Workers Won’t Move : Firms Find Big Cities a Hard Sell
Big city life has lost its allure for some people. And big business is paying dearly to change their minds.
The problem is not so much crime, pollution or traffic congestion. Rather, people are turned off by a widening gap in the cost of living between the least and most expensive U.S. cities. As a result, companies are giving some workers big bonuses and tens of thousands of dollars in housing subsidies to persuade them to move to such expensive areas as Southern California, the Bay area, Boston and New York.
The trend has been downplayed partly because companies fear that discussing special pay and housing deals might fuel dissension in the workplace. But the growing cost gap is changing the way many companies do business as more Americans resist relocating or demand to be well-compensated for moving to cities where their housing expenses, income taxes and other expenses might triple or quadruple.
Cost Put at $15 Billion
“There’s not a single homeowner that we move here for less than $100,000,” said Catherine Morris, relocation manager for Los Angeles-based Atlantic Richfield Co. Overall, U.S. employers spend more than $15 billion annually to relocate workers, according to the Marriott Corp.
Even hefty financial incentives, however, sometimes fail to sway employees. Mel Dinkel, a General Electric plant manager in Tampa, Fla., said he turned down a transfer to Orange County--despite pressure from his employer--”because of the horror stories about housing costs.” He is now taking a careful look at a new offer to move to Anaheim.
Relocation has become “a major problem for companies,” said Harry Usher, managing director of the Los Angeles office of Russell Reynolds Associates, which recently completed a study on the issue. Some companies, he said, have begun doing more local hiring or are setting up operations in lower-cost locales to save money.
Those Most Vulnerable
Perhaps hardest hit, though, are employees--generally those making less than $70,000 annually--who are offered transfers but, unlike senior managers, are given little in the way of financial help.
The growing regional cost gap is driven by skyrocketing prices in areas where high-tech and service industries have blossomed, such as Boston, Raleigh, N.C., and California. Meanwhile, weak energy and food prices have depressed the local economies of, among other places, Texas, Oklahoma and Louisiana, keeping prices there relatively low.
As recently as 1984, there was just a 29% difference in the overall cost of living between the least and most expensive of 10 major U.S. cities. Today, the spread is 50%, reports the consulting firm Runzheimer International. In Los Angeles--the survey’s third-most expensive city behind Boston and New York--a family of four spends $66,249 for housing, goods and services that cost just $49,694 in 10th-ranked Houston.
The cost of living gap is most apparent in housing prices.
Since 1981, for example, the median price of a single-family detached home, or townhouse, has risen 222% to $178,500 in Boston this year and jumped 181% to $201,000 in Los Angeles, according to the National Assn. of Realtors. During the same period, the median home price increased 60% to $73,800 in Kansas City and actually declined 14% to $62,900 in Houston.
Ever-widening cost of living differences are forcing employers to grapple with the additional issue of whether they should devise separate pay scales for workers who perform the same jobs but live in different cities. To some extent, such a pattern already appears to be emerging. For example, the average weekly salary last year of a computer systems analyst was $804.50 in Los Angeles versus $740 in Atlanta, reports the U.S. Bureau of Labor Statistics.
Widening Disparities Seen
Many analysts expect such salary differences to grow as more companies adopt regional pay systems. But for now, the federal government appears to be taking the lead. In June, the government announced 20% raises for air traffic controllers in New York, Chicago, Oakland and Los Angeles because of the high cost of living in the four areas. The government also says it may abandon its uniform pay system for its 1.4 million white-collar employees in favor of one that reflects regional economic patterns.
Throughout most of the postwar era, the manufacturing-dominated U.S. economy had kept the wages of most Americans--even those at different income levels--rising at about the same pace, experts say. Consequently, price differences for housing, goods and services were comparatively small from region to region. For the most part, high-cost areas were special cases, such as New York, Alaska and Hawaii.
Moreover, employee transfers did not become an important business issue until the mid-1960s, around when a few companies set up the Employment Relocation Council to address concerns about buying and selling employees’ homes.
Burden on Families
Today, U.S. workers are under pressure to move as a result of corporate mergers and relocations by nimble-footed service industries, said Dennis J. Donovan, a senior vice president at the New York consulting firm Moran, Stahl & Boyer. In the face of that pressure, however, the rise in two-earner families and regional cost of living differences have consorted to make families increasingly unwilling to pack their bags.
“The availability of qualified labor is the paramount issue facing American business as it enters the 1990s, in part, because of cost of living differences workers face,” said Donovan. Suddenly “more companies are offering cost of living adjustments, housing subsidies and raising their pay scales.”
Atlantic Richfield, for example, pays as much as 25% of a new employee’s or transferee’s monthly mortgage for up to five years. And the company will pay the subsidy on mortgages up to $200,000. ARCO also provides interest-free loans to finance up to 20% of the down payment on the new home as well as one-time bonuses equal to one month of the employee’s annual pay.
Morgan Guaranty Trust Co. of New York pays a monthly stipend based on a complicated formula that takes into account family size and salary, according to Carol Cerreta, a personnel assistant at Morgan.
For instance, a single homeowner, making $100,000 in Morgan’s Wilmington, Del., offices would receive a lump-sum payment of at least $5,000 as well as $1,718 in monthly housing subsidies for up to two years if he were transferred to New York. The bank also pays, among other things, closing costs on the purchase of a new home.
Little Impact on Cost Gap
But many employees complain that the subsidies do not come close to closing the cost gap.
A 39-year-old administrator who left a $50,000-a-year hospital post in the Southwest to take an $80,000-a-year position at National Medical Enterprises in Los Angeles said he suffered a big change in his standard of living, despite receiving financial assistance.
“I thought I was prepared for the price difference,” said the administrator, who requested to remain anonymous. “But what I envisioned and what I actually got was quite a shock.”
The administrator, who said he sold his former 3,800 square-foot, four-bedroom home for $125,000, had to negotiate an interest-free 90-day loan and a mortgage loan interest rate subsidy from his new employer to buy a home in Los Angeles. Even so, he said he had to pay $250,000 for the house, which has three bedrooms, 2,100 square feet of space and is located farther from his job than his previous home. His utility costs are lower in Los Angeles but he said his property taxes and car insurance rates have more than doubled.
Shocked at Prices
Likewise, after Tampa plant manager Dinkel went on a house hunting trip near Anaheim, he was shocked by the huge difference in housing prices.
“We looked all over within an hour’s drive of Anaheim,” said Dinkel, who has been asked to become manager of GE’s Anaheim facility. “From what I’ve been able to see now, they would have to at least double my salary, along with a lump-sum bonus to cover the down payment” for a new house.
Yet while highly paid managers and executives can get such special deals from employers, the burden of coping with the cost gap falls harder on lower-paid professional and technical workers such as nurses, insurance actuaries and engineers, because many companies will not fully compensate them to relocate.
“If they are not at the management level or above, we would not use any of the incentives to lure them,” said Alan Ewalt, senior vice president of human resources at National Medical Enterprises. For such employees, Ewalt said, “it’s too expensive for us to apply a relocation package” that ordinarily would equal an employee’s base salary.
Older Workers Resisting
Younger workers may swallow the loss and make the move in the interest of their careers, experts say, but many older workers are refusing--forcing companies to consider relocating their offices or establishing training programs so they can hire locally.
A survey by the Employee Relocation Council this year found that 40% of the nation’s 600 largest companies had some problems with employees who are reluctant to relocate. The high cost of housing was cited as the No. 1 reason.
Even young workers who are willing to move for a job seem increasingly interested in heading to less expensive communities. Among MBA graduates at the University of Virginia’s Colgate Darden business school, for instance, just 15% accepted jobs in New York this year, compared to 27% in 1987, said Nevin Kessler, Darden’s associate director of placement.
“We are seeing a dramatic shift in preference from metro areas students feel are too expensive to areas where they feel they can obtain a standard of living that meets their need,” Kessler said.
A case in point is Ty Eggemeyer, one of the newly minted MBAs from the University of Virginia. After graduating, Eggemeyer turned down a Boston job paying more than $55,000 and accepted a lower paying position at the Dallas offices of the consulting firm McKinsey & Co. Inc.
Boston Firm No Match
The Boston firm, he explained, “would have had to pay me 50% more for me to have a standard of living comparable to what I’ll have in Dallas.”
When companies use financial incentives to lure workers, the extra compensation for new employees often angers other longtime company workers.
“It’s a terrible negative” in terms of worker morale, said Wayne L. Wright, a former vice president of human resource for Nissan Motor Manufacturing in Tennessee who is now an employee relations consultant at the Center for Values Research in Dallas. Among some of his clients, he said, the gap in total compensation--mainly salary and signing bonuses--between old and newly hired relocated workers performing the same job approaches 20% or more.
Nearly all companies try to disguise or limit special compensation by ending such benefits after a period of one to five years or by separating special housing payments or bonuses from an employee’s salary. Still, many workers are resentful.
‘Now Where’s My Raise?’
“The work force is made up of conformists,” Wright said, “and they don’t understand this sudden need for signing bonuses for people who have never done an hour’s work for the company. The natural response is: ‘Well, that’s fine for them, now where’s my raise?’ ”
Special pay for new employees is only “a stopgap measure,” said Wright, who questions whether any amount of money will be able to adequately compensate workers to move to areas such as Los Angeles. “All the (data) I’ve looked at say the problem is going to get a lot worse before it gets better.”
Staff writer Maria La Ganga in Orange County contributed to this story.
