Upward Trend: Why wage growth in Utah is finally getting back on track

For years after the end of the Great Recession, Utah was touted for having some of the strongest job growth in the nation and an accompanying rapidly decreasing unemployment rate. But when it came to wage growth, things stayed fairly static. It wasn’t until 2015 that wages began to play catch up. And now? Wages are finally starting to move onward and upward.

Stagnant wage growth

Carrie Mayne, chief economist for the Utah Department of Workforce Services, says wages in the state are finally growing at the pace she’s been expecting to see for a few years.

“Twelve to 18 months ago, I would have been telling a slightly different story,” she says. “That’s because wages were growing at a fairly slow place, which was surprising because our [state’s] economy was doing so well. When you see all the signs of a tight labor market, like a low unemployment rate, you expect to see wage acceleration, but we weren’t seeing it. We were completely befuddled by that.”

But Mayne says the reason why wages weren’t growing for so long has everything to do with the Great Recession. “That was a dynamic in our economy that we hadn’t seen since the Great Depression,” she says. “It created a glut in labor supply. If you think back to the recession, there was very high unemployment and that keeps wages down. Because that had such a huge effect, it kept wages depressed for quite some time.”

Even past the point where economists were saying Utah had fully recovered, they weren’t seeing wage growth. “There was a lag in the markets while they adjusted to that expansionary economy, and growth has now finally kicked in over the last 12 to 18 months,” Mayne says. “Utah was one of quickest states to recover—there are still a few states out there waiting for full recovery to happen.”

Juliette Tennert, director of economic and public policy research at the Kem C. Gardner Policy Institute at the University of Utah, says Utah had a large number of people who had left the labor force altogether during the recession. “Over the last few years, these marginally attached workers were coming back into the workforce. It also took some time for wages to grow because of these people,” she says.

Another thing that possibly led to dampened wage growth was Utah’s compositional aspects of labor force at play, Tennert says. “The Baby Boomers are leaving the workforce, and those folks are relatively high wage earners compared to those replacing them,” she says. “In addition, the first jobs to be lost in a recession are usually low wage jobs. When you’re coming out of a recession, and as those low wage jobs come back online, that has an effect on keeping wage growth down.”

Utah v. nation

Traditionally, wage growth in the Beehive State tends to fare better than the nation. This rings true for two out of the last three years. Tennert says if the nation continues to grow in the future, she would anticipate for at least the next year that Utah would continue to post growth at an even more favorable rate.

However, Mayne says oftentimes, Utah is described as a low-wage state. While she admits that’s somewhat true, it’s not just a story of employers paying low wages.

“When you think about wage data and wage measures, they are all about averages,” she says. “What does the average Utah worker look like compared to the average worker elsewhere in the U.S.? What we immediately think of is the age of our workers. In Utah, we’re likely to have younger workers. Younger equals less experience and education, as well as less tenure with a company, so of course you’ll have lower wages. The low wage story in Utah is really about the demographics of Utah’s workforce, specifically age.”

Still, particularly in sectors that Utah has recently attracted to the state, such as information technology, low wages aren’t a concern. “For example, we see almost a 7 percent growth in annual average pay in 2015 in the financial activity sector, and a 6.5 percent growth in 2015 in the information sector,” Tennert says. “If you compare that to the nation’s posting of wage growth in financial activity, it’s 3.1 percent. More than twice the growth rate is seen in Utah in that sector. In information, the nation’s posting of wage growth is 4.7 percent.”

Wages in the new year

Tennert believes that as the nation goes, so will Utah go when it comes to wages. “Our local economy is more diversified than ever, which means that if there starts to be a slowing at the national level, we’ll see that in Utah. But the outlook for the next one to two years seems to imply there is room for growth nationally and locally,” she says. “We would anticipate to see continued wage growth and more jobs added, particularly in sectors in Utah where growth is robust right now, like financial activities, information [technology] and hospitality.”

Mayne also expects 2017 to be a healthy wage growth year. “We don’t see any threats to the Utah economy, so we should continue to expand and add jobs,” she says.

However, Mayne cautions employers to be prepared for a continued tight labor market. “That puts a bit of a pinch on employers,” she says. “Can they afford to keep their employees from being lured away by other companies paying higher wages? That could be a little bit of a challenge.”

On the flip side, Mayne encourages employees to take advantage of labor market conditions by looking for new opportunities, whether that’s a promotion or looking for another position in another place. “This is a time where opportunities abound, and there are many ways for workers to find higher wages,” she says.