Labor market risks of a magnitude 7.2 earthquake in the San Francisco Bay area: an update and extension

According to the U.S. Geological Survey (USGS), there is a 72-percent chance of a magnitude 6.7 or greater earthquake hitting the San Francisco Bay area and adjacent regions from 2014 to 2043. There is also a 98-percent chance of a magnitude 6.0 or greater earthquake during the same period. The Hayward Fault, which runs through the East Bay of the San Francisco Bay region, is the most likely source of a large earthquake striking Northern California, with a 33-percent probability of an earthquake occurring over a 30-year period. In contrast, the San Andreas Fault, which runs through the San Francisco Peninsula, has a 22-percent probability over the same period. A major earthquake in Northern California, and the San Francisco Bay area, specifically, could damage residences, businesses, public transportation, and utility systems, putting lives at risk. In addition, business losses could mount in proportion to the size of the earthquake event through direct property damage and business interruption. Aside from physical losses and disruption, business losses may also manifest in a long-term loss of customers, weakened ability of businesses to meet customer needs, and financial stress on the community or region.

This article attempts to identify the scope of labor market risks from a magnitude 7.2 earthquake in the San Francisco Bay area originating from either the San Andreas or Hayward Fault. In general, major earthquakes of magnitudes 7.0 or greater can devastate public infrastructure, rendering transportation and public utilities (such as gas, electricity, and water) out of service for days, weeks, or longer.

This article updates several previous BLS articles, which provided economic damage estimates for businesses and employees in the San Francisco Bay area. Past articles focused on the areas anticipated to face the most damage from an earthquake: those areas with very strong to severe shaking on the Modified Mercalli Index (MMI VII or greater). Similar papers have also been published by the USGS, the California Geological Survey, and private-insurance risk estimators. Some estimates were based on the loss of physical capital, although more recent studies have tried to account for the “business interruption” losses to firms. Economic-activity losses vary depending on the size of the earthquake scenario and the type of losses estimated (physical capital or business interruption). Accordingly, losses from a magnitude 6.9 Hayward earthquake vary widely, ranging from $23 billion for building-related losses to $210‒$235 billion in insured and uninsured economic damages.

To match establishment locations with shaking intensities, this article identifies the businesses in probable “shaking zones” and uses Quarterly Census of Employment and Wages (QCEW) data to quantify the businesses, employees, and wages that could be at risk by shake zone intensity. Each data point in the QCEW dataset is geocoded with a latitude data point and a longitude data point, making it possible to map each establishment report against estimates of the expected range and area of damage zones, given an earthquake scenario provided by the USGS legacy shake catalog. However, because not all businesses in damaged areas will experience physical loss or business interruption, should an actual 7.2 magnitude earthquake occur, these estimates may not precisely match the actual losses incurred. That is, the actual effects on individual businesses are too specific to be captured based on relative damage areas. For example, while a business may provide its total number of employees in its establishment report, some employees may work remotely, which would limit the amount of actual business disruption from an earthquake.