Economic Impact: Wage Gains Remain Elusive

Slow wage growth is one of the side effects of a weak labor market.

Even though the U.S. unemployment rate has fallen to 5.5 percent in February, the rate that includes people working part time who would rather work full time and the marginally attached is 11.0 percent.

With plenty of jobseekers to choose from, firms have been stingy with wage increases.

From 2009 (the year the recession ended) through 2014, annual average wages in the Richmond metro area rose 1.7 percent.

That’s slightly better than the 1.6 percent in Virginia but not as good as the 2.2 percent growth in the nation.

Over that same period, inflation rose an average 2.0 percent a year.

From that perspective, the purchasing power of consumers in Virginia fell over that period and barely rose in the nation. That may partially explain why retail sales have not been as strong as many observers expected with the declines in gasoline prices.

Wage gains in some industries have kept pace with inflation.

Annual average wages in the finance and insurance industry rose a respectable 5.4 percent over the last five years in the metro area followed by an average 4.6 percent for mining and quarrying and 3.3 percent for real estate.

In contrast, wages in the arts and entertainment industries grew an annual average 0.7 percent in the region and the state to make it one of the slowest growing industries over the period.

Wage growth was much stronger in the five years before the recession.

From 2002 through 2007, annual average wages rose 4 percent in the Richmond region and 4.3 percent in the state. The wage increase is better than the average 2.9 percent rise in inflation during the same period.

Labor markets were tight just before the recession started. The unemployment rate in the nation hit a low of 4.4 percent in 2007. The metro area and state saw an even lower 2.9 percent during that same year.

Slack in the labor market is not the only factor that impacts wage growth in a region. The changing mix of industries also is important.

During the five years before the beginning of the last recession, professional business services firms added more than 76,000 jobs to the state. That was nearly 30 percent of all new jobs.

That sector, which is dependent on federal contracting, paid an average annual wage of $82,790 in 2007 — 180 percent higher than the average of all jobs in the state.

In contrast, professional business services added a little less than 9,000 jobs since the recession ended or 8 percent of all jobs created in the state.

In both the Richmond metro area and the state, the health care and social services sector added the most jobs over the last five years.

Although those jobs made up 35 percent of total employment gained in the metro area and state during that period, the average wage in the sector is 7 percent below the metro average and 12 percent below the average in the state.

The next three largest employment gains provided a little more than half of the jobs in the metro area and state. Each of these three sectors — retail, arts and entertainment, and accommodation and food services — paid less than half the annual salary of all jobs in 2014.

As the labor market continues to improve, annual average wage gains will start to accelerate.

That trend has begun to emerge in the Richmond metro area. State wage growth remains slow, partially because of the slow employment growth in the federally-dependent professional business services sector.