John Phipps: Despite Tight Labor Market, Seeing Stagnant Wage Growth

15:45PM May 22, 2019

Despite a tight labor market, wages are not rising at the rate you might expect. John Phipps explains in John's World.( Farm Journal )

Like United Methodists all over the country, we just learned we will be getting a new pastor. This news always is tinged with sadness (or relief) and a little anxiety, but it is feature of our denomination’s method of matching congregations and clergy that becomes familiar after a couple of cycles. What did make this change more notable for me was a conversation I recently had with a member of our county development foundation about local labor economics. Our tiny county is relatively blessed with some light manufacturing in the largest town.  Like many areas of the nation there is a local complaint about workers being hard to find. Despite that problem, wages are not rising at the rate you might expect. In fact, real (after inflation) median wage growth during this historically tight labor market have averaged about 1% annually for years.

John Phipps labor

 It’s one of the biggest factors contributing to low inflation, but why it is happening is a subject to debate. Certainly, weaker labor organizations like unions have been a factor, but the person I spoke with felt it was labor immobility in our community that makes raises hard to get. Unlike Methodist pastors, people are not relocating to find higher wages or better jobs, and employers have come to discount that possibility. Their workforce isn’t going to leave, so unless a new local employer adds wage competition, their workers have little leverage in negotiations.  To support this theory, note that in rural counties like mine, the rate at which people move across county lines is about half what it was in 1980.

The reasons are manifold and interrelated:

  1. Two-earner households are more common which means two career changes. This is hard and risky.
  2. Loss of support system. Hard-to-find and expensive child-care needed by dual earner families may tie them to local family members like parents or siblings to supply it.
  3. Cultural divides. Notice how many of us in the country talk about “big city” residents and lifestyles. True or exaggerated, those images mean moving to cities where jobs and wages are better would require an attitude change about city life.
  4. A growing urban-rural educational gap. Rural residents often have trouble getting the training needed for better jobs.

There are other factors, but one result is those who are less affected by these forces, like young rural college graduates are the most likely to leave. And they are – the lamented rural brain drain. As people relocate less frequently, the idea of moving itself can become downright scary, a cycle that can leave people feeling helpless and trapped. While we are watching for signs of rural economic stress due to low farm prices, it may be these other factors that have more impact on our community’s future and our own satisfaction.


John's World 05/18/19