Sunday, October 05, 2008

Playing Catch-Up On Wages

Are wage and salary increases in the Pittsburgh Region keeping pace with inflation?

Yes, and then some – U.S. Department of Labor data show that, on average, wages here increased by 5% in 2006 and by 5.3% in 2007, almost double the 2.7% average annual increase between 2001 and 2005, and well ahead of inflation. This was certainly good news for workers as they faced higher costs for gasoline and other items.

Moreover, wage increases here outpaced most regions of the country. Pittsburgh’s 10.5% total increase in average annual wages between 2005 and 2007 was the 6th highest increase among the top 40 regions. In contrast, the average wage grew by less than 8% in regions such as Atlanta, Austin, Charlotte, Cincinnati, and Orlando.

The unusually high wage growth was experienced across almost every economic sector except for retail jobs. For example:

* The average wages of the region’s 100,000 manufacturing jobs grew by 10% from 2005 to 2007, the 10th highest increase among 35 of the 40 largest regions (wage data are not reported for all sectors in all of the top 40 regions). And while many may believe that the steel industry no longer exists here, the fact is that steel mills still employ over 6,000 people in the region, and their wages increased by 19% between 2005 and 2007, one of the largest increases of any manufacturing sector.

* Professional and business services wages increased by 18%, the 2nd highest increase in that sector among 38 regions. Wage increases between 2005 and 2007 ranged from 8% to 10% in law, accounting, and engineering firms, and reached 20% or more in some specialized consulting and service fields.

*Wages in the leisure and hospitality sector (including arts organizations, hotels, restaurants, and bars) increased by 11%, the 4th highest increase among 37 regions. (This increase may reflect more hours worked by part-time workers as well as higher wages per hour.)

Why are the wage increases in the Pittsburgh Region so much higher than other regions? Employers here may well be playing catch-up with other regions, since average wages in Pittsburgh have been relatively low for many years. In 2005, the average annual wage in Pittsburgh was $38,809, ranking only 32nd (i.e., 9th lowest) among the top 40 regions. Thanks to the increases in the past two years, the 2007 average wage of $42,902 improved the region’s ranking to 27th.

However, despite the recent increases, many sectors here still have low wages relative to other regions. For example, in health care and social services, our largest employment sector, average wages in 2007 were only $39,870, the fifth lowest among the 31 regions that report wages for this sector. Registered nurses (the region’s third largest occupation) made an average of $56,200, the second lowest pay level among the top 40 regions.

Are lower wages in Pittsburgh justified because of our lower cost of living? Yes, in part. For example, after adjusting for differences in cost-of-living across regions, nurses’ salaries in Pittsburgh rank 16th among the top 40 regions, rather than 39th. But they’re still 5-8% lower than in places like Cincinnati and Cleveland which have an equal or lower cost of living. And in other occupations, workers are getting relatively high wages regardless of cost of living differences. For example, average annual pay for elementary school teachers in Pittsburgh was $52,440, ranking 18th among the top 40 regions without adjusting for cost-of-living.

Research done several years ago at the University of Pittsburgh found that low salaries were a key reason why many graduates of our local universities left the region. Although the cost of living elsewhere might be higher, recent grads are still attracted to higher starting salaries. As a result, employers in Pittsburgh may need to continue raising wages if they are going to compete successfully with other regions for talented workers.

(A shorter version of this post apppeared in the Sunday, October 5 Pittsburgh Post-Gazette.)


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