This is Oregon Insight, The Oregonian’s weekly look at the numbers behind the state’s economy. View past installments here.
Oregonians’ paychecks are getting fatter.
With labor in short supply — and corporate profits soaring — workers are benefitting as employers scramble to attract and retain workers with higher wages. On average, Oregonians are earning about $65,000 annually, up 15% since before the pandemic.
That’s astonishing growth but, as anyone who’s been to the grocery store lately or tried to buy a car can tell you, it’s not nearly as good as it sounds.
Inflation is eating up a lot of that extra money, with costs rising by about 8% since March 2020. In recent months inflation has begun outpacing wage gains, resulting in people earning less in real dollars, even with higher wages.
The value of those paychecks has actually fallen over the past six months, according to new data from the Oregon Office of Economic Analysis. Nationally, prices rose by 6.2% in October, the fastest annual increase in more than 30 years.
The state analysts compared resurgent inflation to Godzilla in their quarterly presentations to lawmakers, a slumbering beast that has suddenly reawakened.
“Right now, real wages (after accounting for inflation) are declining a little bit in Oregon,” Josh Lehner told legislative committees Wednesday. “We’re expecting real wages to be relatively flat, maybe into the middle of next year.”
Economists believe they have a good understanding of what’s causing the inflationary spike: supply chain breakdowns triggered by the pandemic and a nationwide worker shortage, coupled with rising consumer spending driven by higher incomes. That has created a shortfall of all manner of products, from used cars to toys.
What economists don’t know is what to do about it. In other inflationary cycles, the Federal Reserve has raised interest rates — slowing the economy and reducing thereby reducing price pressures.
It’s painful medicine but might not be effective right now because anything the Fed does to cool business spending might only slow manufacturing and exacerbate product shortages.
Oregon lawmakers asked their economists Wednesday whether there’s anything the state can do to tame inflation. It’s mostly out of Oregon’s control, the forecasters replied, with one notable exception — housing. If the state can do something to increase housing supply that could ease one of the heaviest inflationary burdens.
Rising prices are hardest on low-income households, Lehner told lawmakers, because they’re living paycheck to paycheck. A higher share of their income — sometimes their entire income — goes to covering the cost of groceries, gas and rent. Those are all categories currently registering steep price increases.
There is some good news at the bottom of the wage scale, though. That’s where the worker shortage is most severe and so that’s where wages are rising faster — even faster than prices.
“If workers are earning less than $20, workers are seeing wage gains faster than the rate of inflation,” Lehner told lawmakers. That may help ease income disparity, he said, and “might have some broader benefits, even in a high inflation economy.”
-- Mike Rogoway | mrogoway@oregonian.com | Twitter: @rogoway |