What’s the Right Percentage of Low-Wage Jobs?

Last week we held a forum on redevelopment, attracting more than 60 people, not counting those who followed by live-tweets or listened later to the recorded audio.

One attendee, Laura Garrett, wanted to know more about job creation. She is an entrepreneur working out of the Hive Haus in East Village and also serves as a residential representative on the Centre City Advisory Committee, downtown’s community planning group.

We’ve posted her comments below and followed with replies from three of our panelists, Murtaza Baxamusa, Erik Bruvold and Vladimir Kogan.

Laura Garrett:

Thanks for putting together the panel on redevelopment. It was the beginning of a great dialogue that will hopefully continue.

I think it’s probably safe to say that redevelopment, should it continue to exist, will look different in the future than it has in the past. As a result, we have an opportunity to make it even more effective. To that end, I’d like to ask if your panelists could offer some sort of follow-up on one topic that came up a lot in the discussions: jobs.

I imagine everyone agrees that job creation is a good thing, whether you believe it to be an explicit goal of redevelopment law or not. I would also guess that no one wants all new jobs to be lower-paying ones. In fact, it was this argument that fueled much of the redevelopment opposition that was voiced during the forum.

That said, I assume there is some mix of jobs that’s appropriate and ideal. In other words, all jobs can’t be high paying jobs or there wouldn’t be a match against the mix of skill sets and experience in the marketplace. By the same token, all jobs shouldn’t be low-paying. (And please note that I’m not advocating that any jobs pay less than a living wage.) So can we put it in context against a goal of some kind? Maybe there’s a benchmark accepted within the economic development community that we should be striving for? Lower-paying jobs are probably inevitable in our region since the tourism industry is bound to remain a constant as long as our sun keeps shining. But what’s the “right” percentage for a healthy regional economy?

Vladimir Kogan, a former writer for voiceofsandiego.org, who now is a Ph. D. candidate at UCSD and co-author of “Paradise Plundered,” a soon-to-be-released book about San Diego’s fiscal problems:

I think the way to think about the question is not so much how many low-paying jobs should there be, but rather what sort of jobs should the government subsidize. Of course there will always be low-paying jobs, and that will be determined by the market. That’s not my concern. Rather, I am concerned with the city using hundreds of millions of dollars in public money to subsidize the creation of below-poverty jobs. They are created through government investment, not normal market demand. It’s hard to make an argument for that policy.

I generally agree with Erik Bruvold that, to the extent the government should be involved, it should target specific industries (rather than job types) based, perhaps, on the industry multipliers. It’s our current focus on tourism and retail industries (“bread and circuses,” see recent Convention Center expansion debate) that is primarily responsible for the unfortunate job mix, because these are both low-paying, low-skill industries.

Murtaza Baxamusa, director of planning and development at the Building Trades Family Housing Corp.:

Assuming that one cannot permanently subsidize a private sector job with redevelopment, we are really talking about one-time public investments that steer the industry/wage distribution.

There are at least two ways to impact this distribution:

1. Improve the quality of direct employment. Building infrastructure with redevelopment funds directly creates construction jobs. Although workers make prevailing wage, two-thirds do not have health care and are out on the street in eight months, the typical duration of a project. They can be trained into stable careers in construction.
2. Link economic development goals to redevelopment benefits. New projects that benefit from redevelopment investments can commit to lifting the bottom, as well as include an occupational spread that increases the average wage. I am not against creating tourism and retail jobs, but do see a structural problem in the region when we are creating low-wage jobs at a rate 16 times that for high-wage jobs. We are pricing our workforce out of the region.

Erik Bruvold, president of the National University System Institute for Policy Research:

I want to think about this more in-depth and structure a detailed answer but here are some thoughts.

1. There will always be a distribution of high- and low-wage jobs that serve the “local” economy, essentially that part of the economy that reflects the purchase of goods and service by San Diegans from San Diegans. Wages are going to be, in large part, a function of labor supply, education levels and productivity. Put another way, every region is going to have some food establishment workers and some doctors, reflecting the regional purchase and consumption of prepared food and health care, which represent, respectively, low and high wages. The demand for plumbing services will create jobs in the middle.
2. There is another set of jobs that are export-oriented. These sell goods and services to the external market. They bring “new” dollars into a region and, at least from one economic perspective, fuel growth. When thinking about this consider Qualcomm, which makes much less than 1 percent of its revenue from the consumption of wireless technology by the San Diego market or the Hotel del Coronado, which likely “rents” its room nights to very few San Diegans.

This second category should be the one we focus on, at least to the extent to which it is subsidized by government. A critical question is: What wages do the industries provide? How much of a multiplier effect do they have? Are there other ways the money spent on industry could be allocated to create bigger economic bangs for the buck (i.e., what is the opportunity cost)?

Ultimately the problem with much of redevelopment is that it subsidizes industries where low wages are common and which have fairly poor multiplier effects. The harder question is whether there are viable options to use the money differently or, because who we are, whether we have to subsidize tourism. Given a recent discussion I had at a major tech firm, I would find that assertion laughable.

To Murtaza’s point I just think there is some flawed economic logic. Yes, we could create lots of construction jobs building stairways that led to nowhere. But we might want to get some productive value out of those construction dollars. I want them to be in industries that pay high wages and which create lots of indirect and induced jobs in the region. And yes, we could require certain “job quality” standards when receiving the subsidy … but ultimately there are constraints on the wages industries pay. Requiring job quality simply shifts who (labor, management, capital) gets a piece of the fixed subsidy pie.

Grant Barrett, engagement editor for voiceofsandiego.org: grant@voiceofsandiego.org or (619) 550-5666 or @grantbarrett on Twitter.