Posted by: Josh Lehner | May 25, 2023

Oregon’s Shifting Composition of Growth

If we step back and look at the economic cycle to date, it is clearly different than others in recent decades. Typically, Oregon is more volatile than the nation and the typical state. While recessions and expansions locally are perfectly timed with the nation — we tend to neither lead nor lag — the downturns are deeper, and the expansions faster. So far that has not been the case this cycle and Oregon currently ranks in the middle of the pack across all states. Part of this is due to the synchronized nature of the pandemic, the shutdowns, the federal aid and the like. Part of this is also probably the point in the cycle we are today, being just 3 years into it, there hasn’t been a lot of time for more variation to develop around the country. But part also seems to be tied to a relative shift in the composition of growth in recent years.

First, we included this chart in our presentation to the Legislature last week, and here on the blog, but I wanted to expand on it a bit further today.

Local employment trends are a bit below average. The change in employment since the start of the pandemic ranks 30th fastest out of all states, and trails the nation by one percentage point. The most recent round of annual benchmark revisions from the U.S. Bureau of Labor Statistics widened this gap as Oregon saw a slight downward revision to the published data in the past year. Examining trends across sectors, Oregon’s relatively slower employment growth compared to the nation is primarily due to slower recoveries in health care and leisure and hospitality, while stronger gains in construction help offset some of the weakness.

More encouraging are local income trends that are a bit above average. Total personal income in Oregon has increased 19.8 percent from the end of 2019 through the end of 2022. This large increase translates to the strong increases in consumer spending and income taxes paid in recent years. Of course the high inflation during the pandemic means the cost of living has also increased during the same time period. After adjusting for inflation, total Oregon personal income is 3.5 percent higher than at the end of 2019 while the U.S. is up 2.6 percent. Oregon’s income growth ranks 21st fastest across all states. This relative strength is primarily in the non-wage forms of income, which also have an outsized impact on tax revenues.

While Oregon is right in the middle of the pack when it comes to employment and income, that same cannot be said for local GDP where the state has experienced the 11th strongest growth across the country. Local GDP data is prone to revisions and assumptions about productivity and value-added. As such it may be best to wait for a few more quarters of data, and the upcoming comprehensive revisions this fall to know exactly where the state stands, even as it is encouraging to see the strong growth.

What is most interesting overall is the composition of this economic growth is a bit different than what Oregon has experienced in recent decades. Today employment and population gains are lagging the nation. Instead, it is income and production leading the recovery. In much of the 1990s through early 2010s it was Oregon’s relative income growth that was most concerning as it lagged, while jobs were plentiful and grew at a fast pace. This relative pattern of growth started to shift late last decade and appears to have continued through the pandemic and recovery. To a certain extent it does not matter the exact composition of economic growth, but it is determined by both the amount of capital and labor in the region. We talked more in-depth about the labor force outlook the other week, and there is plenty more on that in our latest forecast doc.

Capital and Productivity

Increased productivity raises the overall speed limit of the economy. Producing more per hour work increases business revenue and worker wages. However, it typically takes investment in the various forms of capital on the part of both businesses and workers to raise productivity. Capital can take different forms includes financial, physical, natural, human, and social. No firm or region excels at or has access to each type of capital. However, they can rely more upon the other types of capital that it does have for future growth.

Overall Oregon has great productivity. Part of this is the state’s historical strength in high-tech manufacturing which is a highly productive industry. But improvements in productivity in recent decades are broader than that. In the real GDP estimates currently published, it is not Oregon’s manufacturing output per worker driving the above-average gains, but rather strength across a variety of industries.

The U.S. Bureau of Labor Statistics also publishes state level estimates of labor productivity. Last cycle, from the height of the housing boom in 2007 through the pre-COVID peak in 2019, Oregon’s labor productivity ranked 5th fastest among all states. From 2019 to 2022, Oregon’s labor productivity ranked 3rd fastest among all states.

Let’s focus on the labor productivity numbers for a minute because BLS just released the 2022 data this morning, along with some revisions*. There are a handful of important things to keep in mind. First, productivity surged early in the pandemic. This was not really because of new technologies or increased efficiencies, but rather because there were a lot of people out of work, yet consumer demand remained strong, and so businesses had to make do with the workforce they had. Output per worker soared well above the pre-pandemic trend, but it was sort of a forced productivity increase, if you will.

Second, in 2022, Oregon’s labor productivity declined 1.9 percent. This decline was not unexpected. The national figures had already shown some declines, and now the state figures do as well. The big reason here is that employment and hours worked grew at a faster pace than real value-added output did last year. Essentially payrolls ramped back up and even as the economy grew and output grew, some of those initial/forced productivity gains proved temporary. Plus, it takes time for new workers to gain experience and become more productive in their jobs. Even so, Oregon’s labor productivity in 2022 is 9 percent higher than in 2019 (3rd largest increase nationally), and 3.5 percent above the pre-pandemic trend.

Looking forward, it has to be noted that economists struggle with forecasting productivity gains. It’s not just about the number of firms and workers, and the level of business investment, or federal funding for R&D, but whether or not all of those things mix together into something that makes the economy more efficient. That’s hard to know, and in recent decades productivity has been slow. Economists tend to think about start-ups and new technologies being key catalysts for productivity gains. Which is why, as we have discussed previously, productivity may be stronger in the years ahead due to the increase in new business formation. New firms typically bring new ideas and products, and improve efficiencies compared to existing firms, which raises economywide productivity. But the gains also come from existing firms as they do their own R&D, and try to improve business processes and the like.

Finally, when it comes to Oregon’s relative growth patterns, it can be hard to know how much of the current data is more a moment in time versus a true, fundamental shift. I think that largely comes down to migration and population growth. If migration rebounds as expected, then Oregon will likely continue to rank well in terms of population and employment growth, to go alongside of the need for capital investment to grow the economy. However, if migration does not rebound as expected, then Oregon will need to rely even more on being a place business want to invest, which in turn will drive productivity gains, business revenue, and worker wages.

* In our forecast document we noted Oregon ranked 4th fastest from 2007 to 2019, and in the newly revised data Oregon ranks 5th. We also wrote that from 2019 to 2021, Oregon ranked 6th fastest, but in the newly revised data and adding in 2022, Oregon ranks 3rd fastest from 2019 to 2022.


  1. OOC – How much of productivity is INTC and MCHP? There’s been a semi shortage until now (still at MCHP).

    Otherwise, I’m going to guess fewer people working doing more since it’s hard to hire anyone with skills in OR.

    Portland shrinking going to affect anything?

    • In terms of Oregon’s overall productivity, no question semiconductors are a huge piece of it. But not during the pandemic in terms of growth. Our durable goods manufacturing GDP growth has been below average (semiconductors are the biggest piece there, full industry detail is not yet available). That’s a bit surprising given the chip shortages, and the like. Every 5 years the BEA does a comprehensive revision to their estimates. The next round of that is coming up in September. Will see how it all shakes out and to what extent it changes this picture.

      But to the population piece, a shrinking population means business investment and productivity are even more important than ever. At least if we care about economic and income growth for Oregonians.

      • That’s what kinda worries me is we haven’t really had a large employer move here (I don’t count data centers as employers). No jobs, people won’t move here either.

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