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Higher Wages Across Southern Indiana

–Are wage changes permanent, or a temporary adjustment of the Covid economy?

By Dr. Uric Dufrene, Sanders Chair in Business and Professor of Finance, Indiana University Southeast

We now have a full year of employment and wages data at the county level for all of 2020.   The 4th quarter data for 2020 were recently released, and the results show record-breaking changes for the five Louisville Metro counties across Southern Indiana.

First, the data (Quarterly Census of Employment and Wages, STATS Indiana) show that Southern Indiana continues to recover jobs lost in the early stages of the pandemic.   The latest show that the region is down about 2,800 jobs from the previous year (2019 Q4 to 2020 Q4).    All industries saw declines, except for transportation and warehousing, gaining 1,600 jobs, and public administration, showing a plus 214 jobs from the prior year.

The largest decline occurred in manufacturing, down 1,553 from the previous year.   This is a considerable improvement from the 2nd quarter of 2020 when manufacturing was down almost 4,000 jobs from the previous year.   Accommodation and food services declined by almost 1,000 jobs from the prior year.   Again, this is a respectable improvement from the 2nd quarter of 2020 when firms in accommodation and food services were down approximately 3,100 from the previous year.   Health care and social services declined by almost 700 jobs from the prior year, compared to the approximate 2,400 lost jobs in the second quarter.

Significant layoffs occurred in March and April of 2020, but the region has been regaining jobs since.  April 2020 will likely be viewed as the bottom in the nation’s economy, and locally, job losses also accelerated.  The second quarter of 2020 saw the region lose approximately 11,500 jobs from the previous year, almost double the job losses that occurred in the Great Recession.    Southern Indiana has made significant progress in recovering the jobs that were lost in the 2nd quarter of 2020.    This latest data suggest that the five counties of Southern Indiana will recover all jobs during 2021.

The “record breaking” part of the Quarterly Census of Employment and Wages data can be seen on the wages side.    Wages across Southern Indiana saw a significant increase from the prior year.   Average weekly wages increased by $92 a week, moving from $846 in the 4th quarter of 2019 to $938 a week in the 4th quarter of 2020.   This represents an 11% wage increase in one year, and the weekly gain of $92 is the largest since 2001, the starting point for the data series.  Average weekly wages increased in all industries, except for transportation and warehousing, which observed a decline of $72.   Weekly wage increases were also observed across all Indiana metro regions, ranging from .1% in Kokomo to 18.5% for Elkhart-Goshen.

In manufacturing, payrolls were down 1,553 from the previous year, but total wages increased, along with the average weekly wage. The average weekly wage in manufacturing increased by $122, bringing the average weekly wage in manufacturing to $1,191, the highest in the data series. The combination of a lower jobs count, and higher wages suggest that area manufacturers saw gains to productivity in 2020, consistent with what was observed nationally. Expect the worker skills availability debate to only intensify.

Over the coming months, inflation will be one of the most talked about economic indicators.  Some inflation is desirable, and the Fed’s preferred inflation rate is about 2% a year.   The last report on CPI (consumer price index) showed year over year price increases of 4.2%, which was much higher than consensus estimates.   The Fed has indicated it is willing to see prices go higher than the optimal level of 2%.    The hope is that price increases over time will average out to the 2% inflationary rate target.

Employment costs will be closely monitored by the Fed.  Higher employment costs could ultimately trigger additional price increases, lower profits, or some combination of the two.  As of 2020 Q4, Southern Indiana establishments observed uniform increases in average weekly wages that were the highest since data were available from 2001.    Will these significant wage gains be sustained, or simply reflect 2020 Covid dynamics of the labor market?  That is an important question as we head into the second half of 2021 and the release of the 2021 Q1 data.

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