Scott GabrielIn this post I’ll use the BLS employment data from my last post to do a more thorough comparison of Lancaster’s economy to those of other Pennsylvania metro areas with a specific focus on comparing the Lancaster metro to the Montgomery-Bucks-Chester (which I will refer to as Chester for simplicity) county metro area. I will also layer in housing price data from Zillow to get a better understanding of the cost of living in the metro areas. Throughout the post, I’ll explore the question of whether Lancaster County can become a tech hub. Unless otherwise noted, the analysis will be based on 2016 BLS data and 2017 Zillow data.
There are several reasons for the specific focus on Lancaster and Chester county. The first is based on proximity—Chester County borders Lancaster County to the east and it is about a 1-hour drive to get from Lancaster City to West Chester, the county seat of Chester County. The second is that I’ve heard anecdotal stories suggesting that you can get a much higher salary in Chester. In fact, I’ve heard the claim that a tech worker can expect a 40% salary cut if they choose to work in Lancaster County instead of Chester County. Lastly, in a 2015 talk about making Lancaster a tech hub, the topic of choosing to locate tech companies in Chester vs Lancaster was addressed. The Chester vs Lancaster comparison is clearly on the minds of community leaders, and this post will use data to shed some light on the topic.
Relative Concentration of Jobs by Occupation Category in Pennsylvania Metro Areas
The jittered box and whisker chart below shows the number of jobs in an occupation category per 1000 jobs. Each dot represents a PA metro area’s relative employment concentration for specific occupation category. I singled out the Lancaster and Chester metros with orange and red dots, respectively, to more easily identify the two areas.
The chart allows us to quickly see the occupations in which the different metro areas have either a strong or a weak presence. For example, we immediately see that Chester has the highest concentration of workers in the “Computer and Mathematical Occupations” (aka – tech) category of any metro area in Pennsylvania. Along with Chester; Harrisburg, Pittsburgh, Philadelphia, and State College all have tech employment concentrations in the upper quartile (upper hinge of the chart). Lancaster is just above the median level of tech job concentration, which suggests that it is currently not a tech hub.
Of all metros in Pennsylvania, Lancaster has the highest concentrations of labor in both the “Construction and Extraction Occupations” and the “Farming, Fishing, and Forestry Occupations” categories along with the second highest concentration (after York) in the “Production Occupations” (i.e. Manufacturing) category. It should be noted that, although Lancaster has the highest concentration of workers in farming jobs, it represents only about 3 workers in 1000. This statistic highlights that overall employment in farming-related work makes up a small fraction of workers across the state. The high concentration of workers in construction and manufacturing jobs suggests the dominant industries in the area are centered around ‘blue-collar’ types of employment.
Average Salaries by Occupation Category in Pennsylvania Metro Areas
The next chart is set up the same as the job concentration chart above, but I replaced the “Jobs per 1000” metric with average annual salary. With an average tech salary of $72,838, Lancaster is the median among PA metros. At $88,375, Philadelphia has the highest average tech salary and Chester, Chambersburg, Pittsburgh, and Harrisburg round out the five metros that are in the upper quartile (above $76,682). It’s probably not a coincidence that the metros with the highest average salaries also tend to have the highest concentration of tech jobs—the high concentration indicates demand for tech talent is high, and employers compete to attract the talent by offering higher salaries.
The salary data suggests that a tech worker in Lancaster can expect something closer to an 15% salary cut by working in Lancaster instead of Chester—not nearly as bad as the 40% cut I’ve heard anecdotally. If you compare the 2010 average tech salaries between Lancaster and Philadelphia (BLS did not separate Philly from Montgomery-Bucks-Chester Counties in 2010) the pay cut is closer to 30%, which suggests that the salary gap has been closing in recent years.
What About Housing Costs? Isn’t it Much Cheaper to Own a Home in Lancaster than Chester?
Salaries alone don’t provide the full picture between choosing to live and work in Lancaster vs Chester. Another important factor is cost of living. If it is much cheaper to live in Lancaster than Chester, then accepting a lower salary might be a reasonable thing to do. By looking at Zillow’s median single-family homes time series data set, I calculated the 2017 average median home price for Montgomery-Bucks-Chester Counties to be $319,610. In Lancaster County the 2017 median home price is $192,343–making the median home in Lancaster about 3/5 the price of a home in Chester. However, the beauty of the 30-year mortgage is that it makes prices differences of that magnitude more reasonable. If we assume a 4% interest rate the monthly payment for the median Chester and Lancaster homes come to around $1,525 and $918, respectively. Using this data we can estimate the average annual salary after mortgage payments. The next chart shows how this impacts the positions of the metro areas in the jitterplot.
We immediately see that Chester’s position in the chart for tech jobs has dropped from the upper portion of the upper quartile to exactly the cutoff for the upper quartile. While tech worker income after mortgage is still higher in Chester than in Lancaster, the advantage of living and working in Chester is less obvious. Philadelphia, with the highest average tech salary in the state and a median home price of $196,700, is the clear winner in terms of salary left over after mortgage.
Arbitrage Opportunity – Live in Lancaster but Work in Chester
The last point I want to make in this post is, given the proximity and the differences in both salary and home price between Lancaster and Chester, does it make sense for a tech worker to live in Lancaster but work in Chester? The last chart below compares this situation with living and working in Chester and living and working in Lancaster.
The chart shows that a tech worker who chooses this route can expect approximately 10 percent more income after mortgage than living and working in Chester and approximately 20 percent more income after mortgage than living and working in Lancaster.
Clearly there’s a benefit, but is it enough to entice workers? I would argue that it is. It would be one thing if the quality of life was so much better in Chester that people would be willing to live there regardless of these advantages. But I think as people come to realize that Lancaster city offers amenities typically found in larger cities (see this New York Post article calling Lancaster the new Brooklyn) more and more tech workers will decide that the hour or so commute to Chester and other Philly suburbs is worth it. Eventually, if enough tech workers start living in Lancaster, companies will likely decide to locate there as well. The process will likely take years, but I suspect this arbitrage opportunity will become smaller and smaller. Of course, the same process is likely to happen with the Philadelphia suburbs’ northern neighbors as well (indeed, median home price in Allentown makes it an even more enticing arbitrage opportunity than Lancaster), but there’s no reason both areas can’t experience the process simultaneously.