Who’s Driving Oregon’s Wage Growth?August 1, 2018
Wages in Oregon have been on the rise over the past three years. From fourth quarter 2014 to fourth quarter 2017, the quarterly average wage (smoothed and adjusted for inflation) rose by around 6.7 percent (+$800 per quarter). This is seemingly good news, right? This means that during that three-year period the average worker had more disposable income when accounting for the increased cost of goods and services.
At a recent presentation where I shared this good news about rising wages I was approached by a member of the audience; let’s call her Sue. Sue said, “I don’t know who is making that sort of growth in their wages, but it isn’t me and it is not anyone I know.” When dealing with millions of workers clearly Sue’s wage growth (or lack thereof) has little effect on the average wage. However, she made an important point. The average wage is not an individual story, but a rough aggregation of all payroll divided by the number of workers. It does not tell us who is seeing higher wages, only that payroll is up relative to the number of workers. This spurred me to ask if we can identify who is driving Oregon’s wage growth.
The Problem with the Average
Sue pointed out an important issue with averages as they can be notoriously misleading. A great example is to look at the Oklahoma City Thunder basketball roster. This past season the average annual wage for the top 15 players on their roster rose by a staggering 48.7 percent; an average gain of around $3 million per year per player. However, this wage growth was not perfectly distributed across the whole roster. There were major outliers who threw off the average wage and “new hires” acquired by the team were much more costly than those players they replaced.
The Thunder had nine players who were on the roster this past season and the season before. These “incumbent players” accounted for a growth in payroll of more than $27 million. However, nearly all of these gains were concentrated in larger contracts for three star players (Steven Adams, Andre Roberson, and Russell Westbrook). The other six incumbent players collectively saw their payroll decline by around $1.2 million. A handful of outliers drove up the average wage for incumbent players on the Thunder roster, while the remaining players saw their pay remain unchanged or decline.
There were also some “new hires” on the Thunder roster. A combination of free agents and trades brought in six players who were on the roster this season, but not the previous season. These “new hires” accounted for nearly $17 million more in payroll than the six players who were let go or traded away. However, not all of these “new hires” contributed to growth in Thunder payroll. In fact, we have another example of outliers where just two of these new acquisitions (Paul George and Carmelo Anthony) accounted for an increase in payroll over the players they replaced, while the other four players made less in payroll than those they replaced.
The Oklahoma City Thunder saw their average wage rise sharply in a single season. However, this was not good news for everyone on the roster. In the end, the story of wage gains for the OKC Thunder is a bit messy. Only five out of the top 15 players accounted for the growth in the roster’s average wage, while the rest of the roster collectively saw a reduction in payroll.
What does this have to do with wage growth in Oregon? Our traditional metric for wage growth, gains in the average annual wage, is susceptible to being influenced by similar outliers and the effect of new hires.
How to Isolate Wage Gains?
Sue told me she had worked continually with the same employer the past three years, but she had seen no substantive wage growth. How common is Sue’s story among Oregon workers?
To answer this question I used wage records of Oregon workers between 2014 and 2017. These are employment and wage records by firm for all workers covered by unemployment insurance. Wage records for all Oregon workers who reported wages in every quarter during that three-year period were isolated. Our universe of continually employed Oregon workers tallied 391,000. By tracking the wage growth of those continually employed we are weeding out the effect of those new to Oregon’s labor market, such as youth, in-migrants, or long-term unemployed.
The next step was to break out this universe of continually employed workers into two groups. The first group were made up of people like Sue, incumbent workers who stayed continually employed with the same employer during the three-year period. Many of these workers were likely in the same position for that three-year period of time. However, they would still be counted in this group if they received a promotion or changed occupations within the same firm. There were 345,250 incumbent workers who worked continually for the same Oregon employer from 2014 through 2017.
The second group were those who were continually employed, but changed their employer one or more times during the three-year period. These “job hoppers” will represent new hires in this analysis. They include workers leveraging the tight labor market to find a job with better working conditions, pay, hours, etc. Just under 46,000 “job hoppers” remained continually employed in Oregon during the three-year period.
A few additional sub-breakouts were made of the data in order to isolate where wage gains were coming from. First, we control for young workers or those making a radical career shift. Presumably the largest share of folks moving from one industry to another are young people or those changing their career. For instance, an individual works as a barista while in nursing school (leisure and hospitality), but then finds work as a nurse upon graduation (health care). This shift would result in a large wage gain, but that is more a reflection of normal career trajectory for students and young workers than the wage growth of folks who job hop. To control for these young workers and those making big career shifts the analysis focused on those who job hopped within the same industry.
Another concern was those who job hop frequently. Moving to a new employer once strategically during an expansion can be a great career move both for wages and future opportunities, but what about those who constantly think the grass is greener on the other side? Those who job hopped just once seem like a better reflection of the impact of new hires than those who have changed employers multiple times. To control for these multiple job hoppers the analysis focused on those who changed their employer just once during the three-year period.
Who Is Contributing to Oregon’s Wage Gains?
The results of the analysis were quite unexpected. The expectation or hypothesis was that incumbent workers, like Sue, were not experiencing particularly notable wage growth. That assumption was wrong.
The real median hourly wage for those who changed their employer one or more times (the job hoppers) between 2014 and 2017 rose by 13.3 percent, very rapid growth. That represented a growth in median hourly wage of $2.92. As expected the incumbent workers posted a slower pace of wage growth, however it was only marginally slower growth than the job hoppers. During the three-year period incumbent workers, those who stayed continually employed with the same firm, saw real median hourly pay rise by 11.7 percent with nearly an identical growth in the median hourly rate (+$2.87 an hour).
When isolating those who exclusively job hopped within the same industry we find a slightly higher rate of growth in the real median hourly rate (+13.6%) than for those who changed industry (12.1%). This was particularly surprising as the assumption was that those job hopping between industries, presumably a reflection of young workers or those changing their careers, would see a faster rate of wage growth. It turns out that the young people moving around between industries early in their career had less of an impact on broad wage growth than initially thought.
Although job hoppers didn’t see dramatically higher wage gains over the past three years there was at least a modest advantage in changing employers to realize higher wage growth. But, is there a limit to the benefit of job hopping? This initial analysis looked just at those who hopped once versus those who had more than one change in employer during the three-year period. Although both groups saw an increase in their real median hourly wage those who changed employers only once actually posted slightly higher wage growth (+13.2%) than those who changed their employer more than once (+13.0%). The assumption was that multiple job hoppers would have thrown off the analysis with very high rates of wage growth from young people moving through the beginning of their career, but that simply wasn’t the case.
We can learn a few things from digging into this cohort of job hoppers. First, strategically changing employers once during a tight labor market can yield large wage growth. Second, perhaps the grass isn’t always greener on the other side as there seems to be a limit to how much job hopping will increase your wages.
Those who stayed continually employed, whether they stayed employed with the same employer or job hopped to a new employer, saw rapid wage growth over the past three years. It pays to stay employed. You don’t need to change employers to realize wage gains. However, is this consistently true? Or, are these results unique to this economic expansion? We replicated the analysis during recessionary conditions (2009-2011) and during a previous expansion (2004-2007).
Perhaps unsurprisingly we see that this is a fairly consistent trend with workers who change employers observing slightly higher wage gains than those who stay continually employed with the same business regardless of economic conditions. I say unsurprisingly as job hoppers likely have more complete wage information than those who stay with the same employer. If you are offered a new job then you know your current wage and the wage of the new offer. What was surprising was that the cohort of continually employed workers saw their wages rise even during the depths of the most recent recession. Avoiding periods of unemployment, thereby building skills and experience, is likely the best way to grow your wages.
Was Sue’s Experience Unique?
Remember when Sue told me, “I don’t know who is making that sort of growth in their wages, but it isn’t me and it is not anyone I know.” It seems like Sue’s experience is not common in Oregon. Continually employed workers in this current expansion posted very strong wage gains, both those who stayed employed with the same firm and those who changed their employer.
It is important to note that wage gains for those who stayed continually employed with the same firm were realized by workers across the wage spectrum. It wasn’t just the high wage earners or managers who drove up incumbent worker wages. In fact, the highest 20 percent of incumbent wage earners saw their wages grow by the slowest pace (8.8%) while the lowest 20 percent saw their pay rise by the highest margin (14.6%). Some of this discrepancy can likely be explained by increases in the minimum wage, but even the second lowest 20 percent of wage earners saw rapid wage growth over the three-year period (+11.7%). Not only does staying employed in today’s labor market get you paid, but it is a consistent pattern for most Oregonians along the wage spectrum.
Aggregate wage growth in Oregon is not exclusively the result of new hires or rapid job gains in high-paying industries. The wage pressure from the tight labor market and the high demand for labor is strong enough to be felt across a broad spectrum of situations. Those willing to disrupt continuity and take on more risk were rewarded with larger wage gains than those who stayed continually employed with the same firm. However, these job hoppers take on more than just additional risk; there are added costs. A voluntary separation rarely goes without at least a short period without pay, probationary period at the new job, or different benefits. There are likely many stories of Oregonians not receiving substantive gains in their pay during this current expansion, such as Sue. However, that experience is an exception, not the norm.