It has been a bumpy ride for wages in major cities over the last few years. The swing from speedy growth to heavy losses was dramatic once the recession hit. So, what exactly happened with wages before, during and after the recession and where are we now?
Online salary database PayScale.com has analyzed the huge body of salary data on private-industry, full-time employees that it has collected since 2006 and developed a new measure of compensation trends called The PayScale Index. PayScale reveals just how bad the recession was for private workers' earnings and why we now may be able to breathe a sigh of relief as some positive signs emerge. Maybe.
How bad did it get?
Workers' wages suffered greatly during the recession. Let's use the San Francisco metro area as an example of the huge drop in earnings caused by the recession.
Before the recession, back in Q3 of 2007, wages in the San Francisco area were up 5.4 percent over the previous year. That means that a job paying x amount of money, on average, in Q3 2006 was paying 5.4 percent more the following year, assuming experience level, education, etc. were identical between the 2006 worker and the 2007 worker.
In Q3 of 2008, wages were up only 1.1 percent over the previous year. The recession was just beginning to have an effect. And by Q3 of 2009, earnings for full-time private workers in San Francisco were down an average of 1.3 percent from the previous year.
It's important to note here that companies rarely lower employees' base salaries, but a smaller bonus, reduced sales commissions or starting a new job at a lower salary level can lower wages overall. This is what happened in San Francisco and nearly every major city in the country during 2009.
And, this reduction in earnings doesn't account for the thousands of people who lost their jobs. The PayScale Index only factors in information about currently employed people.
Glimmers of hope
Where are we now and why might it be safe to smile again? Rather than the across-the-board wage losses seen in Q3 2009, Q3 2010 found many of the 20 metro areas PayScale studied, enjoying wage growth or at least no losses.
In some cases, this upward shift has been dramatic. Baltimore, for example, gets the wonderful distinction of having the highest wage growth of any of the metro areas in The PayScale Index. Since Q3 of 2009, wages in Baltimore have grown 1.6 percent.
Top 5 metro areas with the fastest-growing wages:
- Baltimore Metro Area (1.6% wage increase)
- St. Louis Metro Area (0.6% wage increase)
- Washington, D.C. Metro Area (0.5% wage increase)
- Phoenix Metro Area (0.4% wage increase)
- New York Metro Area (0.4% wage increase)
Al Lee, director of quantitative analysis at PayScale, notes that many of the cities doing well right now are ones that were less successful before the recession so their wages had less far to drop. No matter what, though, wage growth of any kind is a good sign for the entire economy.
And, if you are in one of the cities where wages are not increasing, fear not. At the very least, wages in each of the 20 metro areas have stopped tumbling. Most drops are less than half of a percent. This change is more heartening than the 2 percent drops we saw in 2009. Time will tell if these positive trends are here to stay.