Posted by: Josh Lehner | September 25, 2020

Not Fun Friday: Low-Wage Workers and Income Disparities

One of the big takeaways from our latest forecast is the fact that the nature of this recession, combined with income inequality means that while there is considerable economic pain, we have seen hardly any in terms of actual state tax revenue collections. I just wanted to do a quick follow-up today given some new information.

First, our office has been publishing the following chart every month lately when the employment report is released. It is designed to to show that workers in lower-wage sectors have borne the brunt of the recession. We know that many consumer-facing industries are impacted the most by social distancing and the like. Even so, jobs in middle- and high-wage sectors are still seeing sizable losses, just not as severe as those in the lower-wage sectors.

The chart above is based on employment at the industry level and dividing the economy into thirds based on average wages by industry. While imperfect, this is what we have readily available at the state level. And it certainty shows indications of what is happening in the economy.

Well, yesterday, economist Ernie Tedeschi — a great follow on Twitter and one of the best researchers when it comes to digging into the microdata — followed up by looking at employment based on individual hourly wages and not industry averages. What Ernie found shows even larger disparities. Low-wage workers, regardless of industry, haven’t just borne the brunt of the recession, they have borne almost the entire recession alone. Employment among individuals earning more than $16 per hour is essentially all the way back to pre-COVID levels, while employment among individuals earning less than $16 per hour remains down 25-30%. This means the deep hole the overall labor market is in today is entirely due to the lowest-earning third of workers falling off a cliff while most everyone else is relatively OK.

Now, one reason our office has been focusing on the sector level view is because we have good data there. The data Ernie is crunching comes from the household survey. Here in Oregon our sample from the household survey is already pretty small. To get hourly wages from the survey you have to focus on what is called the out rotation group. When I filter the data for just those Oregonians with a job, in the out rotation group, with properly coded hourly wage information, the sample size is around 100 a month. It is very small. That means it is prone to a lot of noise.

Even so, I think the following chart clearly shows that what is happening nationally is also happening here in Oregon. High-wage jobs have seen essentially no impact from the recession. Now, whether the last month of data where low-wage jobs are up a bit and middle-wage jobs are down is truly representative, I cannot say. But in the larger picture, the trends are clear even with the noise.

Bottom Line: We know that the sectors most impacted by the pandemic are generally lower-wage industries. Such workers have borne the brunt of the recession to date. However, if both sets of data are correct and not revised substantially, what the findings show is that the impact of COVID-19 is even starker than first believed. The way the two data sets square is that low-wage workers in high-wage industries are the ones being laid off there, while high-wage workers in low-wage industries have been spared to a great degree. Regardless of industry, workers earning lower wages have borne almost the entire recession. Some of this is due to the nature of their jobs and occupations, the pandemic, their ability to work remotely, their overall work experience, their within firm work experience and the like. But regardless of the exact reason(s), the patterns are clear.

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