Why Haven’t Philly Wages Increased with Employment Levels? (Part 1)

There’s been an ongoing national discussion of the seeming paradox of concurrent wage stagnation and rising employment levels in the past decade since the Great Recession. As the Washington Post recently reported, while unemployment levels have reached a 50-year low, wage growth has been sluggish and has even backslid from estimates in February of this year. As economists, policymakers, and labor advocates continue to discuss the implications and possible solutions to this quandary, we at the Economy League want to offer some local context and data on employment and wage trends in Philadelphia.

This issue’s Leading Indicator is the first part of a story that asks, “Why haven’t wages increased with employment levels in Philadelphia?”

Key Takeaways:

• There were roughly 55,000 more jobs in Philadelphia in 2018 than there were in 2008 - during the midst of the Great Recession
• Average annual pay in Philadelphia, however, has only increased by $2,428 in the same ten-year period, adjusted for inflation
• The average annual growth rate for annual pay in Philadelphia from 2008 to 2018 is 0.3%
• The overall wage stagnation may stem from the composition of the growing sectors of the labor market – namely low-skill, low-wage jobs in Retail & Hospitality, Food Service, and Healthcare & Social Assistance

National Context

In 2011, economists and policymakers breathed a sigh of relief as employment estimates began to rise after stark declines during the Great Recession of 2007-2009. For many, this labor market recovery signaled the end of the recession. Eight years later in 2019 the nation’s employment levels continue to climb, but wages have remained relatively stable since 2008. Many experts remain puzzled since there are 11 million more jobs in 2018 than there were in 2008, the national unemployment rate is currently below prerecession levels, and yet the average annual wage has only increased by $4,153 in real dollars between 2008 and 2018. This equates to an average increase of about $415 per year, or 0.8%.

Mainstream economics suggests that wages typically rise as unemployment decreases, following the law of supply and demand: as the supply of available workers decreases, companies compete for this shrinking labor pool by offering higher salaries. Yet it seems that this basic tenet of economics is in doubt, and the supply of available workers is continuing to decrease while wages are barely budging.

The Philadelphia Story

In Philadelphia, the employment trends largely mirror national estimates. Using average annual employment and pay estimates from the Bureau of Labor Statistics' Quarterly Census of Employment and Wages, Table 1 shows the growth in annual employment levels and wages in both Philadelphia and the U.S. indexed to 2008 estimates. It is critical to note that that most employment estimates are in fact proxy measures that count “filled” full- or part-time jobs rather than individual employees; meaning an individual working multiple jobs is counted more than once [1].

TABLE 1 

Philadelphia lost proportionally fewer jobs than the country as a whole during the Great Recession (specifically 2008 to 2009), yet the recent growth in jobs in the city generally mirrors national trends. This is unsurprising considering that the recession had a greater effect on industries with smaller concentrations in Philadelphia than in other parts of the country – specifically manufacturing. Similarly, much of the recent growth in employment has come from service-oriented industries such as Accommodation & Food Service, Healthcare & Social Assistance, and Professional, Scientific, & Technical Services (to see the growth of these industries in Philadelphia, see the Greater Philadelphia By the Numbers section on page 10 of the Economy League’s 2019 GPLEX Briefing Book).

Comparing annual average pay, however, shows that Philadelphia fell behind the nation, particularly in the last four years. During the Great Recession, average wages in Philadelphia slightly outpaced the nation. Eventually, however, national average wage estimates surpassed and then began to slightly outpace Philadelphia. This trend continued until 2014 when a dip in inflation contributed to substantial wage growth for both the city and the nation in 2015, but the city then began to trail national estimates following this growth. In fact, by 2018, average annual wage growth in Philadelphia was half of that in the U.S.

Explanations

Why haven’t wages tracked employment growth either locally or nationally? While some believe it is the result of the declining power of organized labor, others link it to companies’ increased spending on employee benefits. Others, like Philadelphia’s Center City District, suggest that stagnant wages are a result of the types of jobs that have been added since the recession. We believe the evidence for Philadelphia at least supports the latter hypothesis.

In 2017, the Economy League was commissioned by the City of Philadelphia to conduct an analysis of employment and wage trends among a series of target industries. The resulting report showed that most of Philadelphia’s job growth since the recession has been among low- or foundational-skill occupations found within a few larger industries. Figure 1 (below) highlights both the addition and loss of jobs by skill-level for some of these industries. It shows that the city saw substantial job growth among low- or foundational-skill jobs (in yellow) while simultaneously seeing significant losses among middle- or specific-skill jobs (green).

Figure 1

Much of the city’s recent employment growth stems from increases in part-time, foundational-skill jobs with lower wages. As previously noted, most employment estimates are in fact counts of both full- and part-time jobs within a location. The sectors that have seen the most recent job growth in city have largely been in the Retail & Hospitality, Food Service, and Healthcare & Social Assistance industries. These industries have traditionally accounted for a large share of foundational skill, low-wage jobs.

Stay Tuned…

In the next issue of Leading Indicators, we will further unpack the growth in jobs by industry in Philadelphia, and we’ll put our hypothesis to the test to see if a large proportion of the city’s job growth can be tied to low-wage occupations.

[1] Bureau of Labor Statistics. 2019. "QCEW Questions and Answers." Retrieved from: (https://www.bls.gov/cew/questions-and-answers.htm#Q16).