Your Salary Depends More on Where You Live Than on Your Résumé

Here is a question for you: Which large city pays computer scientists the most? As you might expect, computer scientists in San Jose and San Francisco, the country’s high-tech capitals, are the best paid in the nation (and the world). The average computer scientist in San Francisco and San Jose makes $130,000 annually. The same person in Boston or New York or Washington, D.C., would make 25 to 40 percent less.

 Here is another question: Which city pays lawyers the most? I must admit that I got this one wrong. Before looking at the data, I was expecting New York and Washington, D.C., to have the highest-paid lawyers in America. The image I had was of high-powered lawyers in $5,000 tailor-made suits brokering billion-dollar deals in the centers of finance and power. And although New York and Washington do have the largest number of lawyers among American cities, they do not have the highest-paid lawyers. Using data collected by the Census Bureau, I discovered that San Jose is the city where lawyers earn the most—an average of over $200,000 a year—and San Francisco is not too far down the list. Lawyers in cities at the other end of the spectrum—Albany, Buffalo, and Sacramento—tend to make less than half what lawyers earn in San Jose.

For waiters, the place to be is Las Vegas. A waiter in one of the city’s most luxurious restaurants can earn six figures. But even waiters working in normal establishments do well in Sin City. The typical waiter makes $18.20 an hour, tips included—the highest average hourly wage in any large metropolitan area. This is probably not too surprising: in one of the world’s preeminent adult entertainment destinations, Las Vegas waiters benefit from the generous tipping associated with gambling and other vices. The cities that come next on the list are more telling. San Francisco, Seattle, Boston, and Washington, D.C., are ranked numbers two through five. San Diego is number seven. Of the top ten cities for waiters, three are purely tourist destinations (Las Vegas, Orlando, and West Palm Beach) but seven are cities with a strong high-tech presence.

Remarkably, the same is true of other jobs, in both the traded and non-traded sectors. The ranking for industrial production managers is dominated by San Jose, Austin, Portland, San Francisco, Raleigh-Durham, and Seattle—all innovation hubs. For barbers and hairstylists, San Francisco, Boston, and Washington, D.C., are in the top five. These workers earn on average 40 percent more than their counterparts in Riverside and Detroit. For cooks, Boston tops the list, with an average yearly salary of $31,782, and Houston and San Antonio are at the bottom, at about $20,000. For architects, San Francisco leads the pack. If you detect a pattern here, you are right.

 In principle, the lawyers, hairstylists, and managers in Boston and San Francisco could just be better at their jobs than the ones in Houston, Riverside, and Detroit. Maybe they are more experienced, smarter, or more motivated. But the salary differences do not change all that much when we take into consideration work experience, level of education, or even IQ. The workers themselves aren’t that different; what is different is the local economy that surrounds them—especially the number of skilled workers.

Forty years ago, the rich areas in America were manufacturing capitals with an abundance of physical capital. Cleveland, Flint, and Detroit had significantly higher average incomes than Raleigh and Austin. Today human capital is the best predictor of high salaries both for individuals and for communities. Average income in Raleigh-Durham and Austin is significantly higher than in Cleveland, Flint, and Detroit. The presence of many college-educated residents changes the local economy in profound ways, affecting both the kinds of jobs available to residents and the productivity of all workers. In the end, this results in high wages not just for the skilled workers but also for workers with limited skills. This is the most surprising part of the story, and it deserves to be told in some detail.

The workforces in American communities have vastly different skill levels. Map 2 shows just how different. It displays the percent of workers in each metropolitan area with a college education or more. To obtain a precise measurement of the differences among metropolitan areas, I used data on 15.4 million workers between the ages of 25 and 60 living in 306 metropolitan areas from the American Community Survey, which is collected every year by the Census Bureau. The census defines metropolitan areas to include not just the political boundaries of a city but also its neighboring communities, to the extent that they are part of the same local labor market as suggested by commuting patterns. Thus metropolitan areas are economically integrated regions that include places where people tend to live and work. The New York metro area, for example, includes New York City and its suburbs in Long Island, New Jersey, Connecticut, and Westchester County. (Throughout this book, I use the terms city and metropolitan area interchangeably.)

The map shows marked regional differences in schooling levels: the Northeast and coastal California tend to have many more college graduates than cities in the South and the Midwest, for example. But even more interesting is the fact that within each region, and even within each state, there are enormous differences across cities. For example, the South and the Midwest have large clusters of college graduates in cities such as Atlanta and Denver, surrounded by areas with very few college graduates.

Imagine ranking American cities by the percentage of local workers with a college degree. Table 1 shows the large metropolitan areas that are at the top of such a list—America’s brain hubs. The table is dominated by several of the main innovation hubs—cities such as Washington, D.C., Boston, San Jose, Raleigh, San Francisco, Seattle, Austin, and Minneapolis—as well as smaller cities with large universities, such as Madison, Ann Arbor, Fort Collins–Loveland, and Lincoln. In these cities, almost half of the labor force is college-educated, and a significant fraction has a postgraduate degree. Portland, New York, and Denver are also in the top group.

 Table 2 shows the metropolitan areas that are at the bottom of the list. This group includes Vineland-Milville-Bridgetown, New Jersey; Yuma, Arizona; Flint, Michigan; and of course Visalia, the California community that we encountered at the beginning of this book. In these cities only one in ten workers has a college degree and there is virtually no high-tech presence.

The sheer size of the differences between American communities is staggering. Stamford, Connecticut, the city with the largest percentage of college-educated workers in the United States, has five times the number of college graduates per capita as the city at the bottom, Merced, California. This difference is enormous and much larger than the difference that we typically see in European countries. Indeed, it’s much larger than the difference in schooling levels between the United States and many developing countries, such as Sri Lanka (three times), Bolivia (three times), and Ghana (four times). It is not just the American-born residents that are creating this education gap. The majority of immigrants who settle in the first group tend to be highly educated professionals, while the majority of immigrants in the second group have low levels of schooling.

These facts are not just fodder for dinner-party conversations. Differences in educational levels are associated with huge differences in salary. The tables indicate that college graduates in brain hubs make between $70,000 and $80,000 a year, or about 50 percent more than college graduates in the bottom group. Compare San Jose, number five from the top, with Merced, at the very bottom. Both cities are in California, less than 100 miles apart, but their labor markets belong to two different universes. San Jose, in the heart of Silicon Valley, has more than four times the number of college graduates per capita as Merced and salaries that are 40 percent higher for college graduates and a whopping 130 percent higher for workers with a high school diploma.