District’s labor market and workforce are intertwined with Maryland and Virginia

In 2014, nearly 774,000 workers reported working in the District of Columbia and they collectively earned $63.5 billion in wages and salaries. Of these workers, only 251,000 or 32 percent were District residents. The remainder were commuters from Virginia or Maryland, accounting for 68 percent of people employed in our city. The District’s share in total wages earned was even lower: District residents accounted for $18 billion of salaries and wages earned in the District. This is about 28 percent of all wages and salaries earned in the city.

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In addition 89,000 District residents reverse-commuted to Virginia and Maryland, mostly working for private entities (76 percent including non-profits) and the federal government. This group collectively earned $6 billion in wages, compared to the $45 billion Maryland and Virginia commuters earned in the District.

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The data reveal other trends. District residents who work in the District hold a disproportionate share of the lower-paying jobs: 44 percent of jobs that pay a wage of $30K or less are held by DC residents, compared to 32 percent of all jobs in the District. Virginia residents, on the other hand, tend to hold a larger proportion of higher paying jobs: 28 percent of jobs in the District and nearly 40 percent of all jobs that pay $100K or more.

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The data also show that District residents dominate employment in the non-profit sector, one of the lowest paying sectors in the District.  Commuters from Virginia and Maryland, on the other hand, typically come to the District to work in the private sector and the federal government.

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District’s labor market and workforce are tied deeply with those of Maryland and Virginia. If salaries are any indicators, the most educated and productive residents of our neighboring jurisdictions work in the District. In 2014, District residents who worked in the District reported wage earnings of $63,700 compared to $69,400 for commuters from Maryland, and nearly $95,000 for commuters from Virginia. But even within the same sector, District resident’s wages could be low: In the non-profit sector, District residents earned, on average, $68,500 in wages—13 percent less than Maryland workers and 20 percent less than VA workers.

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Here are the data, in greater detail, for you to explore:

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What exactly is this data?

The data is from the single-years PUMS release from American Community Survey for 2014. The analysis was done in SAS, and SAS files are available from the author.

Little evidence of the gig economy in the District

Much has been written about those who work in the “gig economy” (see here, and here), and those of us who try to count them. The term itself, however, is hard to define. Some think of the gig economy as work contingent on demand. Others include an element of technology that connects workers with potential sources of income.

A recent Government Accountability Office study offers various definitions, the narrowest of which produces an estimate of 7.9 percent of the workforce in the gig sector in 2010. But this group includes temps, on-call workers, and contractors: jobs that have been around forever.  Senator Mark Warner, in his recent op-ed at the Washington Post, cites that study (although the Post inadvertently links to a different report from 2000) to conclude that one-third of the U.S. labor force could be in the gig sector, and that these gig-workers “now find themselves piecing together two, three or more on-demand work opportunities to make a living” [emphasis added]. While it is true that the broadest of the GAO definitions produces an estimate of 40 percent of the workforce gigging, there is nothing new about these work arrangements GAO includes in the broad definition: independent contractors, self-employed individuals, and even part-time workers.  These work arrangements existed long before Uber opened for business.

There are good reasons to try to get a better handle on the gig economy. In the gig sector, the types of risks we typically think of as business risk—e.g., lack of customers because of bad weather, sick workers—become the worker’s problem. To be sure, even before the gig revolution, some sectors of the economy worked just like that. Cab drivers, for instance, never had much in the way of benefits such as healthcare, a pension, paid holidays or even sick days. It is no surprise that much of the gig work is beginning in sectors where workers, such as drivers, handymen, and baby-sitters, already took large risks.

The evidence that piecemeal work is replacing traditional employment in the United States is scant.  So we wondered: how about the District?  We ran into the same definitional problems about the gig economy when looking at the District’s data, but we decided to focus on the self-employed, specifically, those who characterize themselves as “self-employed in an unincorporated business they own.” For laymen, those are the people who pick up contract work, get a 1099 from the IRS at the end of the year, and pay self-employment taxes. The Bureau of Labor Statistics and the U.S. Census differentiate between the 1099’ers and self-employed who actually own a business that receives the monies for the services rendered, and in return pays a salary to the business owner, with proper deductions for social security and Medicaid. (This Pew piece on the characteristics of the self-employed provides a much more detailed explanation of the term).

We first look at the number of District taxpayers who have paid self-employment taxes. The data show that the total number of people who pay self-employment taxes has increased in the District from 35,000 in 2006 to nearly 49,000 in 2014. This is a very steep increase (36 percent overall and nearly 4.5 percent annualized) even when compared to the relatively rapid increase in the District’s population and tax filers (tax filers grew at about 2 percent per year during the same period).  But data show that the rapid increase in the number of filers who paid self-employment taxes occurred before 2010. In fact, since 2010, the share of tax filers who pay self-employment taxes has been stable at about 14 percent.

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So why did the District see such a rapid expansion in reported self-employment? This, we suspect, has less to do with changes in the underlying economy and more to do with changes in tax policy. Beginning in 2002, the District started offering Earned Income Tax Credits, first at 10 percent of the federal credit, and by 2009, at 40 percent of the federal credit (one of the most generous such programs in the nation).  The credit targets low income families and single parents with children, and the key recipients of this benefit are those who file as head of households.

Since the policy changes began, both the number and the share of heads of households who pay self-employment taxes has increased.  In 2006, only 7 percent of filers who paid self-employment taxes were heads of households.  In 2010—one year after the benefits maxed at 40 percent of federal credit—this share doubled to 14 percent, and then reached 17 percent in 2012. During the same period, there were no significant changes in the share of singles or married filers who reported self-employment income.

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One might say that tax data is not the best measure of the gig economy because it captures all taxpayers who pay self-employment income. In the District, for instance, a government employee who teaches a class at a college, or a professor who writes a paper for a non-profit, would all receive a 1099 and pay self-employment taxes. So the data are noisy, mixing moonlighters with the gig-workers.

So let’s turn to the American Community Survey, which inquires about the employment status of workers. Here we present data on District residents who characterize themselves as self-employed. And, surprisingly enough, we see a decline, both in levels and in shares.  In 2014, only 13,100 residents—2.4 percent of District residents older than 16—claimed to be mainly self-employed, down from the post-recession peak of nearly 18,000 self-employed residents (or 3.4 percent of those over the age of 16).  Self-employed persons increased slightly in the District during the recession, but since 2012—the time when resident employment really began to increase—self-employment has gone down.

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In 2014, the self-employed in the District made up about 5 percent of total resident employment.  This figure has been relatively stable, except for 2012. Self-employment income has likewise been rather stable at 3 percent of personal income. District residents who are self-employed routinely generate about 70 percent of their income from their self-employment work.

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Incidentally, the District’s self-employed residents—just like its employed residents—are better educated than those elsewhere in the United States. Nearly 60 percent of District’s self-employed have a graduate or a professional degree (compared to only 13 percent across the United States), and fewer than one in five completed schooling only up to high school (compared to 36 percent in the country as a whole).

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Is it possible that the data are not capturing the gig economy? We can think of two reasons—one relatively unique to the District, and the other more general.

  1. It is possible that the District’s gig workers—the Uber drivers, the Amazon flex folks, the Taskrabbits—are not District residents, just like the many District workers who receive minimum wage do not live in the District.
  2. It is possible that some workers do not fully report their income because they do not realize that they must report earnings from Etsy, Sittercity, or airbnb.

It matters to us to measure the gig economy correctly because we need to be able to track the changes in the District’s economy and understand how work activities connect to incomes. We plan to dig a bit deeper, looking at who might be the gig workers in the District and what types of jobs they hold.

What exactly is this data? 

Data on the number of people paying self-employment taxes in the District by tax filer type is from the IRS (2013 data set is now public). Data on class of worker are from various years of ACS. DC data on self-employment has error terms of +/- 0.5 percent to +/- 0.7 percent depending on the year (or about 2,000 workers).

For more than three years now, District’s resident employment has grown faster than the jobs in the city

There are two ways to count jobs when it comes to the District of Columbia:  the number of jobs District residents hold in the city or elsewhere or the number of jobs in the city whether District residents or commuters hold these jobs.

The U.S. Bureau of Labor Statistics counts both: in the 12-month period that ended June, 354,055 District residents held jobs (on average) and there were 759,667 jobs located in the District. It is not surprising that there are far fewer employed D.C. residents than jobs: as the central city of a large metropolitan area, the District holds almost a quarter of the region’s jobs but only about ten percent of its population. Indeed, there are more jobs located in D.C. than the city’s entire population. This makes it particularly noteworthy that over the past three and a half years, resident employment in D.C. has been increasing much more rapidly than the city’s job base.

From December 2011 to June 2015, resident employment not only increased by a greater percentage (12.3 percentage v 4.6 percentage) than D.C.’s job base, but by more in absolute numbers—38,900 more resident jobs versus 33,500 more jobs located in DC.image020

In the years leading up to December 2011, resident employment, and the job base grew at about the same rate, even allowing for the downturns in the recession. Thus, from June 2005 to December 2011 the job base grew 7 percent and resident employment 7.9 percent (representing average annual growth of 1.0 percent and 1.2 percent, respectively). Resident employment then began to grow faster. In December 2011, for every 1000 jobs located in the District, we had 434 employed residents (in the city or elsewhere); by June 2015, number of employed residents for 1000 jobs located in the city had risen to 465. This number did not grow because there were fewer jobs in the District. On the contrary, jobs in the District have been growing faster than before at 1.4 percent. However, resident employment has been growing much faster at 3.8 percent.

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What accounts for this?

One factor that has allowed the District’s resident employment grow faster than the city’s job base over the past three and a half years is demographics. Not only did the population grow faster in the recent period (2.0 percent annual rate versus the earlier 1.4 percent), but also more of these newcomers are willing to work, and are able to find jobs .

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But three other factors that could be at play. First, it could be that the newcomers to the city are taking jobs that are vacated by commuters who have moved or retired. We have showed earlier that the top reason why people move to the District is jobs. If these newcomers are taking jobs vacated by turnover (retirement or any other reason) they will increase resident employment but not the total number of jobs in the District.

Second, newcomers might choose to locate in the city even when they hold jobs in the suburbs. About 27 percent of D.C.’s employed residents were reverse commuters  at the time of the 2010 Census, and more of this may be occurring. Thus, the net increase in jobs located in DC need not define how much resident employment can grow.

There is a third, and rather underexplored, reason: self-employment. For example, a District resident who is working as an Uber driver would be reported as employed in a household survey. But the Bureau of Labor Statistics, which does not collect data from self-employed persons (they survey employers only), would miss this person in its counting of jobs located in the District.

Is there is a limit to how long resident employment can continue to grow so much faster than jobs located in the city? There is no clear answer. Over the past 30 years, however, the ratio of resident employment to wage and salary jobs located in the District has never been higher than 47.8 percent (in 1985, a time when DC had 17 percent of the region’s population, 33.6 percent of the region’s jobs, and had more people living in the city than working in it). At 46.5 percent we are not far away from this number, but suburbs were less important back then, both in how many workers they could send into the city, but also in terms of how many jobs they can give back to us.

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What exactly is this data?  

Each month the U.S. Bureau of Labor Statistics conducts two economic surveys that provide insight into the dynamics of D.C.’s economy. The first, a survey of employers of wage and salary jobs, measures the number of people working in DC regardless of where they live. The second, a household survey of residents, measures labor force characteristics including the number of DC residents who are employed regardless of the jurisdiction in which their job is located.

The federal government is a stabilizing factor in the District’s economy, but its role is getting smaller

In March of 2015, for the first time since September 2011, the number of federal civilian employees working in the District showed an increase. If this is the end of a three year contraction in the federal employment, it is a modest one: the net increase was only 1,100 or 0.6 percent over the first quarter of 2014.

Looking back, fluctuations in federal jobs have been associated with major developments in the District’s economy. For example, federal cutbacks contributed to the conditions surrounding the establishment of the DC Control Board in 1995. More federal jobs helped the city cope with the aftermath of the 9/11 attacks and the Great Recession that began at the end of 2007. The recent loss of federal jobs appears, however, to have had only a moderate impact on the District’s economy, as total employment in DC rose by 33,634 over that period.image002

Three reasons help to explain DC’s economic resilience in spite of declining federal employment:

First, District’s private sector is growing in strength and diversity. Over the last 25 years, there has been a shift in DC’s labor market toward the private sector, a shift stronger in jobs than in earnings. From 1990 to 2015, DC lost 22,165 federal jobs (a 10.1 percent decline) while the private sector added 115,000 (a 28.3 percent gain). Adjusted for inflation, over that time federal wages and salaries grew 31.6 percent while the private sector wage and salaries grew 70.6percent, more than twice as fast. image004Looking back even further, to the period of federal cutbacks in the 1990s, we see an even more dramatic shift: From the second quarter of 1993 to the second quarter of 1999, DC lost 50,134 federal jobs, but the private sector gains during the same period offset only a third of this loss with a gain of 18,000 jobs. From 2011.3 to 2014.4, by contrast, the 49,200 gain in private sector jobs was about 3 times greater than the 16,166 federal jobs that were lost. About one-third of the new private sector jobs occurred in education, but increases occurred in a number of other sectors as well.

One thing to watch out is the difference in federal and private sector wages. Most private sector jobs that replace federal jobs pay much less, and if this trend continues, it will have implications on the type of workers and residents the District attracts.

Second, forces currently driving DC’s economy are less dependent on net growth of jobs located in DC. Starting in 2006, the year before the onset of the Great Recession, DC’s population started to increase, and from 2009 to 2014 it increased by 66,665 (11.3 percent). This increased attraction of the District of Columbia as a place to live has affected the economy in a number of ways, and the one most relevant here is that resident employment has been increasing more rapidly than the number of jobs located in DC.image006image008

This can occur for several reasons: more residents working outside of DC, more residents holding higher paying jobs, residents taking jobs of commuters who retire or otherwise leave, or residents working for themselves or as independent contractors.

Third, federal contracting possibly fuels some of the strength in the District’s private sector. In recent years, federal government expenditures for non-defense programs have shifted toward greater reliance on purchases of goods and services rather than compensation of employees. The change was particularly great starting around 2000; from 2000 to 2014, federal purchases went up 153 percent, compensation by 91 percent. The increase in purchases of services was particularly strong, tripling between 2000 and 2010 before tailing off a bit. Data on such purchases from DC’s private sector are not available, but a pattern here similar to the national one would help to explain some of the rapid growth of professional and technical services in DC. Agencies are more likely to contract with businesses or professionals in close proximity. Indeed, employment in professional and technical services increased 54 from the first quarter of 2000 to the last quarter of 2014—this is almost double the 28.4 percent pace for employment growth in all of DC’s private sector.image010

The recent decline in federal employment may not have upended the District’s economy, but the federal sector remains a vital component of the District’s economy. Federal spending accounts for 26.1 percent of all jobs in DC, 31.1 percent of all wages, and is a source of contracts for DC’s private sector. What happens with federal spending will therefore have considerable influence on the future growth in DC’s economy. If federal spending remains flat or declines, the rate of growth in employment and earnings generated by the District’s economy will depend on how the private sector performs. DC growth rates then could approach or surpass the US only if DC’s private sector outperforms the nation as a whole. For most of the past 3 1/2 years, DC’s private sector employment actually grew faster than the US average, but it has been below it for the past three quarters. Wage and salary growth in DC has been about the same as the US average.

Increases in federal employment and earnings were important for DC’s economy in recovering from the recession in 1990, the 9/11 attacks and recession in 2001, and, of course, the Great Recession from 2007 to 2011.3. Thus, the federal government’s stabilizing role will likely remain important for the District’s economy in the coming years.

You can find more on this topic in our most recent Monthly Economic and Revenue trends report.

 What exactly is this data? Employment data is from Bureau of Labor Statistics, and wage data is from the Bureau of Economic Analysis. Totals for jobs and wages include state and local government. DC resident wages and salaries estimated by the Office of Revenue Analysis, assuming wage and salary supplements are the same % for DC resident wages as for wages earned in DC. Detail may not add due to rounding. Government consumption data is from NIPA Table 3.10.5. Government Consumption Expenditures and General Government Gross, also from the Bureau of Economic Analysis, last revised on April 29, 2015.