Tuesday, March 14, 2006

It's the Economy, Stupid

For those of you who like to believe that the job market is just fine, here's some food for thought. Apparently, the disparity in pay between the highly educated and the not-so-highly educated is narrowing.

Some choice quotes:
The evidence is in a new Fed study of family finances, the latest in a triennial series. It shows modest but clear signs of incomes converging rather than diverging. Between 2001 and 2004 (the most recent year for which data are available), incomes of the poorest 20 percent of families increased while incomes of the richest 20 percent fell. Basically, the poorest families' share of total incomes grew, and the richest families' share shrank. Incomes became just a little less unequal.

What could that trend reversal mean? The most obvious explanation seems highly counterintuitive: The skill premium, the extra value of higher education, must have declined after three decades of growing...the premium had indeed fallen sharply between 2000 and 2004. The real annual earnings of college graduates actually declined 5.2 percent, while those of high school graduates, strangely enough, rose 1.6 percent.

The other main possibility is that something unexpected and fundamental is changing in the way the U.S. economy rewards education. We don't yet have complete data, but anyone with his eyes open can see obvious possibilities. Just maybe the jobs most threatened by outsourcing are no longer those of factory workers with a high school education, as they have been for decades, but those of college-educated desk workers.

Perhaps so many lower-skilled jobs have now left the U.S.--or have been created elsewhere to begin with--that today's high school grads are left doing jobs that cannot be easily outsourced--driving trucks, stocking shelves, building houses, and the like. So their pay is holding up.

College graduates, by contrast, look more outsourceable by the day. New studies from the Kauffman Foundation and Duke University show companies massively shifting high-skilled work--research, development, engineering, even corporate finance--from the U.S. to low-cost countries like India and China. That trend sits like an anvil on the pay of many U.S. college grads.

Because our best-educated workers are earning less, and the incentives for higher education may thus be declining, the result could be a more uniform--and lower--standard of living. Be careful what you wish for.
And here is an article showing that roughly 25% of all electrical engineering jobs have been lost since 2000. That's not too surprising (at least in the Bay Area) but the consequences may be worrisome:
Declining employment can be as worrisome as increasing unemployment. The economy can still benefit from an unemployed engineer who has taken a non-engineering job. But when an engineer leaves the profession, those high-value skills may be lost for good.


Blogger marine_explorer said...

I think of all the recent grads, with college loans and possibly fewer job prospects. Considering housing costs, how will they be motivated to make a career here long-term? Unless something changes, it's not a pleasant prospect for many of us. Maybe local business can outsource their knowledge base, but I see a huge brain drain in the future. Just another reason the bubble is bad for the local economy.

There's only so many trustbabies, rich retirees, and high-end wage earners to keep the bay area propped on its spindly legs of success--until something "unexpected" topples it over.

Mar 14, 2006, 11:28:00 AM  
Blogger by_palladium said...

Nobody should cry for the unemployed engineers. There are too many people educated in the engineering (and for that matter many other fields law, MBAs, plastic surgery, etc.).

As a one time civil engineer here in marin, I can make double the money in systems analysis / consulting and lead a better quality life. Electrical, petroleum, mining engineers ... all the same. This society has never needed that many of these types of jobs - but policy makers sure think that they do. Unfortunately, there are huge university departments that crank out diploma'ed grads with highly specialized but generally useless degrees. (Ex - met any registered dieticians lately?)

So, yes I suppose that we need some engineers, and I think outsourcing will be shown to be a shortsighted business tatic, when many of these people that are trained as engineers and practicing in menial roles as engineers are freed from having the opportunity to work in that field, I can't see that as entirely a bad or unforeseen event.

Mar 14, 2006, 10:00:00 PM  
Blogger by_palladium said...

Furthermore....does marin even have an economy?

I haven't heard it discussed here, but who are the biggest employers by number of employees in the county?

My guess....government of all types, hospital and medical, realestate/building related probably account for at least 50% of all employment. Most of the rest is misc retail. Besides autodesk and fair isaac, there just isn't much happening in this community which should be called a suburb.

Mar 14, 2006, 10:04:00 PM  
Blogger fredtobik said...

offshoring = U.S. jobs gone
outsourcing = Job moved to other company that specializes in that business.

Offshoring has been the Management Consultants bread and butter for the last 5+ years. In my world (IT) if you haven't been offshored or outsourced you probably wont be.


I completely agree with over educated professions.

Online graduate degree programs will only make things worse, can you imagine an admin assistant with an MBA from UoPhoenix?

lol.. ok no more hate..

Mar 15, 2006, 12:31:00 PM  
Anonymous Anonymous said...

Here's a link about the business climate in Marin and how it ties in to commercial real estate:


Mar 15, 2006, 11:25:00 PM  
Anonymous Anonymous said...

Restoration Hardware is ths second largest publicly traded company in Marin, after Autodesk. Fair, Isaac is no longer based in Marin -- they moved their HQ to Minnesota.

Mar 17, 2006, 5:16:00 PM  
Anonymous Anonymous said...

I will add the headline from one of the stories from the Chronicle 200 from last May:

The local business climate perked up, with profits for the 200 companies totaling $66.25 billion through March 31, more than twice the total from a year ago

Article is here.

Mar 17, 2006, 5:23:00 PM  
Anonymous Anonymous said...

So, I decided to some analysis on prices, incomes and interest rates to determine just how expensive our market is compared to historical data (mortgage payment/monthly income). Unfortunately, it is an excel table which I converted to HTML but I cannot paste table tags here. So, I will attempt to render this in text:

Marin Family Income: $13935
Average Marin Home: $37845
Interest Rate: 7.38%
Mortgage Payment*: $209.90
Ratio of pmt/monthly income: 18%

Marin Family Income: $29721
Average Marin Home: $168508
Interest Rate: 13.77%
Mortgage Payment*: $1572.77
Ratio of pmt/monthly income: 64%

Marin Family Income: $59157
Average Marin Home: $379581
Interest Rate: 10.13%
Mortgage Payment*: $2694.09
Ratio of pmt/monthly income: 55%

Marin Family Income: $88934
Average Marin Home: $722780
Interest Rate: 8.06%
Mortgage Payment*: $4267.01
Ratio of pmt/monthly income: 58%

Marin Family Income: $97827**
Average Marin Home: $1,078,819
Interest Rate: 5.86%
Mortgage Payment*: $5097.03
Ratio of pmt/monthly income: 63%

*Mortgage amount was calculated as 80% of the average home price
**Estimated 10% higher than 2000, complete guess on my part.

Marin Income: http://tinyurl.com/flbqf
Marin Average (not median) Prices:
Historical Interest Rates: http://tinyurl.com/gx6w2
Mortgage Calculator was provided by bankrate.com

Mar 17, 2006, 6:26:00 PM  
Anonymous Anonymous said...

That last entry should have read 2005, not 2000 again.

Anyway, the purpose here is to illustrate that we were not yet in uncharted territory in 2005 -- 1980 was less affordable than last year, believe it or not. However, throw in 2006 rates (6.25-ish) and we have probably hit new lows in affordability.

Mar 17, 2006, 6:29:00 PM  
Anonymous Anonymous said...

Also, this shows pretty clearly that buying a home in Marin has been unaffordable for the majority of its residents for at least 25 years. That 1980 stat blew me away -- I thought the expensive RE/yuppification of Marin started in the late 80s.

Mar 17, 2006, 6:33:00 PM  
Blogger Marinite said...

Junkie -

Wow! Thanks again! What can I say but thanks again.

The data you provide agrees very nicely with my compilation which I did a while back (the "Church of the Soft Landing" post):


It's always good to get independent confirmation.

Mar 20, 2006, 7:27:00 PM  
Blogger sf jack said...

That *is* a complete guess for Marin "family income" - it did not increase 10% from 2000 to 2005.

I would bet it's a small gain at best. Combined with higher rates, and that % of monthly income figure climbs much higher for today than the 63% you have for '05.

As for the future vs. the '90-'96 slowdown? Rates do not appear as if they are headed downward significantly, as they did then.

Mar 21, 2006, 1:12:00 PM  
Blogger sf jack said...

Oh, and one other thing about those payment-to-monthly income ratios.

Housing prices peaked in the area in the early 1980's and again in 1990-91. So those percentages (1980 = 64%, 1990 = 55%) were seen in peak times.

What were they in 1985 or 1995?


How about today? 70% certainly seems possible.

Mar 21, 2006, 2:49:00 PM  
Anonymous Anonymous said...

That *is* a complete guess for Marin "family income" - it did not increase 10% from 2000 to 2005. - sfjack

Do you have evidence that points to actual 2005 wages? The sources I cited do not have intra-decade numbers so I had to go with what they publish and infer the income for 2005. If you have 2005 family income for Marin, please post a link.

I would bet it's a small gain at best. Combined with higher rates, and that % of monthly income figure climbs much higher for today than the 63% you have for '05. - sfjack

I acknowledged that when I said:

"However, throw in 2006 rates (6.25-ish) and we have probably hit new lows in affordability."

Mar 21, 2006, 4:29:00 PM  
Blogger sf jack said...

junkie -

If I had the numbers, I'd have posted them.

It doesn't take rocket science to know that the average "Marin family" hasn't seen a 10% rise in income from 2000 to 2005.

My point was to emphasiz that you were guessing.

And I acknowledge your acknowledging of the fact that Marin's affordability is even lower today (10% in December, right?).

Mar 21, 2006, 6:48:00 PM  
Blogger sf jack said...


(with an 'e')

Mar 21, 2006, 6:49:00 PM  

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