounds pretty similar to what I said about the whole jobs situation back in May of last year:
So here’s my thesis: Jobs (at least partly) drive housing. The job situation in Washington (and the Seattle area) has been doing pretty well lately. However, a large amount of the job growth has been in housing-related industry. Therefore, when housing slows due to other forces (such as increasing interest rates or higher lending standards), the job market will slow, thus causing housing to slow further. Lastly, high tech jobs—including Microsoft—are not growing at a fast enough rate to rescue us when/if construction and real estate experience a significant slowdown.
In conclusion, high-paying jobs at Boeing and Microsoft are not going to keep Seattle home prices afloat. It’s not that such jobs don’t exist, it’s just that they’re such a tiny percentage of the total number of jobs being created, that their effect on the housing market is extremely limited.
Take us home, Drew.
However, many of the state’s core industries — those that both employ a lot of people and pay well — haven’t grown at the pace seen in previous years.
Consider aerospace again. The last time the industry went on a hiring binge, between 1996 and 1998, it added 33,100 jobs in the span of 2-½ years.
Boeing, which employed 104,000 Washingtonians at the peak of the last cycle in June 1998, reported just 71,781 Washington workers at the end of July — despite the big buildup for the new 787 Dreamliner jet. The leaner payroll is a consequence of the company’s aggressive streamlining of its production processes and outsourcing of much work previously done in-house.
Even software, which barely took a breather during the recession, isn’t adding to payroll the way it used to. The software sector routinely posted job growth in double digits during the 1990s, but since the end of the recession growth has been mostly in the 6 to 7 percent range.
(Drew DeSilver, Seattle Times, 08.05.2007)