Are Average Wages in the Rogue Valley Responding to Tight Labor Markets?

Are Average Wages in the Rogue Valley Responding to Tight Labor Markets?

by Guy Tauer

February 27, 2018

With the national, state, and local economy growing steadily in recent years, this article examines the relationship between stronger job growth and average wage growth both locally and in Oregon.

Much has been made in recent weeks about average wages in the U.S. finally starting to show real, or inflation-adjusted, gains. This development has been long-awaited by the Federal Reserve, as evidence of continuing strength of the macroeconomic condition in the country. The Federal Reserve Bank is poised to steadily increase the federal funds rate about 25 basis points three times in 2018. That was the latest prediction while past Federal Reserve Chairman Janet Yellen was at the helm. As the labor market benefits from being at statistically full-employment, wages should rise, thereby increasing the spending power of U.S. consumers. But evidence has been scant of those expected trends until recently. In the Wall Street Journal, 2-4-18, they note “private sector earnings rose by 2.9 percent in January from one year earlier, the largest increase since June 2009, when the recession ended.”

Looking closer to home, are we experiencing the same trends in Oregon and the Rogue Valley? Have longer-run job growth, tighter labor markets and lower unemployment led to rising average wages? Over the longer-term, there does seem to be an association between stronger job growth and rising real, or inflation-adjusted, wages. During the short-term, the most recent year-over-year trends do not appear to show a strong correlation or association between job growth rates and wage gains.  

Over the most recent quarter, third quarter 2017, payroll employment was rising and unemployment remained low, but average inflation-adjusted wages were flat over the year and actually declined slightly in Jackson County (-1.2%) and Josephine County (-0.7%). During that same period, job growth remained solid over the year in Oregon (2.1%), Jackson (2.3%) and Josephine (3.4%). Discussing this counterintuitive development, our state economist Nick Beleiciks offered this insight, “There’s a good chance it was simply because third quarter 2016 was a particularly strong quarter for wages. So comparing third quarter 2017 with a strong base period makes it seem extra weak. Total wages in third quarter 2016 were up 8.1 percent from the year prior, likely because there was an additional pay period in third quarter 2016. This all evens out over time, as fourth quarter 2016 was up just 1.7 percent over-the-year, and first quarter 2017 was up 7.8 percent. Other factors that might have contributed to third quarter 2016’s strength are the minimum wage increase and possible severance payouts from the tech layoffs that summer. Bonuses can also swing wages from quarter to quarter, but they are difficult to track.” That doesn’t mean that wages aren’t rising in certain occupations or industries in response to tighter labor markets, but on average short-term wage growth doesn’t appear to be affected by ongoing job growth and low unemployment rates.

Other sample-based hours and earnings data from the Current Employment Statistics program corroborate the lack of appreciable wage change over the past year. In Jackson County, average hourly earnings for all employees slipped from $22.15 per hour in December 2016 to $20.86 in December 2017. At the same time, the average workweek rose from 32.9 to 34.3 hours, preventing much erosion of average weekly earnings.

In Josephine County, average hourly earnings showed a slight rise from $20.49 in December 2016 to $20.91 in December 2017. Average weekly hours also rose during that time from 30.7 to 33.6, thereby boosting average weekly wages from $629 to $702 over the year. It should be noted that these data are sample based and have an associated margin of error, while quarterly data from the Quarterly Census of Employment and Wages (QCEW) program is collected from all covered employers.

Data from the QCEW program shows rising inflation-adjusted real wages over the longer-term coming out of the past recession. Since 2009 the real, or inflation-adjusted, average annual wage per job in Oregon rose from $45,580 to $49,467 in 2016. Average wages in Jackson County also rose from $38,072 to $40,327, a gain of $2,250 over that time. Josephine County average wages rose, but less sharply. Josephine County average wage per job in 2009 was $34,071 and rose to $34,960 in 2016, in 2016 dollars.

Longer-term wage gains are likely a result of the economy regaining normalcy after the steep recession, as fewer workers were employed part-time for economic reasons, for one example, and tighter job markets led to rising real wages across Oregon and the Rogue Valley. Jobs added in higher paying industries such as manufacturing, construction, health care, and professional and business services after the recession also contributed to increasing average real wages.

Do Oregon Counties with Faster Job Growth also Have Greater Wage Growth?

Looking at the short term, from third quarter 2016 to third quarter 2017, there was very little association between job growth and wage change among Oregon counties.

However, over the longer term the link between these two variables becomes a little stronger. Looking at job and wage growth from 2009 to 2016 shows a stronger link between job and wage growth.

Counties in the upper-right quadrant of the graph, including Deschutes, Washington, and Multnomah counties, enjoyed both stronger job gains and stronger wage growth compared with many other areas. Counties with both lagging job and wage growth (lower-left quadrant) included Gilliam, Sherman, Umatilla, Klamath, Curry, and Malheur counties. The Rogue Valley slightly lagged the statewide employment trends. Job growth statewide from 2009 to 2016 was 14.4 percent. Jackson County employment grew 11.9 percent, while in Josephine County job growth was 14.1 percent. Wage growth lagged the statewide rate of 21.4 percent, with Jackson County (18.5%) and Josephine County (14.8%) trailing below the Oregon wage growth rate.

Inflation-adjusted average wages have grown in Oregon and the Rogue Valley coming out of the Great Recession. Tighter labor markets are likely one factor in boosting real wages. Over the shorter-term, the link between job growth and wage growth was less evident among Oregon’s labor market areas.