francisco and other areas over the past 40 years. naturally there will be jobs to support that population. and that's certainly true. suppt population. that is true. there has been a whole new neighborhoods with a retail- supporting areas and health-care and those things. but it is not only those industries where san francisco has lost its area of the regional total. in just about every other area, financial services, corporate headquarters, manufacturing, san francisco's share of the region has declined. it's not simply about customers moving away, these could be anywhere in the world. it's about san francisco's competitiveness as a job location relative to other places in the bay area that is changing. that a high-level but important finding.

i'm going to go in to a deeper look at the structure of the economy and the story is not as straightforward. some industries have done well and others have done less well and that has implications for many aspects of life in the city. it's helpful to think about how the private sector in san francisco works because different industries have different economic roles in this city. an industry like tourism, what that does is attracts people from outside the city to come to san francisco and spend money. the net effect of that is a net injection of in come into the city. there are other industries that we call creative industries that are high level services that sell media products in which creativity plays a strong role. those industries sell their

products and information outside of san francisco and export their services and effectively bring in come into the city. third, financial and professional services, although they work somewhat differently, it also has the effect of bringing in come into san francisco because may be headquarters is your and its supported by eight operations in other parts of the city. all three of these industries are competing for a consumer dollar outside of san francisco. their competitors are located outside of san francisco and part of how they compete is the trade-off of the benefits they get by being in san francisco vs. the cost of being in san francisco just as their competitors in texas or wherever are facing the same sorts of trade offs. the industry's at the bottom

predominately sell to customers and san francisco. they are circulating the and come to top levels of fraud and and their customers are local. they have a different set of competitive challenges. the key point is the city's economy as a whole and the local serving industries in particular are highly dependent on the success of these industries on the top level. they are bringing in come into the city. in the interest of making a readable and black and white i may not have made a readable in color. the average annual growth in the creative sector -- supervisor cohen: those three top bubbles up there -- that represents the big top of the

city jobs and the rest -- >> yes. if you look back 10 years, when we have had recessions in san francisco, it's the growth in the creative industry and visitor industries that pulled us out of the recession. they grew first and they are pulling the local sector of the economy forward. when that upswing went down in 2008 and we had the start of the recession we are currently in, those industries went down first and local industries or more successful. when we went into recession, the local industries suffered the most. in 2010, the creative industries and disaster industries were showing growth while local industries were showing a decline. these industries are seen

together in one the city economy but the ones driving the change are competing in markets outside of san francisco and bringing the income in or not selling it in as they're doing badly. i want to talk now about how these different sectors of the economy have been doing competitively. these charts offs are a device to simply see how different industries are performing competitively. each type represents a bubble and each sizes the number of jobs. the board to the right they are is how fast they have been growing in the past business cycle. toch where they are on the vertical access is san francisco's concentration in those industries or do we have a

lot of those jobs for a city our size. the best place and industry can be is in the upper right where we have a lot of them and they have been growing. that is where creative industries this, industries like design, consulting, at internet- based industries and architecture, media industries. those have been doing very well in san francisco from the bottom of the last recession to the bottom of this recession. the visitor industry is the same way. we have a lot of concentration and a decent amount of growth there. for a financial and professional, the corporate service industries, it is a strength but we have seen a slight decline during the last business cycle and its growth has not kept up. supervisor cohen: is there any indication of what the

constraints are for the financial-services? for what reason are not going -- not growing? >> i don't know if there is a simple story for that. it is banking and financial services that have not been growing in san francisco, that have been shedding jobs for a couple decades. the parts of the business closer to technology seem to be doing better. supervisor mar: san francisco used to be one of the key financial centers of the west coast. where would they be going? >> there has been a lot of concentration in financial services globally and to a few key global centers. you have seen over the last tender 20 years the emergence of london, new york city, a tokyo, emerging centers in asia and the middle east that are both consolidating existing

businesses into a gigantic conglomerations and tapping into new sources of wealth and growth. supervisor mar: for manufacturing, is it also china? >> i cannot speak to have much financial services is growing and china. there is certainly a lot of financial services taking place in china. by andrew standing of the west coast is that lars angela -- my understanding of the west coast is that los angeles has surpassed san francisco but is not the size of new york or london in terms of financial services. i apologize for not knowing more about that specific industry but it is my understanding that san francisco is not quite big enough to be a major global financial center and got caught in a process in which the leaders surged ahead.

a very important part of this story is how the local serving sector has performed relative to the others. i showed you the chart that says that they move in sync but they don't move at the same rate overtime. we have seen absolute job losses from the last recession to this recession in this group of industries and we have relatively little employment for a city of our size. supervisor cohen: can you give an example of what local industries we're talking about? >> the biggest is a trade and i will have a breakdown in a moment. there are a range of industries -- let's go back to this one. health-care, personal services, retail trade, wholesale trade,

construction, manufacturing, communications services. there is relatively little variation in that overall story and it is a troubling one for a lot of reasons. here is how the creative industries and the different industries within creative breakout in terms of the conference we were looking at before. by march, all of these industries are doing well. it's only the traditional media and architecture that have lost jobs during the last business cycle. traditional media is having well known trouble everywhere. architecture is tied to construction which has had a very bad recession. high-tech manufacturing is an emerging industry in san francisco. we don't have much but it is growing rapidly and that another creative industry. when we look at financial and professional services, this is

telling the story i was alluding to. banking and insurance have lost jobs in the past five or so years, but industries like law and industry and professional services like accounting and corporate headquarters are showing decent growth. his putting his cluster in two things. in the tourism-related industries, the biggest component by far is restaurants and bars. that has been a strong growth sector in san francisco for a number of years. we also have a lot of growth in museums and other industries, accommodations and performing arts, they are not seeing the

same level of growth as others. let's go on to local-serving because i think there is quite a story here. the two biggest segments are retail trade in san francisco and health-care. i would not worry much about the low concentration of health- care because we are not covering public's emptor health-care -- public-sector health care. but the fact that we have only 70% of the retail jobs at a typical city of our size has is a concern. manufacturing has lost a significant amount of employment in san francisco since 2004. wholesale trade, transportation, construction, a number of industries have been fairly poorly.

only professional services -- i'm sorry, personal services like laundromats and beauty salons are showing signs of growth and that's probably because our population has grown. we have a situation in which three industries are doing pretty well and one of them is it not doing well. this has implications for the work force and types of jobs that are in san francisco. to illustrate that, we looked at the occupations that are held by businesses and we broke the mouth by the wages they pay in san francisco and the education they require. we broke it down into nine categories. just to hit the highlights of this -- in the creative industry, it is a rapid source of job growth but the majority of jobs are high-wage jobs for

people with more than a four- year degree. about 50% of san francisco adult have a four-year degree and 50% don't. when we see industries that -- 81% of the jobs in this sector require a four-year plus education. that is not in balance with the skills and labor supply of the city as a whole. the experience industries are on the other side of it. 61% of those jobs pay lower than $17.50 an hour. that puts most households have about 50% of an emi, which is at the top of the very low-income category. that is quite a low wage in san francisco. a majority of the jobs here do not require a four-year degree.

we have one rapidly growing industry with a lot of high wage and high skill jobs and one with a lot of low-skilled jobs. financial-services has more opportunities for people without a four-year degree below 70% of the jobs require a four-year degree. it's in the local serving sector of the economy where the overall job growth has been weakest and you have the most low and medium education jobs and the median wage jobs. it is a concern and it will have demographic implications as i will share in a moment, the kind of an unbalanced performance of our economy is affecting the kinds of jobs we have and the kinds of workers who lived in san francisco. let me jump ahead to this chart.

i shared with this committee a few months ago talking about housing. this is the changes in the city's income. we have had a lot of growth in the very low and low-income population since 1990. we have seen a decent income and over median and stagnation or decline in the three categories in the middle. i don't think it's a coincidence that the types of jobs were hosting in the city are growing at the ends and our populations are growing at the ends and not in the middle. this is reinforcing a pattern of increased inequality in the city that comes from the labour market and comes from which industries are able to succeed and be competitive in san francisco and which cannot. let me turn to some barriers to business and offer some

explanation for why some businesses may or may not be able to grow in san francisco. i'm going to focus on three areas -- labor costs, cost for space for real-estate and their taxes. in terms of labor cost, i deal with this first because it is the biggest share of most businesses in our knowledge and service-based economy. the biggest share is in labor. san francisco in general, wages are higher here than they are elsewhere and significantly higher than the north bay. depending on the industry, they may be more or less than the south bay bill. on average, they are about 8% higher in san francisco than

elsewhere. that can make a significant difference to businesses that hope are forced to pay more for being in one area rather than another. why is that? why are there differences in labor costs in the bay area? for many businesses, it's relatively easy to relocate in the bay area and take advantage of these opportunities. a major reason is housing costs. most households, the single biggest expense is housing costs. san francisco, since the housing crash, has the most expensive housing in the bay area. because our housing has fallen by less than it has another places, we are the number one housing costs area in the region and that helps to contribute to the high labor

costs. this chart looks at housing affordability before and after the crash. the top line is not a place where we complete -- were we compete but its illustrative of what happening in other parts of the state. the chart shows how much of an average house could of average household for. but in the late 1990's, housing was reasonably cheap. during the house and run up, even though a ton of housing was built, must have -- the price kept going up, so what people could afford went down. when the bubble burst in 2006, and they were early in solano county, housing started to decline rapidly. so that they can afford more

than three times the typical house in cent -- in solano county. to some extent, that's true and all the suburban counties around san francisco. in san francisco, the amount was much more muted. four people could afford 100% of what a three-bedroom cost. was a nice match between income and housing prices. as the bubble took off, the amount of house that household afford went down and down until you could only afford half the price of a three-bedroom house. we have gotten some relief as housing prices have cooled off but not nearly as much as other parts of the region. yes, we have had a housing price correction and it does help wages, but relative to the rest of the bay area, we are in a

worse position. while you would hate to be solano county right now and dealing with over speculative building, for the next 10 years or more they will have fairly affordable housing compared to other places and that will make them attractive to businesses and a way they have not been in the past. that is one category of cost difference that is important. a second is commercial rent. this chart shows how commercial rent has behaved over the last several years. generally, san francisco is the most expensive. we are about 10% more expensive than the rest of the bay area and that goes to another disincentive for businesses to expand in san francisco relative to other parts of the bay area.

the third we looked at his business taxes. business taxes are third for a reason. we seem to have the highest business tax burden in the bay area, but when you look at the differences of tax payments verses what date paid in labor or office space, there is no comparison. supervisor cohen: are you specifically talking about payroll tax only? >> yes. it is true that businesses pay a lot of other taxes, but this is just comparing our payroll tax which is what is generally a gross receipts tax. those are three cost factors -- housing price, labour, office space differences and taxes. it creates a situation within

which there are substantial cost differences being in san francisco and other places. it is important that the city make decisions and these are relatable to policy decisions this city makes. be mindful of the economic development strategy and having a more balanced process of economic growth across the city. industries like technology are able to succeed despite the high labor costs. there is some information that labor costs are actually lower here than they are in santa clara. but that is not generally true. let me give you an example i ran of a hardware store with 18 employees. what would they paid in wages, office space and taxes if they were in five cities in the bay area.

san francisco has the highest labor. the office space is also the highest, those not nearly as basic a cost expense. but by the time you are dealing with office space and labor, the taxes hardly matter. that is an example of the magnitude of difference we're talking about. for a large law firm, san francisco is more expensive but it is comparable to the south bay. just to kind of conclude what we have looked at with the barriers to growth, on average, a business tends to pay more if they are closer to san francisco and that discourages job growth and that results to housing, commercial real-estate and

taxes. the industries that seem to be most affected are the local serving industries which can suffer because of leakage of sales or businesses moving out and serving customers directly into san francisco. these are three areas of concern and it's just the beginning of the analysis we're doing on business that will form a strategy in the months to come. i'm happy to answer any further questions. supervisor mar: you kind of quantified the barriers. how huge is the housing cost compared to the payroll tax barrier? >> the labor cost different as a whole as 8% across the bay area. the payroll tax is a 1.5% cost

on payroll. one way to look at it is is as bad as five payroll taxes. not that payroll taxes bad and housing and labor costs are five times that. i hate the charts show fairly clearly -- what is ironic about the hardware store is that it does make a difference but for most places, it's not the hardware store that makes things more expensive. but these factors to combine to have that effect. thank you for the presentation. >> as i mentioned in the outset, we see this as the completion of the phase one findings as the foundation for the conversation which is coming, which will be

the update to the recommendations and strategies and recommend actions. what i want to do is preview some of the next steps. we will be following this with outreach meetings over the next month into june with industry groups, community organization and labor organizations, and the like. we will incorporate that feedback and have a similar presentation and discuss the feedback and ideas and thoughts and answer questions you may have as part of that. the second thing we're working on is the business barriers survey. this asks questions of businesses, what are things that affect your ability to do business, are you going to expand?

those answers will be incorporated into the final update to the strategy. we are also using the meetings as a way to encourage people so they may be encouraged to respond to the survey which will be administered online. we would love to comeback to you and present the results of the business barriers survey and present results we have been getting later this summer. we would also like to use this hearing as an opportunity to brief you on some of the work we've been doing related to the recommended actions inc. in the original economic strategy to give a baseline of what staff is working to do with these issues. finally, the key piece of phase two is the recommended actions for the strategy. what we will be doing is taking the phase one analysis and the

results of the business barrier survey as well as this committee is the back to build the recommended actions as part of phase two. we will take the recommended actions and work with city departments through internal meetings and elicit their feedback and work with among areas that touched the other areas. there are many things we do work on and many of the things we don't work on and that's why we're working closely with other departments. we would like to present in the fall the complete report to the commission which incorporates all this as well as to the full board for adoption. with that, i am happy to answer any questions you have. supervisor mar: for