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The PayScale Index: Are Wages Going Up or Down?

Today PayScale released the Q4 2010 results for the PayScale Index. For people who missed our first release in October, and my blog post describing the PayScale Index, the PayScale Index tracks how the market price of private sector full-time employees, as represented by the wages they are paid, changes over time.

In this post, I'll look at our results for 2010, and then compare the PayScale Index with three common measures of labor market health: the Unemployment Rate, median Usual Weekly Earnings, and the Employment Cost Index. While each is different from the PayScale Index, they are all trying to get at the same thing: how is the labor market in the US doing?

National trends are interesting, but what is your market price? In about 5 minutes you can find out what you are worth with the comprehensive PayScale salary survey.

Key Salary Trends of 2010

Our Q4 report closes out 2010, and lets us look back at what happened over the year. The picture is not as bad as 2009, when wages actually dropped, but is not yet indicative of a robust recovery.

For a more detailed look, look through the data yourself, or check out Bridget Quigg's Salary Reporter post. Here are a few highlights for 2010:

  • Nationally, private sector wages were virtually unchanged for 2010, with Q4 down 0.2% from 12 months earlier
    • Only one city in the top 20 largest had a positive annual increase: Detroit (+0.3%), which had been beat up badly during the recession
    • The large growth metropolitan areas of the south and west - Phoenix, LA, Riverside, Atlanta, San Francisco, Miami, San Diego - all saw annual wage declines of 0.6% or more
    • This is a case were being in the big city is not an advantage; smaller metros and rural areas averaged better wage gains (smaller losses) than the largest 20 metros
  • Since 2006, wages are only up 0.3%, while core inflation (no energy and food) is up 4.5% in the same time period
    • This means the median worker, doing the same job for the same employer, effectively has had a 4.2% pay cut
    • Only 3 of 16 industries - Mining, Oil and Gas Exploration, Utilities, and Healthcare - have wages at the end of 2010 that have beaten core inflation since 2006
  • While far from a normal year, where wages typically rise 2 to 4%, at least some industries are showing signs of recovery
    • Mining, Oil and Gas Exploration, Utilities, Healthcare, Real Estate, Finance and Wholesale Trade are up 0.1 to 0.8% over a year earlier
    • Retail and Transportation were even for the year
    • The big losers are Hotels and Restaurants, Business Support Services, Construction, and Arts and Entertainment, which are down 0.9 to 1.3% in the last year

While the story may look negative for wages in 2010, it is actually positive compared to 2009, where every industry and metro was down for the year, and the worst industries and metros saw wage declines of 2% and more.

In the next few sections, I'll compare the National PayScale Index (for all workers and industries), with common economic indices. While there are similarities, the PayScale Index gives one of the sharpest pictures into what is actually happening with full-time private sector employee pay in the United States.

PayScale Index vs. Unemployment Rate

If the wages of workers are set by market forces, then, as demand for workers drops and supply increases (because of layoffs), we expect the market price (pay) for workers should also drop.

The follow table compares the PayScale Index to the unemployment rate for full-time workers (BLS/CPS series LNU04100000Q for the technical). By using full-time workers only, we avoid fluctuations due to students entering and leaving the market place for part-time labor.

PayScale Index vs Unemployment Rate 
What do you know, market economics works! As unemployment rose in 2008 and 2009, wages increases first slowed, and then wages actually dropped. With no significant improvement in unemployment during 2010, wages have continued to be flat.

This unemployment rate, like the PayScale Index, is not "seasonally adjusted"; one interesting effect is that the annual first quarter jump in unemployment corresponds with a decline (or slower increase) in the PayScale Index. Looks like January to March is not the time to look for a new job :-)

PayScale Index vs. Usual Weekly Earnings

The Median Usual Weekly Earnings for full-time wage and salary workers 25 years old and older (BLS/CPS series LEU0252887700), looks at how much people who have jobs are earning.

While at first blush it would seem to be the same as the PayScale Index, there is one big difference. If more low-wage workers are laid off than high wage workers, Usual Weekly Earnings can go up, even if no one gets a raise. The reason is that, unlike the PayScale Index, Usual Weekly Earnings does not attempt to correct for changes in the average abilities of workers.

PayScale Index vs Usual Weekly Earnings 
One thing we know about this recession is that it hit high school graduates much harder than college graduates (9.8% vs. 4.6% unemployment). Since college graduates typically earn more than high school graduates, the median wage could go up even if no one gets a raise.

The sharp rise in Q1 2009 over Q4 2008 points to this effect. The fluctuations in 2010 point to the addition of a lot of (low wage) census workers in Q2, who started to be laid off again in Q3.

PayScale Index vs. Employment Cost Index

The last comparison is with the Employment Cost Index (ECI) of wages and salaries for all private industry workers (BLS/ECI series CIU2020000000000I).

The ECI is an index of the wages paid by an "establishment" (business), which is constructed by looking at how the pay of a basket of workers in specific jobs at specific companies changes over time.

PayScale Index vs Employment Cost Index 
O.K., the recession happened - didn't ECI get the memo? There is a slight inflection in the ECI around the end of 2008, but otherwise there is almost no recognition of the dramatic economic upheaval we are going through in the US.

The reason for this is technical and has to do with the way the ECI is constructed:

  • ECI tracks wages within companies only: it is very hard to cut wages of existing workers
  • ECI has a "survivor" bias, reporting only the pay of companies that don't go out of business (a huge effect in, e.g., construction)
  • ECI doesn't track drops in wages when employees change companies
  • ECI doesn't track changes in variable pay (bonuses, profit sharing, overtime) very well
  • ECI is limited in its ability to control for the same creeping increase in worker ability with layoffs as the median usual weekly earnings measure suffers from

More than You Wanted to Know

This is probably more information about salary and wage trends than you actually wanted, but I am so excited about the PayScale Index, I have a hard time stopping :-)

Spend some time looking at all the PayScale Index data: we are tracking 3 sizes of companies, 16 major industries, and the 20 largest metros, in addition to the national PayScale Index I talked about here.

Do you know if you are being paid what you are worth, given the market price 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.

Cheers,

Al Lee
Director of Quantitative Analysis, PayScale, Inc.

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