As Knowledge Workers Thrive, Blue Collar and Service Sectors Left Behind

Although many metros have experienced overall wage growth over the past decade, very few have achieved something called “inclusive growth” that benefits all workers.

We define inclusive growth as positive growth in post-rent wages for all of three categories of workers: blue-collar, knowledge and service.

Nationwide, while wages for knowledge workers, in the engineering, healthcare and management professions, for example, increased significantly, blue-collar wages stagnated and service worker wages actually fell.

When factoring in rent prices, the picture is even starker. Over the past decade, “post-rent wages,” or wages left after deducting median rent costs, decreased for service workers (-7 percent) and blue-collar workers (-5 percent), while only knowledge workers saw an increase (6 percent). The combination of unequal wage growth and rising rents has led to an increase in inequality between blue-collar, knowledge, and service workers in most metros.

The Tulsa, Ok., Birmingham, Ala., Providence, R.I., Oklahoma City, Ok., Charleston, S.C., and Rochester, N.Y. metros were the only to experience inclusive wage growth. While the post-rent wages for knowledge workers increased in 93 percent of the metros studied, only 7 percent of metros met the criteria for inclusive wage growth.

Total employment increased in 81 percent of metros, but blue-collar employment only increased in 32 percent of metros. The overall wage growth was in part due to a shift away from low-wage blue-collar jobs towards high-paid knowledge jobs.

Introduction

The U.S. economy has largely recovered from the Great Recession of 2007 to 2009, although the extent of the recovery varies geographically, with some metros experiencing major growth while others fall behind. The labor market is strong, with the national unemployment rates hovering around 5 percent over the past two years. Last month, the unemployment rate hit 4.3 percent, the lowest level since 2001. Despite a tightening labor market, wages have been relatively stagnant nationwide.

Although overall wages have increased very little over the past decade, income growth varies a great deal by occupation. Knowledge workers have made significant wage gains, while blue-collar and service workers struggle with stagnant wages. In order to best assess how blue-collar, knowledge, and service workers fared over the past decade, we looked at post-rent wages. In most metros, rents increased steadily while wages stagnated, leaving blue-collar and service workers with less post-rent income in 2015 than in 2005.

In addition to the large variation in post-rent wages between the three categories of workers, post-rent wage gains also vary significantly by region. Although the majority of metros we studied experienced overall economic growth and wage gains, very few achieved inclusive wage growth. Only six metros achieved post-rent wage growth for blue-collar, knowledge, and service workers. In most metros, wage inequality grew more severe over the past decade.

Methodology

To analyze how workers fared in metros across the country, we used wage and employment data from the Bureau of Labor Statics. We then categorized the BLS major occupation groups as either blue-collar, knowledge or service workers.  Next, we calculated metro-level weighted wage averages within each category.

Given that rents have risen sharply in many metros, while remaining relatively flat in others, we used post-rent wages for our inclusive growth measurement. We calculated post-rent wages by deducting Census median rents from wages compiled by the Bureau of Labor Statistics. We compared inflation-adjusted data from 2005 and 2015 to see where blue-collar, knowledge and service workers are better off and worse off, compared to a decade ago.

Knowledge worker post-rent wages increased while blue-collar and service worker post-rent wages fell

Knowledge worker pre-rent wages increased by 7 percent over the past decade while blue-collar worker wages stagnated and service worker wages fell by 1 percent. Knowledge workers started out earning more than double the wages of blue-collar and service workers in 2005, and that gap has continued to grow over the past decade. When factoring in rents, knowledge worker post-rent wages still grew by 6 percent while blue-collar (-5 percent) and service worker (-7 percent) post-rent wages fell.

Over the past decade, blue-collar and service workers were hit the hardest by rising rents because their wages are significantly lower than knowledge workers. Although rents grew faster than wages for all classes of workers, knowledge workers’ post-rent wages still increased nationwide, while post-rent wages fell for blue-collar and service workers, meaning that Americans employed in those sectors are worse off today than they were a decade ago.

The difference is even more significant in metros with rapidly rising rents. For example, in the San Jose, Calif., metro, wages for knowledge workers grew by 11 percent, while wages for blue-collar (-4 percent) and service workers (-1 percent) fell. When rents are factored in, the difference is much greater. Post-rent wages for knowledge workers in San Jose grew by about 8 percent, while wages for blue-collar and service workers fell by about 20 percent. The sharp decreases in post-rent wages for blue-collar and service workers in San Jose was primarily driven by significant rent increases because rent is such a high percentage of income.

In some of the nation’s best performing metros, only knowledge workers have benefited from rapid economic growth, measured by large gains in the gross metro product (GMP). For example, San Jose, Raleigh, and Seattle all experienced strong GMP growth between about 60 percent and 75 percent over the past decade, double the average national GMP growth of 34 percent. This GMP growth was driven by large increases in knowledge worker employment of 32 percent to 44 percent, well above the overall knowledge worker growth of 6 percent in the metros we studied. The growth in high-wage workers drove up rents, causing a severe drop in post-rent wages for blue-collar and service workers.

Only 7 percent of metros experienced post-rent wage growth for blue-collar, knowledge, and service workers; 20 percent of metros experienced growth for two sectors

The post-rent wages of knowledge workers increased in 93 percent of the metros studied, while blue-collar and service workers’ post-rent wages only increased in 20 percent and 16 percent of metros, respectively. There were only two metros, Tucson, Ariz., and El Paso, Tex., where blue-collar or service wages increased and knowledge workers did not increase

None of the Midwest and West Coast metros we looked at had growth for more than one employment sectors. The metros that did experience growth in at least two sectors consist of smaller metros scattered throughout the East Coast and Southern states. Many of the metros with growth in multiple occupation categories are more affordable located in Southern states such as Texas, Oklahoma, Alabama, Arkansas, Louisiana and South Carolina.

Pricey coastal metros, such as San Francisco, Seattle, Boston and New York, only experienced post-rent wage growth for knowledge workers. Large rent increases in these metros consumed any minor wage increases made by blue-collar and service workers.

In the Midwest, on the other hand, rents remained relatively affordable and steady, but wages have been stagnant since the early-2000s, well before the Great Recession. This is due largely to the region’s historical reliance on manufacturing - since 2000, the region has lost 1.5 million manufacturing jobs, and experienced a decline in the manufacturing premium, the additional amount manufacturing workers make compared to service workers.

Although 83 percent of metros experienced overall post-rent wage growth, only 7 percent experienced inclusive wage growth

Only six metros experienced post-rent wage growth for blue-collar, knowledge and service workers. The metros that experienced inclusive wage growth were all moderate sized metros with relatively inexpensive rents.

Inflation adjusted rent growth in Rochester, N.Y., and Providence, R.I, was less than 1 percent, allowing blue-collar and service workers to keep their salary gains. Despite wage growth, Providence experienced a decrease in employment, with the overall workforce down 2.7 percent. This decrease was driven by an 18.5 percent decline in blue-collar employment, with largest decreases in production and transportation workers. Workers who remain in Providence experienced inclusive wage growth, but many lower wage blue-collar workers may have been pushed out of the metro.

While Tulsa and Oklahoma City both experienced significant rent growth over the past decade, their rents remain inexpensive at a monthly price of about $800. Lower rents allowed blue-collar and service workers to experience post-rent wage growth.

Charleston is the priciest city to achieve inclusive wage growth, with rents of about $1,030 a month, but across the board employment growth, including in the manufacturing and tourism sectors**, benefited blue-collar and service workers, rather than just knowledge workers.** Charleston’s GMP grew by 56 percent over the past decade, 20 percent above the national average, and this increased prosperity has been shared amongst workers in all sectors of the city’s economy.

About two-thirds of metros experienced post-rent wage gains for only knowledge workers, with post-rent wages falling for blue-collar and service workers

Nationwide, knowledge workers’ post-rent wages increased by 6 percent and decreased 5 percent for blue-collar workers and 7 percent for service workers. In some metros, knowledge workers post-rent wages increased by as much as 11 percent, while blue-collar and service workers experienced startling post-rent wage declines.

In metros with expensive and rising rents, blue-collar and service workers are particularly hard hit. For example, Seattle experienced post-rent wage increases of 6 percent for the overall workforce, driven by an 11 percent increase in post-rent wages for knowledge workers. Unfortunately, this wage growth was not distributed in an inclusive manner with both blue- collar (-9%) and service (-13%) workers’ post-rent wages declining significantly.

It’s not just coastal metros where knowledge workers made large gains, while blue-collar and service workers experienced significant decreases in post-rent wages. For example, in Raleigh, which is a part of North Carolina’s “Research Triangle,” knowledge workers post-rent wages increased by 11 percent while they fell by 10 percent for blue-collar workers and 6 percent for service workers. Rents in Raleigh increased about 10% over the past decade, while pre-rent wages fell for blue-collar (-4 percent) and service (1 percent) workers.

Overall post-rent wages decreased in 14 metros, while 4 metros experience post-rent wage declines for all three categories of workers

In addition to the growing wage gap between knowledge, blue-collar, and service workers, there is also a growing gap in overall wage growth between metros. For example, in San Antonio overall post-rent wages grew about 9 percent, while in Detroit they shrunk by about 8 percent. While some metros flourish, albeit in an unequal manner with gains primarily made by knowledge workers, entire metros stagnate. According to Richard Florida, the clustering of elite talent and businesses causes a few metros to grow and flourish, while other metros stagnate.

Detroit, Oxnard, Grand Rapids, and Columbus were the only metros that experienced post-rent wage declines for blue-collar, knowledge, and service workers. In Grand Rapids and Oxnard, the combination of moderate rent increases with stagnant and decreasing wages left all workers worse off than a decade ago. In Detroit, on the other hand, rents remained steady, while salaries fell across the board, causing an overall post-rent wage decline of about 8 percent.

In Columbus, despite across the board wage decreases, overall wages grew due to a large influx of knowledge workers. Over the past decade, the number of knowledge workers in Columbus grew by about 34 percent, with the share of knowledge workers increasing from 22 percent to 26 percent. Unlike other Ohio metros that experienced shrinking workforces and declining rents, Columbus experienced significant rent increases caused by a growing workforce. Rents rose more than wages, even for knowledge workers, but the Columbus economy is far from stagnant.

Some metros that experienced post-rent wage declines are metros where knowledge workers are clustering, causing extreme rent hikes. These metros are far from stagnant, but blue-collar and service workers are experiencing hardship due to rent rises that far outpace any wage gains. For example, in Austin, Tex., and Denver rents rose by about 25 percent over the past decade. While knowledge workers post-rent wages in Austin and Denver still increased by about 2 percent, blue-collar and service worker post-rent wages decreased about 10 percent.

The share of the workforce composed of knowledge workers grew 13% over the past decade in the metros studied

Service workers comprise the largest share of the economy in the metros we studied, and that share has remained constant. Compared to a decade ago, knowledge workers comprise a greater share of the workforce while blue-collar workers comprise a smaller share of the workforce. The increase in knowledge workers, at least in the more urban metros covered by our analysis, helps explain why overall wages have increased in many metros despite declining wages for blue-collar and service workers.

The share of the workforce comprised of blue-collar, knowledge, and service workers vary by metro. For example, El Paso (58 percent) and Las Vegas (56 percent) have the largest share of service workers, while Bakersfield, Calif., (41 percent) has the largest share of blue-collar workers due to the large farming industry. Knowledge workers are most concentrated in San Jose (41 percent), Washington, D.C. (38 percent), and Durham, N.C., (36 percent) which are hubs for technology, research, and politics respectively.

Total employment increased in 81 percent of metros, but blue-collar employment only increased in 32 percent of metros

The number or knowledge workers grew in almost every metro, only decreasing in Boise and New Orleans. Service worker employment grew in most metros as well, increasing in 85 percent of metros. blue-collar workers, on the other hand, only experience employment growth in 32 percent of metros.

Bakersfield, Memphis, and Baton Rouge were the only metros where the share of blue-collar workers grew. The other metros where overall blue-collar employment did grow, but the share of blue-collar workers declined, for example, Grand Rapids and Charlotte, were all metros with high overall employment growth. The share of the knowledge workers grew in every metro except Boise, with the most significant increases in Tampa, Seattle, and Portland.

Fifteen metros, primarily in the South and Midwest, experienced shrinking workforces over the past decade. Four Ohio metros -- Dayton, Toledo, Cleveland, and Akron -- experienced declines in employment. Southern metros including New Orleans (-7%) and Memphis (-3%) also experience decreasing employment.

Although overall post-rent wages increased in 83 percent of metros, our analysis of employment trends helps illustrate the fact that part of this increase is due to a shift in the workforce away from lower-wage (and wage growth) blue-collar jobs towards higher-wage (and wage growth) knowledge jobs.

Conclusion

Over the past decade, wages simultaneously grew for knowledge workers and stagnated for blue-collar and service workers. The combination of stagnant wages and rising rents left blue-collar and service workers worse off than a decade ago in most metros.

In some of the nation’s most expensive metros, such as Seattle, San Francisco, and New York, knowledge workers experienced significant post-rent wage gains while blue-collar and service workers in these metros experienced declines in post-rent wages. These flourishing metros must implement policies to better distribute economic growth as tech companies and knowledge workers cannot succeed without teachers, construction workers, and nurses, all workers being pushed out by expensive rents.

Unequal wage growth combined with rising rents has led to an increase in inequality between blue-collar, knowledge, and service workers. Although many metros continue to grow, only six managed to achieve post-rent wage growth for all three sectors of workers. As many low-wage workers struggle to pay the rent, policy solutions like increasing the affordable housing stock, improving worker pay, and using public transportation to connect urban centers more affordable suburbs remain critical.