Beyond the Median: A Comprehensive Analysis of San Jose's Economy

August 28, 2024

For Immediate Release

_The Local Analysis Fundamentals

The LISEP Local Analysis summarizes metro-specific data to offer a more accurate and detailed understanding of the economic well-being of middle- and working-class Americans in each MSA, including:

True Living Cost (TLC): A cost-of-living metric that estimates price changes for essential items (rent, food, childcare, transportation, medical costs, technology, and basic personal care) at the MSA level — the essential items low- and middle-income households spend the vast majority of their income on;
True Weekly Earnings (TWE): An estimate of TLC-adjusted median weekly earnings of all members of the workforce — including the part time and jobless who are seeking work;
True Rate of Unemployment Out of the Population (TRU OOP): A measure of the percentage of the population unable to find a full-time, non-poverty-wage job — the “functionally unemployed.”

The markets were then ranked using the TRU OOP and two additional measures calculated from the TWE and TLC specifically for the LISEP Local Analysis: the income remaining for a family supported by median earners¹ after meeting expenses, and the change in median worker spending power since 2005.

The San Jose MSA’s performance on these indicators was strong: Its 2022 TRU OOP of 42.2% was the second best among studied MSAs. Despite a 78.5% cost-of-living increase since 2005, with necessities for a family of four costing about $117,500, two median earners could theoretically bring home around $157,500 annually, leaving 25.4% of their income after essentials. That 114% rise in median earnings drove an overall rosy outlook for the San Jose MSA relative to other areas with more stagnant real wages.

Still, LISEP found from 2014 onward, the share of households unable to meet their basic needs hovered consistently in the 37% to 39% range — suggesting growth occurring at the median did not reach those who needed it most. Indeed, comparing the cost of living with the median wage is a strong starting point, but it tells very little about households bringing in substantially more or less than the typical income or the experience of households with different earning structures.

Analyzing household income from the American Community Survey (ACS)² reveals a stark contrast. While affluent families in 2022 were doing better than their 2005 counterparts, the same cannot be said for lower-income households. The burden of rising costs intensified for families with child-care responsibilities. While the San Jose market’s rising True Living Cost (TLC) exacerbates these challenges, the problem isn’t unique to that MSA — stagnant or uneven income growth coupled with rising costs is a nationwide issue affecting low- and middle-income families.

Beyond the Median Wage

While the median wage offers a snapshot of wage growth for the middle of the income spectrum, a more-complete picture emerges when tracking household incomes at different levels of relative financial well-being. To understand how economic conditions have evolved for households in various financial situations, LISEP analyzed ACS household income data by dividing households into groups based on family structure, then further divided each group into five income-based cohorts.

By analyzing changes in average household income within each cohort, we can gain insights into how economic conditions have impacted different segments of the population relative to their peers in previous years.

Graphic of households divided into groups based on family structure, then further divided into five income-based cohorts — Income Cohorts

The San Jose Paradox

While the San Jose MSA boasts strong overall economic performance, a deeper dive into the data reveals a stark disparity in experiences across income levels. While the region's median wage has grown significantly, this growth does not reflect the reality for a substantial portion of the population.

High-income households in 2022 could consistently expect to earn much more than their counterparts two decades earlier. But households in the lower cohorts were struggling to keep pace with rising costs — and due to low income growth, they were not much better equipped for that task than the households who faced that struggle nearly 20 years before.

The experience of two-earner households with children further highlights this issue. While middle- and upper-income cohorts shared in the area’s growth — with 2022 incomes 86% and 107% higher than similar households in 2005, respectively — lower-income households struggled to keep pace. The lowest-income cohort consistently fell below the TLC throughout the study period, while the next lowest cohort struggled to maintain a sufficient income buffer. Despite income growth rates of 64% and 68% respectively, these families were unable to outpace the nearly 80% rise in living costs for households with two adults and two children.

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San Jose MSA: Average Household Income by Cohort — Dual-Earner Household with Children

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Extra income made a difference in your ability to stay ahead of costs

The structure of households significantly impacts financial outcomes. Though not immune to economic pressures, two-earner couples have generally fared better than single-parent or one-earner households. The rising cost of childcare has exacerbated financial challenges for all families with children, hitting single parents especially hard.

While the lower-income cohort of two-earner families struggled but remained above water, single-income households fell below the cost of living, even with a non-earning partner eliminating the need for childcare expenses.

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San Jose MSA: Average Household Income by Cohort — Single-Earner, Dual-Headed Households with Children

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Single parents faced both challenges: even the upper-income cohort struggled to maintain a sufficient income buffer. Typical incomes for the middle- and lower-income cohorts fell well beneath the TLC.

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San Jose MSA: Average Household Income by Cohort — Single-Headed Households with Children

A Broader Perspective

While a deeper analysis of the San Jose market presents a picture of lower-income households failing to keep up with rising cost of living despite strong overall economic growth, it’s far from the only market area with these problems. Unsurprisingly, in other areas with high costs, such as Seattle-Tacoma-Bellevue, WA; Boston-Cambridge-Newton, MA-NH; and Denver-Aurora-Lakewood, CO, income growth was high for the median dual-earning household but inadequate for many others. This suggests that the economic challenges faced by lower-income residents are not unique to the San Jose market but rather reflect broader systemic issues. The rapid pace of economic growth in many metropolitan areas often coincides with deteriorating affordability and equity.

In particular, housing tends to be an outsized driver of unaffordability in markets with high cost of living increases. For a household with two adults and one child in San Jose, the 117% rise in rent costs was the steepest increase among TLC categories, while increases in food (99%), childcare (108%) and medical care (79%) further strained budgets. By 2022, housing represented 35% of a family’s necessities budget compared to 29% in 2005. Seattle, Portland and Denver exhibited a similar pattern. Areas with relatively moderate TLC increases were often hit hardest by food and medical care inflation instead. In Minneapolis-St. Paul-Bloomington, MN-WI, food costs inflated 121% since 2005, more than twice as fast as rent; in Dallas-Fort Worth-Arlington, TX, food (91%) and medical care (97%) also outpaced increases in housing costs (87%).³

To complicate matters, the line between moderate and sluggish growth is a fine one. Slower-growing markets, like Minneapolis-St. Paul and Dallas, couldn’t ensure success for everyone. Even with a comparatively modest increase of 57%, the Minneapolis MSA’s living costs caught up to one-earner couples with children in the middle-income cohort, whose 24% income growth provided little cushion. Among the Dallas MSA’s two-earner couples with children, income growth rates across the board met or exceeded the 64% increase in living cost — but that growth was not enough to move struggling households above the cost-of-living threshold. The lowest-income cohort stayed well below the TLC, and the lower-income cohort started and ended the period with living costs taking over three-fourths of their household incomes.

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Dallas MSA: Growth of Average Cohort Income (2005-2022) — Dual-Earner Household with Children

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Dallas MSA: Average Household Income by Cohort — Dual-Earner Household with Children

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While inadequate overall growth can worsen economic outcomes, regions experiencing rapid cost-of-living increases, like the San Jose MSA, may present a distorted picture of economic health. Income-based migration from these high-cost areas can artificially inflate the average wages measured from remaining residents, misleadingly suggesting compensation is keeping up with inflation for low- and middle-income cohorts. In contrast, areas with more-balanced growth may provide a clearer representation of overall economic well-being.

This data suggests a stagnant financial situation for San Jose MSA households with below-median income. However, if cost-induced migration is skewing the results, then that “stagnation” is actually hidden deterioration.

Conclusion

This analysis reveals a complex interplay of factors shaping economic outcomes for middle- and working-class households in the San Jose-Sunnyvale-Santa Clara MSA and other high-growth markets. While the region has experienced significant economic growth, the benefits have not resulted in more residents meeting their needs. Focusing solely on the experience at the median masks the disparities created when residents in the income brackets with the harshest cost pressures miss out on much-needed growth. This research underscores the need for a more nuanced understanding of economic well-being that extends beyond aggregate measures.

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