Sharp Uptick in Bend-Redmond WagesApril 12, 2018 Many have been eagerly awaiting wage gains for years. Guess what? We are there and we have been there for several years. There is significant pressure for employers to increase wages as an economy reaches full employment. Full employment is when there is no longer any cyclical unemployment. Full employment will always be greater than zero unemployment, as you expect to see a certain amount of unemployment due to skills mismatches, those who are voluntarily between jobs, or those holding out for a specific employment opportunity. Whether or not we have reached or exceeded full employment, the tightness of the labor supply is sufficient to produce a notable increase in wages.
Between 2010 and 2014, real wages (inflation adjusted) were essentially unchanged. However, we saw a sharp upward turn in the trend line beginning in late 2014 and continuing through today. Over the past three years real wages rose by around 8.3 percent in Deschutes County, which is phenomenal growth.
This is not a 2017 story, but really began back in 2015 and has continued through today. What happened back in 2015 that led to increased wage pressure? We recovered from the recession in 2015. In other words, total nonfarm employment was equal to what it was during the previous peak back in 2007. However, the recovery is largely irrelevant when talking about wage increases as our industry composition today is different and our population is larger than back in 2007. More importantly, back in 2015 it became increasingly difficult for businesses to find qualified workers.
In 2010, there were nearly 13 unemployed residents per online job ad. There was a surplus of qualified labor in the market and businesses were able to hire the worker they wanted with little competition.
As hiring demand increased and unemployed folks found work, we saw this ratio drop. By late 2014, the ratio dropped below three unemployed residents per online job ad. There was a low supply of labor for our elevated hiring demand. We have been in a strong wage growth period since we crossed that threshold at the end of 2014.
Although hiring demand is beginning to slow as we enter a more mature phase of the business cycle, there continues to be strong upward pressure on wages due to historically low unemployment. This is great news for workers. However, it is worth watching this growth cautiously. If businesses are forced to pay more for labor, eventually it will lead to inflation as businesses will be forced to sell their goods or services at a higher price point. If everything costs more, then nominal wage gains don’t translate into real inflation-adjusted wage gains.