The Wal-Martization of the San Diego Economy

Voice Guest Columnist
Published May 11, 2005

At first glance, 2004 was a good year for the labor market in San Diego County. According to the state Employment Development Department, non-farm wage and salary employment was up 18,500 compared to 2003, and the private sector added 21,000 new jobs to offset the loss of 2,500 jobs in government.

The local unemployment rate averaged 4.7 percent for the year, which was less than the 5.5 percent unemployment rate for the nation and far below the 6.2 percent rate for the state of California.

The problem with examining the change in total employment is that it doesn’t take into account the quality of the jobs created. Are the new jobs high-paying jobs with benefits that allow workers to support a family in a high cost area such as San Diego, or are they the “hamburger-flipping” jobs that are often derided as a symbol of the shift to a service-oriented economy?

This question is important not only for San Diego, but for the rest of the country as well. Globalization has resulted in the loss of millions of well-paying manufacturing jobs, and there are concerns that white collar jobs will be affected as well.

This is already occurring in areas such as software development, call centers and financial analysis, to name a few. In other sectors, technological advances and intense domestic competitive pressures have led to either drops in employment or the stagnation and decline of wages, or both.

An example of the impact of technological advances is the banking industry, where the advent of the automated teller machine eliminated the need for many teller positions. An example of the impact of domestic competition is the airline industry, where deregulation and the emergence of low-cost carriers, such as Southwest Airlines, has put downward pressure on both fares and wages.

The ultimate example of the impact of market competition is Wal-Mart, the world’s largest retailer. Wal-Mart’s low prices come as a result of its efforts to hold down costs, which manifests itself in relatively lower wages and lower prices paid to suppliers throughout the supply chain. The worry is that these forces will drive increasingly larger numbers of workers into lower and lower-paying jobs.

This is illustrated by looking at employment change by sector in San Diego County. Of the 21,000 new private sector jobs added in the county in 2004, my estimate is that 6,600 — or about 31 percent of them — fit into the high-wage category. This includes 7,200 jobs in construction and 1,700 in financial activities, including real estate. These gains were offset by losses in other high paying sectors, including professional, scientific and technical services (down 1,500 jobs in 2004); health care and social assistance (down 1,500); manufacturing (down 1,100); and telecommunications (down 700). The other 14,400, or 69 percent, of the new jobs created would be considered lower wage jobs. The biggest increases came in employment services, including temporary services (an increase of 4,000 jobs); retail trade (up 3,500); restaurants and drinking places (up 2,700); services to buildings, including janitorial services (up 1,300); and hotels and other accommodations (up 1,100).

Thus, more than two-thirds of the jobs created in San Diego last year were lower paying ones. This is troubling, given the high cost of living here, particularly in terms of the housing market.

My estimate is that San Diego has the second worst income-to-cost-of-living ratio of any city in California. Only San Francisco is worse in this regard. It is also worrisome because the lower buying power of workers has the potential to slow growth of the local economy.

In this case, the “Wal-Martization” of the economy refers to the situation where lower paying jobs means that Wal-Mart will be the only place that people will be able to afford to shop. This is not literally the case, but it is a metaphor for the fact that fewer people will be able to buy homes, afford health care, send their children to college and otherwise engage in spending that will have positive impacts throughout the local economy.

The recently passed living wage ordinance in the city of San Diego was one attempt to deal with this situation. Maintaining a highly educated work force and staying on the cutting edge of technology are other policies that have been advocated to try to attract high-paying jobs. Some action needs to be taken, as this trend will likely continue for the foreseeable future. Otherwise, we run the risk of having an economy where the vast majority of workers struggle with low-paying jobs while trying to cope with the high cost of living in the region.

Alan Gin is an associate professor of economics at the University of San Diego.