Why Inequality in San Francisco Is a Difficult Thing to Measure

Yes, San Francisco has greater inequality than Detroit. But it also boasts higher employment and social mobility.
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Downtown San Francisco (Photo: Roberto Ventre/Flickr)

Downtown San Francisco (Photo: Roberto Ventre/Flickr)

The story often told about San Francisco is one of increasing inequality and despair. But while it is indeed true that San Francisco is one of the most financially unequal cities in America, it also has the highest social mobility and a below average unemployment rate. Inequality, in other words, can be somewhat deceiving.

In this way, financial equality can be a misleading metric. Detroit, for instance, is a much more financially equal place, as measured by the Gini co-efficient, but has an unemployment rate three times higher than San Francisco as of December 2014 (four percent vs. 12 percent).

Silicon Valley has the highest percentage of children born into the lowest economic quintile making their way to the top of the economic ladder.

That is in large part because San Francisco is the tech capital of America. Economists generally support the notion that tech is uniquely good for local jobs. University of California-Berkeley economist Enrico Moretti, for example, finds that one tech job creates five additional non-tech jobs; by that same metric, manufacturing creates just two jobs.

Moretti is not alone in his findings, either. “The tech sector is responsible for the vast majority of the economic growth in San Francisco since 2010,” San Francisco’s chief economist, Ted Eagen, once told me. “In 2010-2012, the latest year we have complete data, local inflation has been 2.6 percent, while wages for all workers have increased by 4.5 percent.”

Indeed, Twitter's IPO alone created 1,600 new millionaires. And, the argument goes, those Twitter employees spend their money at gyms, grocery stores, and all those clothing shops popping up to serve this new(ish) tech community.

San Francisco has been good for economic mobility too. According to a database from Harvard economist Raj Chetty, Silicon Valley has the highest percentage—12, to be exact—of children born into the lowest economic quintile making their way to the top of the economic ladder.

Sure, there are downsides. The city has one of the most complex housing regulation systems in the country, causing a severe shortage; just 14 percent of homes are affordable to the median income family. To meet the growing demand amid crushing regulation, developers are cramming apartments into buildings, with studios smaller than 400 square feet. Very few people can afford to live in San Francisco, and the future housing conditions are not exactly enviable.

Detroit, on the other hand, has homes that are extremely affordable—if not necessarily enviable: Some old homes are being auctioned off for as little as $1,000. The catch, of course, is that there aren't as many people jumping to live in Detroit, and fewer job opportunities for those would-be homeowners.

On the surface, Detroit, by some of the metrics often used to describe San Francisco, has quite the pleasant economy: financial equality and housing affordability. This is not to say that San Francisco is perfect, nor that inequality isn't a problem. But, when measuring the economic vitality of a city, it's important to use numbers that actually describe people's lives.