by Dr. Patrick Jones
Ideally, we’d like all our jobs to pay better than average. But then we’d be entering into Lake Woebegone territory, where all the children are above average. Mathematically, that statement just doesn’t work.
Walla Walla Trends Indicator 1.1.5 tracks the path of annual average wages paid to workers in the five largest sectors in the economy, as measured by headcount. It’s a busy graph that can be simplified by clicking on the legend boxes below to reduce the number of lines. Let’s just look at those in red, that is, those for Walla Walla.
It’s easy to see that a large spread characterizes the wages paid in the five largest sectors. For 2019, the highest-paid sector here was government, with an average annual wage at slightly over $59,000. This includes federal, state and local agencies as well as local school districts. The lowest paid of the five largest was retail trade, at about $28,350. Clustered with government was manufacturing, which has been the highest paid of the large sectors at times. Bunched at the low end with retail was agriculture. The latter have consistently been the lowest earning of the group. In the “upper middle” is (and has been) healthcare, with an annual wage of slightly over $50,000.
Three of the sectors depicted here show average annual wages greater than the overall average (see Indicator 1.1.4 and the companion article in this issue). In 2019, this average stood at $46,219. Is Walla Walla bending the laws of arithmetic with 3 of its largest five sectors showing above average numbers?
Not quite. There are 14 other sectors in this arrangement of industries. Some enjoy considerably higher annual wages or salaries, such as professional services, at over $60,000 in 2019. But it’s a small sector. A much larger sector, hospitality (food and lodging services) yielded an average wage in 2019 of slightly over $21,000.
Why care about the status of wages and salaries by sector? They largely determine the path of the Walla Walla economy, not to mention the desire of most everyone to earn a bit (or a lot) more. Wages and salaries form the thickest leg of the three-legged stool that comprises personal income. (The other two legs consist of investment income and federal transfer payments.) Unless one imagines an economy like Jackson Hole, WY, where more than half of reported personal income flows from investments, wages and salaries drive economic progress. (The current share of Walla Walla total personal income taken by investment income is about 24%.)
I assume that Walla Wallans would like to experience growth in wages and salaries, and therefore incomes. To affect the influence the annual wage, two choices are available: increases wages in the largest sectors or boost the numbers employed in the highest-paying sectors. Which of the two paths is more promising isn’t certain. Is it likely that government, especially federal and state agencies, will add to their staff over the next few years? Is it likely that manufacturing will boost head counts? If so, that would fly in the face of secular trends: manufacturing output continues to increase but not its labor force. Is it likely that professional & technical services (engineers, architects, lawyers, accountant, computer consultants) will make meaningful additions to their staffs here in the future?
How promising is the other path to increased incomes, increasing wages among the existing workforce? This writer’s view is promising for certain sectors. In particular, those that are amenable to productivity increases. One view held by nearly all economists lies in the key role played by labor productivity gains; wages should grow in a non-inflationary way if they match (and don’t exceed) the productivity gains in that sector.
Productivity gains certainly seem likely for manufacturing, where technology adoption has consistently spurred higher output per person over time in the U.S. and likely here. A sector with wages that have risen rapidly that might surprise readers is agriculture. Among the top five employing sectors, its earnings increases have outpaced the other four, with a compounded annual growth rate of 4.9% since 2010. Contrast this result to the annual growth rate of wages in the entire County’s workforce over the same period, at 2.8%. And it’s a slightly higher rate than the 4.4% growth rate in the agricultural sector of Benton and Franklin Counties. Productivity gains have undoubtedly played a role in the fields, orchards and vineyards of the Valley.
How have earnings in Walla Walla’s top five sectors relative to the Washington State top five employing sectors? Click the WA legend boxes back on, one by one, to see. First note that the state mix is a bit different: hospitality replaces agriculture. Second, annual growth rate calculations reveal that workers statewide in government and manufacturing have experienced slightly faster expansion of their earnings than in Walla Walla over the past decade. In contrast, Walla Walla healthcare workers have seen their earnings grow a slight bit faster than across the state. The big contrast comes in retail. Statewide, retail wages have climbed over 8% vs. the nearly 2% here. Chalk that gap to the Amazon effect.
Of course, wages can rise simply because of supply and demand factors. While there may be some niche occupations where demand remains unfilled (think nursing), it appears to this writer that most increases in local demand for workers can be met for the foreseeable future, especially given the presence of a large labor market in the Tri Cities. An exception might be agriculture. Given the challenges of finding agricultural labor, supply and demand forces are likely at work in that sector as well as productivity gains.
Further, wages can rise due to collective bargaining and policy changes. Yet, outside of the public sector and perhaps hospitals, the pulse of unions in the local economy seems faint. The most significant policy change in the local labor market, the rapid rise in the minimum wage, is largely behind us.
So how will incomes rise in Walla Walla in the near term? For sure, the growing presence of retirees here should add some lift to the categories of investment returns and federal transfer payments. But wage earnings will still be the thickest leg of the stool. Let’s hope that (the yet unmeasured) productivity gains keep coming. And perhaps some sectors that are relatively small but produce earnings higher than average, such as wholesale trade, professional & technical services, and finance, will take up a bigger slice of the Walla Walla labor workforce.