This article was published in the Richmond Times Dispatch on March 8, 2020.
Annual average wage growth in the Richmond metro area and the state has lagged that of the nation from 2010, the year after the recession ended, through 2018, the latest full year of data.
National wages grew 22.6% over that period compared to 17.3% in the state and 16.4% in the Richmond metro area. Surprisingly, Northern Virginia rate was even slower at 14.4%.
When adjusted for inflation, wages grew 6.5% in the nation from 2010 through 2018 compared with 1.9% in the state, 1.1% in the Richmond metro area, and fell 0.6% in Northern Virginia.
Inflation-adjusted wage growth is important to monitor because it tells us how much more purchasing power consumers have. Higher inflation-adjusted wages also gives individuals a higher standard of living.
The results are not surprising as Northern Virginia fared poorly in the years right after the 2008-2009 recession because of the severe budget cuts that affected federal government employees and defense contractors concentrated in the region.
Though Northern Virginia resumed growth after 2014, the budget cuts slowed employment growth in professional, scientific and technical services which includes many federal contractors.
From 2010 to 2018, employment in this sector grew only 6% in Northern Virginia, slower than 17% in Richmond and 21% for the country.
Since almost one-in-five workers in Northern Virginia is employed in this industry, slow job growth dampens wage increases as current employees are afraid to seek raises, and businesses are able to offer relatively low salaries to new hires.
Other than government policies, consumer demand shifts and technology advances often lead to the rise and fall of certain industries in a particular region and that also will impact wage growth.
Labor economics tells us that the number of people employed and the growth rate of wages in particular industries change over time based on consumers’ demand for the goods and services they produce.
Take cameras, for example. The shipment of digital still cameras peaked worldwide in 2010 at 121.46 million units, according to the Camera & Imaging Products Association. The latest data for 2019 shows worldwide shipments fell almost eight-fold to 15.22 million cameras.
The creation of cameras in smart phones is the reason for the precipitous drop.
The result for workers is that the number of people manufacturing cameras has declined while the number producing smart phones has increased. We would expect to see wages going down or up relative to the supply and demand of workers with skills needed in each of these industries.
With a shift toward renewable energy, a 31% employment contraction in the mining, quarrying, and oil and gas extraction sector from 2010 through 2018 contributed to the annual average 6% drop in inflation adjusted wages.
But the mining sectors account for less than 1% of regional employment.
Despite the precipitous declines in wages and employment for mining sectors due to their relative small size in the overall Richmond economy, those declines were offset by wage increases in the finance and health sectors. That caused the overall wage growth in the Richmond region to outpace Northern Virginia.