Record Low Unemployment Across (Much of) the Bay Area, and the Delicate Policy Dance That Follows

The Bay Area economy has mostly had a good run since the dark days of the Great Recession (although the benefits have been uneven and not without their complications). For all the hype about the latest tech boom and the length of the current expansion, however, many key regional economic measures had not surpassed records set during the dot-com era nearly two decades ago. 

New data from the U.S. Bureau of Labor Statistics (via FRED) indicate this is starting to change, though. To wit: most key urbanized areas (or MSAs) in the region are at or near record low unemployment levels. As shown in the above chart, the seasonally adjusted unemployment rate in the San Francisco-Oakland-Hayward MSA is now at 2.8 percent, a level last seen during a heady pre-millennium stretch from July to December of 1999.  

The San Jose-Sunnyvale-Santa Clara MSA also tied its record low unemployment rate this past November at 2.7 percent, matching the previous record set in December 1999, as seen in the below interactive chart from FRED. 

The story is similar – with some important caveats – outside the region's largest employment and population centers. In the Napa and Santa Rosa MSAs, the respective November 2017 unemployment rates are extremely low in historical terms but still just off their December 1999 records, as shown below. In the Vallejo-Fairfield MSA, the unemployment rate is low but approximately a full point higher compared with other Bay Area MSAs, in addition to being just shy of its record – with the distinction that its record low unemployment rate was set nearly 30 years ago, all the way back in January 1990.

Policy Considerations if the Good Times Keep Going

First and foremost, it's important to remember this is mostly a good news story and a cause for celebration. But in the spirit of California Governor Jerry Brown's declaration last week that "[w]hat's out there is darkness, uncertainty," it's worth pondering some of the questions that current conditions raise for local, regional, state and federal policymakers. For example: Is there room for continued improvement? If so, how much room? How much longer can the good times last? And what does this data suggest by way of policy implications for housing, transportation, infrastructure and even immigration?

At the national level, the possibility of an infrastructure package is still notionally alive. With respect to immigration, debates continue over various comprehensive reform proposals (although it should be noted: whatever else results from these efforts, dramatically increased immigration is unlikely). At the local, regional and state level, there are many ongoing conversations viz a viz efforts to dramatically increase the housing supply in both the region and state as well as to pursue visionary Bay Area transportation investments for the 21st Century.

Labor and Housing Supply As Potential Constraints on Policy Progress

That the Bay Area is in the midst of a historic housing crisis, driven to a significant extent by decades of under-building housing, is generally accepted. As are the facts that commute times and congestion are getting worse. But current economic conditions increase the near- and medium-term complexities for policymakers when considering proposals that would, for example, entail significant increases in housing-, transportation- and infrastructure-related construction activity. 

For a region like the Bay Area, where the unemployment rate is already extremely low and the housing supply is already severely constrained, some key issues include:

• How many additional workers are needed to facilitate desired levels of increased housing and infrastructure construction?
• Where are these workers going to come from?
• Where are they going to live?

Of course, it's always possible that answers to these problems might arise in the form of dramatically increased labor or multifactor productivity, obviating the need for dramatic changes to the existing labor force. Barring that, though, more workers are going to be needed. In that case, under conditions where labor is scarce, solutions will have to arise through:

• Continued increases in the employment-population ratio; 
• Major re-allocations of labor across industry sectors;
• Substantially increased domestic migration, or;
• Substantially increased foreign immigration.

Just to name a few. For all of these, it's important to identify the mechanism which would facilitate these changes, whether higher wages or something else. Feasibility, likelihood and unanticipated downstream impacts are obvious considerations with respect to the first two items. With respect to the latter two, additional attention must be paid to the fact that any solution that results in large net inflows of workers to the Bay Area will make the region's ongoing housing crisis, and associated transportation impacts, even trickier to solve in the short- and medium-run.

Consider this all food for thought. These aren't normative questions of what counts as good or bad policy but positive questions of what, how and – most importantly – when, given constraints in the current economic environment.

CASA – The Committee to House the Bay Area

On the housing front, navigating these turbulent waters will be one of the primary aims of CASA – The Committee to House the Bay Area, which was convened by MTC and ABAG and brings together leaders from across the region. In the coming weeks and months, we'll be featuring CASA's work and thinking as they develop and seek to implement solutions to region's housing crisis. CASA's Technical Committee meets tomorrow, January 17, at 11 a.m. at the Bay Area Metro Center. View the agenda packet and livestream the meeting.

[Hat tip to @conorsen and @matthewyglesias for flagging the FRED data and asking the right questions.]