How to Measure Changes in Salaries
We started working on an index to track pay changes four years ago. My last physics analysis before leaving academia took 7 years, so 4 years is lightning quick :-)
We wanted to find a methodology that made the most of our unique real-time database of employee pay. The challenge for any economic measure is to create a methodology that captures real trends in the underlying economy, rather than just changes in specific dataset analyzed.
In future posts, Katie Bardaro and I will go into why we believe The PayScale Index meets these goals, and is perhaps the best measure available for how the actual market value of workers is changing. By having a "basket" that is updated every quarter, The PayScale Index is uniquely sensitive to market forces even in the extreme economic turbulence of mass layoffs in the current recession.
For now, I'll cover the basics. We have performed a detailed analysis of how various compensable factors, like work experience, education, employment setting and job responsibilities affect pay. This analysis is based on PayScale's extensive data of over 23 million employee profiles, accounting for 250 compensable factors for 7,000 unique job titles, which show how the pay of actual workers varies with each of these factors. This analysis is the basic engine of our ability to provide accurate compensation reports for individuals and employers.
PayScale also has detailed data for each individual worker - who provided information on their compensation (salary, bonuses, etc.) and compensable factors (work experience, education, etc.) - at a particular point in time (e.g. Q2 2007). Using our analysis of how these factors affect pay, we can calculate what a similar worker with exactly the same compensable factors would earn at a different point in time (e.g. Q1 2010).
For The PayScale Index, we evaluate the difference between these two pay figures for over 300,000 employee profiles in each quarter. The aggregate difference reflects changes in pay over time, and forms the basis of The PayScale Index.
In addition to changes in national median pay, The PayScale Index examines quarterly changes in the pay of employed workers across 15 private industry categories, 20 metropolitan areas, and across 3 company sizes.
Highlights from The PayScale Index
Here are the highlights, or should I say lowlights; the story is one of no raises and even pay cuts for the "lucky" workers in the current economy, those who have full-time jobs:
Since 2006, wages are up only 4.0% for private sector employees, while the core Consumer Price Index has increased 7.5%
- In 2009 actual (nominal) wages dropped 1.5%, and have been flat since; core CPI has continued to rise
- The typical private sector worker earns 3.5% less in real buying power now, while doing the same job, than they earned in 2006.
- Wages in only one industry, Mining and Oil & Gas Extraction (9.1%), have outpaced inflation since 2006.
- Four industries have wage growth since 2006 that is more than 5% below the CPI: Real Estate (1.8%), Construction (2.1%), Hotels and Restaurants (2.2%), and Arts & Entertainment (2.4%)
- None of the 20 largest metros had wage growth since 2006 that was greater than the core CPI
- Detroit (0.7%) was the only city with wage growth more than 5% below the core CPI since 2006.
- The typical worker in Detroit, doing the same job as in 2006, earns nearly 6.8% less in buying power (real dollars) today than in 2006.
Over the last 12 months through Q3 2010, nationally wages are up only 0.1%
- Only 5 of 20 metros have 12 month wage increases greater than 0.1%: Baltimore (1.6%), St. Louis (0.6%), Washington DC (0.5%), New York City (0.4%), and Phoenix (0.4%)
- Only 6 of 15 industries have 12 month wage increases greater than 0.1%: Utilities (0.8%), Mining & Oil & Gas Extraction (0.6%), Finance (0.5%), Healthcare (0.2%), Transportation (0.2%) and Retail (0.2%)
- The worst period for full-time private sector employee wages since 2006 were the six months between Q4 2008 and Q2 2009, when wages dropped 1.3%.
In the latest quarter, Q3 2010, there is no sign nationally of increases in actual wages or buying power:
- Actual wages are down 0.1% from the previous quarter
- Buying power is down 0.2% from the previous quarter
In the end, The PayScale Index shows the US private sector workforce is subject to the laws of supply and demand: typical wages as measured by the PayScale Index dropped as unemployment rose from 5% to 10% in the current recession. The market based real-time approach of The PayScale Index makes it uniquely capable of identifying these important trends in the economy.
Fortunately few people are actually "average": do you know if you are being paid what you are worth for your unique abilities and job? For powerful salary data and comparisons customized for your exact position or job offer, build a complete profile with PayScale's Salary Survey.
Director of Quantitative Analysis, PayScale, Inc.