The Geography of Our Falling-Wage Recovery

Over the summer there was some concern in the media about falling wages during the current barely perceptible economic recovery. Nationwide, Bureau of Labor Statistics data show that inflation-adjusted average hourly wages have been trending downward since late 2010. Similar wage declines occurred, starting at various times in 2009 or 2010, in most major industries. Because wages don’t usually fall even during the most severe recessions, this is (bad) news.

In the latest edition of Brookings’ MetroMonitor, I looked at where these wage declines were occurring. Using inflation-adjusted average annualized earnings per job (a measure of wages that’s available for metropolitan areas), I found that wages were lower in the first quarter of this year than in the last quarter of 2007 (when the national recession began) in 51 of the 100 largest metropolitan areas. This may not sound like a geographically widespread enough phenomenon to account for nationwide wage losses, but the fact that wages generally fell in the very largest metropolitan areas helps account for the nationwide drop in wages. Wage losses were also common in most of the Great Lakes region. The steepest wage losses occurred in Little Rock (11.1 percent wage loss), Las Vegas (8.7 percent), and Hartford (5.2 percent).

Meanwhile, wages rose in most of the large metropolitan areas of California and the Intermountain West and in government and military centers throughout the nation. The sharpest wage increases were in the housing-bust metro areas of Bakersfield (6.8 percent gain), Modesto (4.5 percent), and Palm Bay (3.7 percent).

Another way to look at this issue is to examine what has happened to wages as a share of each metropolitan area’s economic output (gross metropolitan product or GMP). (GMP—the total value of all the goods and services produced in a metropolitan area—can also be thought of as the sum of the payments to the owners of all the inputs that are used in production in a metropolitan area. Thus, the major components of GMP include wages, profits, and taxes on production minus subsidies.) Since the end of 2007, the wage share of GMP fell in all but two of the 100 largest metropolitan areas: El Paso and Wichita. Hartford, Little Rock, and Greensboro had the largest declines in the wage share.

Piled on top of painfully slow job growth and a national unemployment rate that remained stuck at 9.1 percent for the second month in a row, falling wages are yet another drag on an economic recovery that’s already close to stalling out.