Wages in the Tri Cities Did Well in 2018 – Will that Continue?

By Dr. Patrick Jones

2018 was a banner year for wage earners in the greater Tri Cities. As Benton-Franklin Trends indicator 3.1.3 reveals, the average wage climbed by 3.5%, third best over the past decade.  We won’t know how 2019 will turn out for another several months. The labor economists in Olympia have posted data for the first quarter of this year and if the rest of the year follows suit, wages will continue to grow above recent trend. For the first three months, the average rose 3.3%

Why do we care about wages and salaries? Elementary, right? But there are other sources of income, such as investment income and federal government transfer payments (social security, Veterans payments, Medicare and Medicaid, among others). For most people, however, wages make up the bulk of income, and consequently, our material standard of living. Second, local economic development efforts are increasingly judged not only by job creation but by the earnings of those jobs. And from an economist’s perspective, wages measure how well the economy is doing; rising wages usually signals a rising economy.

Over the past decade, average wages in the two counties grew cumulatively by 18%. That result would have been considerably higher if the average had not experienced a decline for three years after the peak in 2011. This result was anomalous for all of eastern Washington. While metro areas east of the Cascades certainly didn’t enjoy rapid wage increases after the Great Recession, the averages went up across the board. Yet, it wasn’t until 2015 that local wages exceeded those of 2011.

Further, wage growth in two-county economy pales in comparison to the average increase in the state. 2018 marked a 6.6% increase over 2017 statewide. This was the best result in a decade. And between 2009 and 2018 Washington wages grew at a pace double, 39%, that of this metro area. Expressed differently, as a share of Washington’s average annual wage, the local economy clocked in at 80% in 2018; in 2009, the ratio was 92%.

Why haven’t Benton and Franklin counties kept up?  Since the state result is driven by King County and we know of the remarkable success of that county, not one community in Eastern Washington has kept up. Among the local economies east of the Cascades, the Spokane & greater Wenatchee areas performed best, with wages growing cumulatively at 27%. But if it’s any consolation, Spokane County’s wages were still lower than those of this area in 2018.

The major driver – here and elsewhere – behind wages is the mix of jobs. In the greater Tri Cities, the top five industries, by employment, are (in descending order):  government, healthcare, agriculture, retailing, and administrative services. The top five industries, by employment, in Washington are (in descending order):  government, healthcare, retailing, accommodation and food services and manufacturing. Indicator 3.3.4  displays the two mixes.

Retailing and agriculture are typically low-paying sectors. Here, the two sectors claimed over 21% of labor force in 2018. Statewide, those two sectors made up about 13% last year. And statewide, retailing is no longer a low paid sector. We can thank the explosive growth of Amazon for that.

Of the remaining top five sectors, healthcare and social assistance workers here were paid about 12% less than their counterparts state-wide, as indicator 3.1.5 reveals. The other two large sectors here, administrative services, pays about the same as manufacturing does statewide. Government workers (local, state and federal) take home only slightly less here.

The sixth largest sector in the local economy, professional & technical services (knowledge workers outside of the IT sector) earned about $96,000 in 2018, or approximately 95% of the state level. The pay gap is considerably larger, however, for the area’s seventh largest sector, manufacturing. In 2018, average pay here was slightly more than $51,700 versus the state average of over $79,700.

So the overall earnings gap to the state rests on a combination of differential wages in a given sector and lower shares here of the highest paying sectors. In addition, it’s useful noting that greater Tri Cities does not enjoy much of an information sector, which covers software publishing companies. (Nor does any Eastern Washington metro area, for that matter.) The average wage for Washington’s information sector was nearly $195,000!

This diverging paths of wages show up in a key measure of income:  median household income (MHI). Typically, the median is a better measure of the middle of a distribution of income, given the strong effect of high earners on an average value. In 2009, MHI of the greater Tri Cities amounted to about 96% of the state, as indicator 3.1.2 shows. A decade later, this ratio had slipped considerably:  local MHI made up only 84% of the state value.

What steps can be taken to raise the average wage here at a faster rate? In theory, there are at least two. Either create higher paying jobs, through recruitment or by assisting new, local companies that pay high wages. Or assist existing firms to increase their labor productivity, so more revenues can flow to their workers. Agriculture is an example of the latter approach. The Tri Cities Research District is an initiative following the first. Of course, this is much easier said than done.

It is true that the state comparison is a difficult one. Certainly, a 3.5% average increase is nothing to sneer at. If maintained, this would double average wages within two decades. But will the local economy be able maintain recent wage momentum? After all, the most recent decade actually produced half of that rate. Let’s hope that the 2020s will follow the results of the most recent year.