Rosewater

Rising home prices, soaring premiums for workers' compensation, stubbornly high electricity costs and lengthening commutes have all eroded the Bay Area's ability to compete in the national and global marketplace, the McKinsey & Co. study suggests.

For decades, this region has had a high cost of living. But the problem is particularly acute now since home prices remain high, even amid the loss of more than 300,000 Bay Area jobs in recent years.

"The Bay Area is losing its competitive edge," said Lenny Mendonca, a McKinsey director.

The consequences could be dire if policy makers fail to remedy the workers' comp, housing, electricity and other woes that afflict the Bay Area.

"If nothing is done, the Bay Area would have a New Economy version of Detroit," Mendonca said. "You'd have people moving out, fewer jobs, falling home prices. You'd have deteriorating schools. It would remain a great tourist town, but I'm not sure that's where we would want to live."