Wages Keeping Pace With Inflation… So Far

By Dr. Kelley Cullen

In today’s inflationary environment, it is especially important to consider whether wages are keeping pace with inflation. If wages fail to increase at the same rate or faster than the rate of inflation, workers could see an erosion of purchasing power, making it difficult to continue their usual consumption patterns. The good news for Benton & Franklin counties is that although inflation (west region, US) has increased by over 6% in the past two years, local, nominal wages have increased by nearly 11% netting workers an increase of 6% in their real annual wages.

Benton Franklin Trends 3.1.3 Overall Annual Wage provides data on average annual wages for the counties of Benton & Franklin separately, as well as combined, from 2003 through 2021. The state average is provided as a benchmark. The overall average annual wage is calculated from total wages earned from employment in the county divided by total workers at county firms or organizations. Overall annual wage differs from per capita personal income (PCPI) because personal income includes all sources of income, such as interest from investments or profit from a personal sale such as in a sale of a home, and federal transfer payments. Earnings from wages form the largest component of personal income.

In 2021, the nominal annual average wage for the combined counties of Benton & Franklin was just over $59,000, up almost 11% from $54,000 in the pre-pandemic year of 2019. The inflation rate for the western US was 4.4% over the two years. In comparison, Washington state overall saw very strong growth in wages, with a 19% increase in nominal wage and a corresponding 13% increase in real annual average wage. The current nominal average wage across the state is just over $82,000.

Looking back a little further, the last five years have seen an increase in nominal wages for the combined counties of over 23%, exceeding the five-year inflation rate of 14%. As a benchmark, the state average annual wage grew nominally over the five years, even faster -- at 40%.

Whereas the last two years have seen similar increases in both nominal and real annual average wage for the two counties, there has been slightly different growth trajectories over the five-year period. From 2016 to 2021, the growth of nominal average wages in Franklin County (30%) has exceeded the growth of nominal average wages for Benton County (20%). This has resulted in an increase in real wages of 14% for Franklin County workers and a 7.5% increase in real wages for Benton County workers. With average annual wages in Benton County of over $63,000 exceeding those in Franklin County of $50,000, this relatively higher wage growth in Franklin County could be seen as some catching up.

While Benton Franklin Trends (BFT) 3.1.3 Overall Annual Wage provides overall annual average wage, BFT 3.1.5 Average Annual Wage in Top Five Employing Sectors provides more detail about changes in the average wages in the top five employing sectors. Looking into changes in wages in the top industries can provide insight into the source of the growth in real wages. In the combined counties of Benton & Franklin, the top five employing sectors in 2021 were: (1) Government, (2) Healthcare & social assistance, (3) Retail trade, (4) Agriculture, and (5) Administrative and waste services.

One of the reasons for the strong wage growth in the combined counties is in administrative and waste services. Nearly one in ten workers in the Tri-Cities is employed in this sector, primarily related to the Hanford Site. These jobs are among the highest paying with an annual average wage of over $85,000. In comparison, the state annual average wage in this sector is only around $62,000. In the past two years alone, annual wages have risen nearly 10% and in the past five years, wages have gone up nearly 15%.

The largest sector by employment in the combined counties is government which comprises 15% of total employment in the two counties. Government jobs also pay well, with average annual earnings over $70,000. Government wages have increased 13% in the past two years and 24% over the past five years – much in line with the state average.

Retail trade has seen the greatest increase in annual average wages over the past five years in the combined counties, up 24% in past two years and almost 35% in the past five years. Across the state, retail trade wages have grown over 66% in the past five years. It is possible that wage increases in the retail sector recently being felt in the most populous counties and showing up in the state average might start to spread to all counties across the state. It is therefore possible that the retail wages in Benton & Franklin could start to tick upwards in response to the increases of retail wages across the state.

What might this mean for the relatively higher rate of inflation we are seeing so far in 2022? Clearly, there is evidence that inflation will be higher this year – currently prices across the US are up over 5% since the start of the year in January according to the Consumer Price Index (CPI). However, unemployment rates continue to remain low and labor markets are still dealing with shortages, especially in accommodation, food service and retail. These supply-side pressures will likely keep upward pressure on wages. It is possible that the region could see wages continue to rise at or above the rate of inflation even, meaning that workers will still be able to buy their usual goods and services without having to dip into savings.