Virginia Wages: Are We All Better Off?

If you pay attention to our world, you already know that the economy is strong. It is doing so well that the Federal Reserve Bank has raised interest rates multiple times in order to slow it down. What is their fear? That people's wages are going up too fast, and that prices will soon follow. Their priority is to prevent inflation, and working people's paychecks take the back seat.

But in Virginia, how have wages really changed over the last few years? Is everyone getting paid more, or only those in high tech businesses? And if everyone is getting paid more, are they getting paid enough to escape poverty?

What Are We Earning?

Here are some possible ways of looking at the data:

What did we earn annually on the job?

In 1998, the average individual in the United States earned $31,908. The average individual in Virginia earned $31,384. State averages in 1998 ranged from $40,915 in Connecticut to $21,648 in South Dakota. While average pay grew approximately 5.2 percent (in real terms) in the United States between 1990 and 1997, it grew 7.2 percent in Virginia. Virginia experienced the fourth fastest increase in annual pay of all states between 1997 and 1998 (behind Washington, Colorado and Georgia).

What did we have available to spend per person?

The average Virginian had $25,010 at his or her disposal in 1999, compared to $24, 297 for the average U.S. resident. Connecticut residents, on average, had $31,797 available per person and Mississippi residents only $18,241 per person.

What does a particular job pay?

The following table from the National Compensation Survey presents data from two surveys, conducted in August 1997 and February 1999 in the Richmond-Petersburg area. Data for a larger number of occupations in Virginia and other states and national averages can be obtained from the Bureau of Labor Statistics web site at http://stats. bls.gov/compub.htm.

Earnings increased faster than the cost of living in most occupations. The national increase in the consumer price index from August 1997 to February 1999 was 2.3 percent. Earnings in many blue-collar and entry-level jobs grew as rapidly as earnings in white-collar and skilled jobs. Thus, the strong economy has provided benefits to workers at all occupational levels.

Is Everyone Earning Enough?

Has the extraordinary economic growth of the 1990s allowed most entry-level or low-skilled workers to bring their families out of poverty?

In 1998, the U.S. poverty threshold for a three-person family with two children was $13,133 – that is, an “average” family of this composition would need at least $13,133 to cover the bare minimum for food, housing, clothing and other necessary expenses. A four-person, two-child family (i.e., two adults, one or two earners) would need $16,530.

To avoid poverty, an entry-level or low-skilled individual must generally work full-time, year round. Many entry-level jobs do not provide vacation pay; assuming most workers find it necessary to take some time off for personal reasons, full-time year-round work might reasonably be 40 hours per week for 50 weeks a year (for 2,000 hours).

But a single mother with inadequate childcare coverage, for example, may have difficulty working this many hours. An individual working 2,000 hours per year would need an hourly wage of $6.57 to meet the poverty line of $13,133 for a three-person, two-child family. An individual working 2,000 hours per year would need an hourly wage of $8.27 to meet the four-person, two-child poverty line of $16,530.

The table below shows the trend in the poverty rate for the U.S. as a whole and for Virginia. The poverty rate in Virginia is lower than the national average. The trend in the Virginia poverty rate, however, is different from the national trend. The rate in the U.S. as a whole has steadily declined since the 1991-92 recession. In Virginia, the poverty rate continued to climb until the 1996-98 period.

On the other hand . .

The above analysis suggests that many people in Virginia are earning enough to escape poverty. However, there are other important factors that prevent many others from earning enough money:

Employment and unemployment – jobs and hours of work

Success in the current economy requires that a worker be able to find a full-time, year-round job AND have an adequate support network available for childcare and personal needs. Although the average unemployment rate in Virginia is quite low (less than 3 percent of the labor force is unemployed), there is considerable variation across the state. The unemployment rate also varies by race and sex, with women experiencing slightly higher rates of unemployment than men and people of color experiencing higher unemployment rates than whites.

In 1998, the highest rates of unemployment in Virginia occurred in the Southwest corner counties of Buchanan (14.1 percent), Dickenson (15.7 percent), Wise (10.3 percent) and Tazewell (8.5) and in the Northern Neck county of Lancaster (10.4 percent) and Eastern Shore county of Northumberland (8.7 percent). The cities of Norton (7.0 percent) and Danville (6.1 percent) also experienced relatively high unemployment. The lowest rates of unemployment occurred in the counties of Albemarle (1.2 percent), Rockingham (1.3 percent), Loudon (1.3 percent), Greene (1.5 percent), Fairfax (1.6 percent), Fluvanna (1.6 percent), Stafford (1.6 percent) and Roanoke (1.6 percent) and the cities of Fairfax (1.3 percent), Harrisonburg (1.4 percent) and Charlottesville (1.7 percent).

The 1998 Virginia unemployment rate for all workers (16 and older) was 2.9 percent. For whites, it was 2.3 percent and for blacks, 5.0 percent (which reflected a 3.7 percentage point drop from 1997). The unemployment rate for women was 3.7 percent and for teenagers (ages 16-19), 12.4 percent.

Some argue that workers in areas with high unemployment rates can and should migrate to areas where workers are in short supply, but there are significant costs associated with doing so. Workers must gain information about job and housing availability elsewhere and must search for employment and housing. They must move themselves and their families and may need to sell a home and other possessions. They must leave family, friends and a familiar environment. Faced with these costs, many workers will choose to remain in an area of high unemployment and continue their local job search.

Also, official unemployment statistics do not capture the phenomenon of underemployment. Underemploy-ment occurs whenever a worker is employed part-time but desires a full-time job or is employed in a job that does not make full use of her skills and pays significantly less than she desires to earn. Workers in these situations are counted as employed but are still likely to be looking for better work situations.

The poverty rate

Many (if not most) full-time, year-round workers in entry-level jobs can earn enough to bring their families above the official poverty level. But what does this mean for actual living standards?

Today's official poverty thresholds are based on food consumption patterns of poor people in the 1950s. At the time, poor families spent, on average, 1/3 of their income on food and 2/3 of their income on non-food purchases. To define the poverty line, the minimal adequate food budget (adjusted for family size) was multiplied by 3. This poverty line has been updated annually for cost of living changes since 1963.

Poverty researchers and others have suggested that, given our greater access to information about income and expenditure patterns for poor people, it is time to radically change the way we measure poverty. The Census Bureau has started calculating poverty rates under several experimental definitions of poverty. These are based on actual income and expenditures of poor people relative to the amount of income necessary to purchase basic goods and services. They include market, governmental and other sources of monetary income and in-kind goods and services and subtract tax payments, childcare and other work-related expenses. The implied experimental poverty rates differ from the official poverty rates, as shown in the table below:

Thus, although many current workers earn enough to exceed the official poverty threshold, they do not earn enough to cover their real expenses.

The “last hired, first fired” worry

The largest drop in unemployment rates in recent years has occurred for black workers. We can celebrate the increased likelihood of finding a job for people of color. But in an economic downturn, the workers who have held their jobs for the shortest period of time are generally the first ones to lose their jobs, since they have the least experience and seniority. Those workers who have gained employment in our current strong economy may not see their gains persist through an economic downturn.

Conclusion and Policy Responses

It is clear that a strong economy offers benefits for many low-skilled as well as high-skilled workers. However, as strong as our economy is, it does not bring enough economic rewards to some full-time, year-round workers to allow them to cover all of their most basic expenses. Are there policy changes that could allow all workers to exceed a realistic poverty line?

“Market-oriented” economists, who strongly influence our national and state policy at the moment, have favored reducing government regulations on businesses, eliminating the minimum wage to reduce the cost of hiring and training and encouraging increased employment opportunities for low-skilled workers. With most areas of the country experiencing extraordinarily low unemployment rates and most entry-level jobs paying significantly above the minimum wage, it is unclear how simply eliminating regulations to increase employment will provide any real benefits to poor people.

Other economists who focus on the failure of markets alone to achieve social goals of fairness and equity favor programs that increase work incentives but provide a safety net for those who are temporarily or permanently unable to find work. One favorite is the Earned Income Tax Credit, which promotes participation in the labor force and increases the monetary income associated with work for low-income workers. A large increase in the Earned Income Tax Credit at the federal and state level would go a long way towards bringing working families out of poverty. Increased funding for education and training programs (particularly those with apprenticeship or on-the-job training components) would help workers move up the economic ladder. Continued focus on discrimination in employment and in education and training is also necessary.

Current projections are for continued, if slower, economic growth for the next few years. Most poor people will continue to work and earn more, but too many will not earn enough to cover their real expenses. In the mean time, we wait anxiously for the next recession. How many of the recent gains in employment and wages will persist, and will the safety net will be large enough to catch everyone who falls?

Special thanks to Amy McCormick, a labor economist who teaches at Mary Baldwin College in Staunton, Virginia, for her contributions to this article.