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 Chelan & Douglas 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 15% netting workers an increase of 8% in their real annual wages.
Chelan Douglas Trends 2.1.3 Overall Annual Wage provides data on average annual wages for the counties of Chelan & Douglas 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 Chelan & Douglas was just over $48,000, up almost 7% from $45,000 in the pandemic year of 2020. The inflation rate for the western US was 4.5% over the year. In comparison, Washington state overall saw very strong growth in wages, with a 12% increase in nominal wage and a corresponding 7.5% 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 30%, exceeding the five-year inflation rate of 16%. 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 Chelan County (31%) has exceeded the growth of nominal average wages for Douglas County (28%). This has resulted in an increase in real wages of 13% for Chelan County workers and a 10% increase in real wages for Douglas County workers.
While Chelan Douglas Trends (CDT) 2.1.3 Overall Annual Wage provides overall annual average wage, CDT 2.1.4 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 Chelan & Douglas, the top five employing sectors in 2021 were: (1) Agriculture, , (2) Retail trade, (3) Healthcare & social assistance, (4) Accommodation & food services, and (5) Government.
Chelan & Douglas counties both have recently experienced very strong growth in wages in accommodation and food services. The combined counties have seen an increase of 18% over the past two years and a 40% increase over the previous five years in nominal wages. This has bested the state average growth in this sector of 12% for the two years and 32% for the past five years. Not only is accommodation and food services an important part of the local economy, workers in this sector are seeing above average increases in their nominal wages compared to the state.
On the other hand, growth in retail trade wages have grown over 66% across the state in the past five years, but the combined counties of Chelan & Douglas have only seen wages in retail increase by 25% in Chelan and by 33% in Douglas. 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 Chelan & Douglas could start to tick upwards in response to the increases of retail wages across the state.
The two largest employing sectors in the combined counties are agriculture and government. Nearly one in five workers are employed in agriculture and nearly one in every six workers is employed in government. To gauge whether local wage growth is likely to continue, it is important to consider what has been happening to annual average wages in these two sectors in particular.
Statewide, annual average wages in agriculture have increased over 10% in the past two years and 23% over the past five years. Average wages in agriculture in Chelan & Douglas have exceed the state average. Locally, wages have ticked upwards more than 15% just in the past two years and over 33% in the past five years.
Chelan & Douglas have also seen higher rates of growth than the state in the annual average wages in the government sector. Over the past two years, government wages have increased nearly 16% (compared to the state average of 12%) and the past five years have seen an overall increase of 30% (besting the state average of 27%). Annual wages in government are among the highest paying of all the sectors and in Chelan & Douglas the annual average wages in government exceed $68,000.
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 4% 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.