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Wage Inequality in the Region

Economic Press Briefing: August 10, 2017

The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

The 2nd Federal Reserve District Regions in the District

FEDERAL RESERVE BANK OF NEW YORK

Upstate NY

Northern NJ

Downstate NY 1

Puerto Rico &

U.S. Virgin Islands

Overview

• Over the past year, the pace of job growth has slowed somewhat in much of the region.

• Job growth has remained strongest in and around New York City, while there has been little growth in most of upstate New York. Puerto Rico and the U.S. Virgin Islands continue to struggle.

• Focusing on wage inequality, the New York-Northern New Jersey region is home to some of the most unequal and least unequal metros in the country.

FEDERAL RESERVE BANK OF NEW YORK 2

Recent Economic Performance

Regional Employment Trends Indexes of Total Employment, June 2017

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com; data are early benchmarked by FRBNY staff. 4

91

94

97

100

103

106

109

112

2013 2014 2015 2016 2017

Downstate NY

United States

Upstate NY

Puerto Rico

Northern NJ

U.S. Virgin Islands

Index (Jan2013=100)

Sectors Driving Regional Job Growth Annual Employment Change (Thousands), June 2017

5

7

3 2 2

0.6 0.6 0.6

-4.4

-6

-4

-2

0

2

-3

0

3

6

9

-20

0

20

40

60

-4

0

4

8

12

Downstate NY

Northern NJ

Upstate NY

Puerto Rico

Health & Education Services

Professional & Business Services

Leisure & Hospitality Government

Transportation & Utilities

52

31

8 7

10 9

7

4

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com. Note: Annual employment change calculated as the average of the last 12 months minus the average of the previous 12 months.

Local Job Growth in the Region Annual Percent Change, June 2017

6

Glens Falls

Elmira Binghamton Kingston

Buffalo Rochester Syracuse

Utica

Albany

Ithaca

NYC

Watertown

Dut

ches

s-

Putn

am

North Country

Source: Bureau of Labor Statistics and Moody’s Economy.com; data are early benchmarked by FRBNY staff. Notes: Bergen* and Middlesex* are the Bergen-Hudson-Passaic and Middlesex-Monmouth-Ocean Special BLS Areas. Annual percent change calculated as the average of the last 12 months over the average of the previous 12 months.

Lower Hudson

Middlesex*

Newark

Moderate Growth (1.0% to 2.0%)

Modest Growth (0.5% to 1.0%)

Little or No Growth (-0.5% to 0.5%)

Declining (less than -0.5%)

Wage Inequality in the Region

Regional Wage Inequality

• Wage inequality has increased among all workers since the early 1980s.

• Some places are much more unequal than others, even within our own region.

• The most unequal places tend to be large metros with strong wage growth for those at the top of the wage distribution.


Annual Wages in the United States Full-Time Workers, Constant 2015 Dollars

9

$0

$20

$40

$60

$80

$100

$120

1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

50th Percentile (Median)

90th Percentile

10th Percentile

Thousands

90/10 Ratio = 3.9

90/10 Ratio = 5.3

90/10 Ratio = 4.1

Source: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Bureau of Economic Analysis, PCE Price Index. Note: Full-time workers are those aged 16 to 64 working at least 35 hours per week and 40 weeks per year.

5th 15th 20th 25th 30th 35th 40th 45th 50th 55th 60th 65th 70th 75th 80th 85th 95th Median

Real Wage Growth in the United States 1980-2015 Percent Change by Percentile

10 Source: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Bureau of Economic Analysis, PCE Price Index.

0%

20%

40%

60%

80% Percent Change

10th 90th

+57%

+24%

What’s Driving Wage Inequality?

• Technological change and globalization have changed the pattern of demand for workers.

Strong demand for skilled workers has resulted in larger wage gains for workers toward the top of the wage distribution.

Demand for lesser skilled workers has been weaker, stifling wage growth for workers at the middle and bottom of the wage distribution.

• Other contributing factors include the decline in unions and the falling real value of the minimum wage.


The Geography of Wage Inequality 2015 90-10 Ratio for U.S. Metropolitan Areas

12 Sources: U.S. Census Bureau, Decennial Census (1980) and American Community Survey (2015).

Most Unequal

Least Unequal

>7 6-7 5-6 <5

Wage Inequality in the Region 2015 90-10 Ratios for 2nd District Metro Areas


8.7

7.0 6.5

4.8 4.8 4.8 4.7 4.7 4.5 4.2

0

2

4

6

8

10

Fairfield NYC-NNJ Ithaca Rochester Binghamton Syracuse Albany Glens Falls Buffalo Utica

Note: The NYC-NNJ metro includes New York City, Long Island, parts of the Northern

Suburbs, and much of Northern NJ.

U.S. = 5.3

• Agglomeration Economies Productivity benefits from clustering together in cities have been

particularly strong for skilled workers located in large metros.

• Migration Skilled workers are increasingly moving to large metros that offer

urban amenities and higher wages.

Why Are Some Places More Unequal?

14

Demand for skilled workers has been particularly strong in some metros leading to outsized wage gains for those at the top.

Decline in demand for lesser skilled workers has been geographically concentrated, stifling wage growth for workers toward the middle and bottom of the wage distribution.

FEDERAL RESERVE BANK OF NEW YORK

• Differences in Local Demand for Workers

Larger Metros Now Tend to Be More Unequal than Smaller Metros


2

3

4

5

6

7

8

9

100,000 500,000 1,000,000 5,000,000 10,000,000 Population

90-1

0 R

atio

2015

1980

Real Wage Growth in U.S. Metros 1980-2015 Percent Change by Percentile

Sources: U.S. Census Bureau and Bureau of Labor Statistics, Current Population Survey; U.S. Census Bureau, Decennial Census (1980); American Community Survey (2015); U.S. Bureau of Economic Analysis, PCE Price Index. 16

5th 10th 15th 20th 25th 30th 35th 40th 45th 50th 55th 60th 65th 70th 75th 80th 85th 90th 95th -25%

0%

25%

50%

75%

100%

125%

150%

United States

San Francisco

Youngstown

Detroit

NYC-NNJ

Percent Change

Real Wage Growth in U.S. Metros 1980-2015 Percent Change by Percentile


5th 10th 15th 20th 25th 30th 35th 40th 45th 50th 55th 60th 65th 70th 75th 80th 85th 90th 95th -25%

0%

25%

50%

75%

100%

125%

150%

United States

Rochester Binghamton

Albany

Percent Change

Summary

• Wage inequality has increased in nearly every metro since the early 1980s, though it has increased much more in some places than others.

• The most unequal places tend to be large metros with strong demand for skill, agglomeration economies, and appeal for skilled workers (e.g., NYC-NNJ Metro).

• The least unequal places tend to have lackluster wage growth across the board, due in large part to weak demand (e.g., most metros in upstate New York).


Appendix

Recent Job Growth in the Region Annual Percent Change, June 2017

-0.1%

0.1% 0.0% 0.2%

-0.9%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

United States

NYC

Hudson Valley

Albany

Syracuse Binghamton

Puerto Rico

Utica

Long Island

Northern NJ

Fairfield

U.S. Virgin

Islands Rochester Buffalo

1.5%

1.2%

0.8%

1.2% 1.2%

0.9%

0.6%

0.4%

Source: U.S. Bureau of Labor Statistics and Moody’s Economy.com; data are early benchmarked by FRBNY staff. Note: Annual percent change calculated as the average of the last 12 months over the average of the previous 12 months. 20

Real Wage Growth in the Region 1980-2015 Percent Change by Percentile

-25%

0%

25%

50%

75%

100%

125%

150%

5th 10th 15th 20th 25th 30th 35th 40th 45th 50th 55th 60th 65th 70th 75th 80th 85th 90th 95th

Bridgeport 97th = 276%

Glens Falls Buffalo Syracuse Utica

United States

Percent Change

NYC-NNJ

Albany

Rochester

Binghamton


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