Leading Indicators

Inflation in Greater Philadelphia – Part 4: Wage Growth and Inflation

This data brief marks the fourth part of our series covering the localized impact of inflation on Greater Philadelphia. In the first three parts of this series, we unpacked how regional inflation is measured, how Greater Philadelphia’s inflation compares with peer metropolitan regions, and disaggregated inflation rates for different everyday goods and utilities. We began this series with a question of the impact of inflation on metropolitan regions with high poverty rates and stagnant wages. In this Leading Indicator, we dive deeper into this question by comparing localized inflation to metropolitan regions’ average wage growth. By tracking how well residents are paid in comparison to the rising cost of living, we will better understand Greater Philadelphia’s resiliency in the face of economic shocks.

What You Need to Know

Much of the recent employment gains in Greater Philadelphia in the past decade have come from low-income, foundational-skill-level employment opportunities.
Prior to the pandemic in 2019, below-living wage occupations accounted for 34.7 percent of the region’s total employment and saw an average annual growth rate of 2.4 percent between 2012 and 2019. Above-living wage occupations in the region grew annually by just 0.9 percent during the same period.
Our region’s tendency toward the growth of low-income, foundational-skill-level employment opportunities made our workforce less resilient to the economic downturn caused by the COVID-19 pandemic: below-living wage employment plummeted almost 20 percent from 2019 to 2020.
The growing cost of everyday items in Greater Philadelphia (measured by inflation) has outpaced wage growth in the past decade.
Between 2011 and 2021, the indexed cost of everyday items increased by 14.4 percent while average wages in the region only increased by 8.2 percent; in other words, in real terms, workers in our region lost purchasing power during this period.
A cogent example of this growing difference between the cost of living and wages comes from the regional housing market: the median sale price for a residential property jumped by more than $100,000 from 2011 to 2021 - from $162,450 to $267,492 in real dollars. By comparison, average wages in the region only increased by $6,000 in the past decade – from roughly $59,691 to $66,706, in real dollars.
In 2011, it took approximately 2.7 years of annual salary to afford the median sale price of a home in Greater Philadelphia; in 2021, it takes more than 4 years of salary.
However, Philadelphia fares better than peer metros. With an annual average difference of 2.8 percent between its inflation and wage growth rates, the difference in Greater Philadelphia’s cost of living and wages is below peer metropolitan regions and the national average of 4.5 percent.
Metropolitan regions on the West Coast and Sunbelt have seen substantial increases in their inflation rates while sustaining little to no average wage growth between 2011 and 2021. Greater San Francisco saw an average annual difference of 20.3 percent between its inflation and average wage growth rates.

The High Cost of Living Below a Living Wage

As previously discussed, price surges on everyday goods can severely impact a region where a large portion of the population cannot afford the average cost of living. In previous Leading Indicators and reports, we have monitored recent employment growth in Greater Philadelphia and found that much of our recent job gains have come from low-income, foundational-skill-level employment opportunities. The concentration of employment growth among these occupations has also contributed to stagnant wage growth in our region since pay for many of these jobs hovers at or just above the federal minimum wage, which has not been raised since 2009.

In a previous Leading Indicator, we applied MIT’s Living Wage calculation to Greater Philadelphia’s occupational employment to better capture the growth of low-income employment opportunities. Figure 1 shows the proportion of Greater Philadelphia’s occupations with a median wage above and below the regional living hourly wage (calculated in 2020 for a single adult without dependents to be $14.47) from 2012 to 2020, using estimates from the U.S. Bureau of Labor Statistics’ Occupational Employment Statistics program.

FIGURE 1

SOURCE: Living Wage Calculator and U.S. Bureau of Labor Statistics’ 2012 through 2020 Occupational Employment Statistics program estimates.

NOTE: Some occupational categories of the Occupational Employment Statistics program do not detail annual or hourly wage estimates (approximately 3 percent), thus the total employment percentages exclude these occupations. The Living Wage Calculator estimates were inflation-adjusted for each year from 2020 dollars.

Prior to the pandemic in 2019, below-living wage occupations accounted for 34.7 percent of the region’s total employment [1]. This means over a third of workers in the region struggled to afford basic necessities like housing, food, transportation, and medical care. Between 2012 and 2019, this type of employment had been growing by an annual average rate of 2.4 percent while occupations earning above a living wage grew by just 0.9 percent. A greater reliance on this type of employment made our workforce less resilient to the economic downturn caused by the COVID-19 pandemic. Below-living wage employment plummeted by almost 20 percent in Greater Philadelphia from 2019 to 2020, and—since there were no commensurate gains in above-living-wage employment—these declines show the dramatic impact of layoffs and furloughs in the wake of the pandemic.

With most of Greater Philadelphia’s recent employment growth coming from these below-living wage occupations, any significant rise in the cost of living is likely to seriously impact a large portion of the population. Calculating the gap between inflation and wage growth rates in Greater Philadelphia can better determine how resilient the region will be to economic shocks.

Stagnant Wages but Increasing Costs

As previously discussed in part one of this series, stagnant wage growth in Greater Philadelphia has lagged inflation. Figure 2 shows that the growing cost of everyday items in the region (measured via the region's CPI) has outpaced wage growth. The growth difference between inflation and wages is captured by the shaded light blue area of the graph. In an ideal case, the rate of growth between inflation and average wages would be equal and there would not be any shaded blue areas; this would indicate average wages are keeping pace with the general cost of living. As figure 2 shows, however, that is not the case for Greater Philadelphia in the past decade.

FIGURE 2

SOURCE: Consumer Price Index for all Urban Consumers (CPI-U) within the Philadelphia-Camden-Wilmington, PA-NJ-DE-MD and the Average Hourly Wage of Total Private Employment from the U.S. Bureau of Labor Statistics.

NOTE: 2021 estimates for both the CPI and Average Hourly Wages are averages from the January through September monthly estimates. Some monthly estimates are preliminary, at the time of writing.

Between 2011 and 2021, the indexed cost of everyday items increased by 14.4 percent – with an average annual increase of 1.4 percent. Thus, on average, an item that cost approximately ten dollars in Greater Philadelphia in 2011 would cost about $11.44 by 2021. Average wages, on the other hand, only increased by 8.2 percent in the past decade - a little over half the growth rate of inflation. In other words, if a Greater Philadelphia employee made ten dollars an hour in 2011, and only saw pay increases consistent with the region’s average, their pay would be roughly $10.82 an hour in 2021 – a gap of $0.62 between the cost of everyday items and hourly wages in 2021.

A $0.62 difference between the cost of goods and wages may seem trivial but when the previous thought experiment is amplified to annual salaries and housing prices, the cost differences are more significant. Figure 3 shows how the median sale price of residential properties in the region has far outstripped the growth in average wages.

FIGURE 3

SOURCE: Monthly Redfin Housing Market estimates from 2012 to 2021 and the Average Hourly Wage of Total Private Employment from the U.S. Bureau of Labor Statistics.

NOTE: The non-seasonally adjusted Average Hourly Wage of Total Private Employment was converted to real dollars and multiplied by 2080 to simulate an annual salary estimate.

In 2012, the median sale price for a residential property in Greater Philadelphia was $162,450 while the average annual salary was roughly $59,691, in 2021 dollars. It would cost approximately 2.7 years of pay to afford the median sale price in the region in 2011. By 2021, the median sale price jumped by over $100,000 to $267,492 while the average annual wage rose by just under $6,000 to $66,706, as of August 2021. Thus, by 2021, it would take over 4 years of pay for the average salaried worker to afford the median home price in Greater Philadelphia. The real estate industry’s standard for buying a home is that a household should spend no more than 2.6 times its annual income on a home [2], which means that even in Greater Philadelphia median-priced homes are beginning to outstrip the purchasing power of average income earners.

It should also be noted that the recent jump in average wages from 2019 to 2020 largely reflects the loss of low-wage employees during the COVID-19 pandemic, rather than a general increase in wages. The loss of these workers, due to layoffs and furloughs, in the calculation of the region’s average wage pulled the average higher to reflect the more secure positions of middle- to higher-wage workers who remained employed in the region. In fact, the regional unemployment rate jumped from 4.1 in 2019 to 9.2 in 2020 [3].

Stagnant Wages and the Proportional Impact of Inflation

Comparing the growth in inflation and average wages across metropolitan regions can provide a better sense of how Greater Philadelphia compares to its peers in the proportional impact of inflation. Figure 4 replicates the relationship shown in figure 2 across the 20 largest U.S. metropolitan regions while figure 5 details the average annual difference between each region’s growth rates for inflation and average wages (i.e., the average amount of shaded light blue area per year).

FIGURE 4

NOTE: 2021 estimates for both the CPI and Average Hourly Wages are averages from the January through September monthly estimates. Some monthly estimates are preliminary, at the time of writing.

FIGURE 5

NOTE: 2021 estimates for both the CPI and Average Hourly Wages are averages from the January through September monthly estimates. Some monthly estimates are preliminary, at the time of writing.

As with our previous analyses in this series, a few metropolitan regions in the West and Sunbelt saw significantly higher levels of inflation when compared to Greater Philadelphia and also saw large differences between their inflation and wage growth rates. Greater San Francisco, Greater Miami, Greater San Diego, Greater Denver, and Greater Seattle all saw average annual differences of over ten percent. In fact, Greater San Francisco saw an average difference in its inflation and wage growth rates by 20.3 percent. This is unsurprising considering the average wage in Greater San Francisco in 2021 was only one percent greater than it had been a decade before; with an average annual increase of roughly $0.05 from 2011 to 2021.

Only a few metropolitan regions saw average growth exceed the cost of living in the past decade. Greater St. Louis saw average wages keep pace with inflation from 2011 to 2014 and then exceed the inflation growth rate from 2019 and 2020. Greater Chicago, Greater Dallas, and Greater San Diego also saw small instances of wage growth exceeding the cost of living in the early 2010s. Greater Atlanta has seen its inflation growth rate plummet while average wages spike in 2021. While some of this may be from the loss of low-income employment during the pandemic, a portion may be due to a more competitive labor market offering higher wages this past spring and summer [4].

Greater Philadelphia is third from the bottom among its peer metropolitan regions with an average annual difference of 2.8 percent. Only the metropolitan regions of Chicago and St. Louis saw smaller differences – at 0.5 and 0.3 percent, respectively. Greater Philadelphia also trails the national average by 1.7 percent; indicating that our region’s wage growth and cost of living are far slower in comparison with the experience of other metropolitan regions – particularly along the West Coast and the Sunbelt.

Looking to an Affordable Future

As with our previous findings from this series, the impact of inflation in Greater Philadelphia is minimal in comparison with other regions. This does not mean that sudden price surges will go unnoticed –particularly by those in lower income brackets. Rather, Greater Philadelphia has remained more affordable than many of its peer metropolitan regions, in terms of the general cost of living. This has significant implications for the future of Greater Philadelphia’s economic well-being and equitable prosperity going forward. It is possible that closing the gap between the cost of living and wage growth is more feasible in Greater Philadelphia than in other metropolitan regions of the country.

Similarly, as our region looks to attract major employers and build industries from the ground up, it makes sense to remain cognizant of equity, inclusivity, and affordability considerations. Many of the metropolitan regions touted as recent economic powerhouses—such as Greater San Francisco, Greater New York City, Greater Seattle, and Greater Boston—have sustained stagnant wages for some time while their costs of living have skyrocketed. Greater Philadelphia has an opportunity to focus on equity as it seeks to attract, retain, and grow businesses, targeting industries and businesses with proven track records of offering middle-income and career building employment opportunities or sustained investments in local workforce development strategies.

Read More About this Subject:

Inflation in Greater Philadelphia – Part 1: De-Mystifying Local Inflation

Inflation in Greater Philadelphia – Part 2: Comparing Metropolitan Inflation

Inflation in Greater Philadelphia – Part 3: Looking in the CPI’s Basket of Goods

Works Cited

[1] Shields, Michael. 2021. “Living Wage Employment in Greater Philadelphia.” The Economy League of Greater Philadelphia: Leading Indicators, 2 June. Retrieved from: (https://economyleague.org/providing-insight/leadingindicators/2021/06/02/livingwage2020).

[2] Tekin, Eylul. 2021. “A Timeline of Affordability: How Have Home Prices and Household Incomes Changed Since 1960?” Clever, 1 March. Retrieved from: (https://listwithclever.com/research/home-price-v-income-historical-study/).

[3] U.S. Bureau of Labor Statistics. 2021. Local Area Unemployment Statistics: Philadelphia-Camden-Wilmington, PA-NJ-DE-MD Metropolitan Statistical Area. Retrieved from: (https://www.bls.gov/lau/data.htm).

[4] Fowers, Alyssa and Eli Rosenberg. 2021. “The geography of the Great Resignation: First-time data shows where Americans are quitting the most.” The Washington Post, 22 October. Retrieved from: (https://www.washingtonpost.com/business/2021/10/22/states-labor-quitting-turnvoer-jolts/).