Real Wages

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2008 Business Outlook Summit The State of
Northeast Louisiana Prepared and presented by
John Francis, PhD Louisiana Tech University
Robert Eisenstadt, PhD University of Louisiana -
Monroe
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The following presentation will be available for
review on-line at cba.ulm.edu/cber
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First the bad newsNE Louisianas official
POPULATION continues to decline.
RLMA 8 Population is down 2 since 2000
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But RETAIL SALES continue to show strength.
2006-07 chg .87
2006-07 chg 3.70
2006-07 chg 11.8
2006-07 chg 15.0
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And 2 years out, post-Katrina gains in retail
sales are durable.
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NEW CAR REGISTRATIONS in NE LA are down slightly
But trucks
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And CONSTRUCTION STARTS/PERMITS, though down
slightly from 2006, still show relative strength.
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The inventory of EXISTING HOMES in NE LA
continues to rise.
Existing homes sold by bracketed price
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and current selling prices appear reasonably
stable
Data Source NE LA Bd. of Realtors
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Until you adjust for price changes
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Constant (2007) prices per square foot show
less of a decline.
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There are no significant changes in the number of
days homes-sold stay on the market.
Some increase in square foot prices appear to be
from a decline in average home sizes sold.
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EMPLOYMENT in NE Louisiana (HH survey) is down
slightly
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which is consistent with the Quarter 2
Establishment Survey jobs data (note the red
under MLU)
2006-07 change f/MLU in red
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LA Dept. of Labor, Laworks.net
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Finally, while current dollar payrolls are
generally higher in NE LA, they lag the State (3
year change in orange).
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Adjusting for inflation, however, reveals
weaknesses in payroll growth.
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Job gains in retail, healthcare, hospitality
losses concentrated in manufacturing,
administrative and waste services.
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Summary and conclusions

• Forecasted labor demand for RLMA 8 projects 800
  new jobs in the region by 2010.
• Projected payroll growth (2007 ) is
  approximately 15 million or .65 of area wages
  and salaries.
• The above forecast underestimates payroll growth
  if call center employment rises in accordance
  with industry forecasts.
• 300 additional call center jobs can create as
  much as .5 additional wage and salary growth.
• Further (and highly desirable) growth (and
  economic diversification) can be realized from
  reoccupation of the former Guide plant.

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Summary and conclusions

• NE LA appears relatively insulated from National
  economic issues, though the retail trade remains
  vulnerable to high (and forecasted higher) prices
  for food and fuel.
• NE LA never experienced a housing boom and will,
  therefore, avoid a housing bust.
• Housing price movements are more a function of
  population pressure
• Minimal changes in home prices will allow NE LA
  to avoid the negative wealth effects experienced
  Nationally
• On the downside, NE LA workers are relatively
  disproportionately affected by inflationary
  pressures (food and fuel).
• The relative purchasing power of wages in NE LA
  is the focus of our next topic

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Real Wages

• It may not be meaningful to compare money wages
  across locations or over time
• Variation in the cost of living
• Inflation
• Economists use real wages for such comparisons
• Measures purchasing power
• Real Wage money wage/price index

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ACCRA Cost of Living Index

• Produced by the Council of Community and Economic
  Research C2ER
• Center for Business and Economic Research
• For each Metropolitan Statistical Area (MSA) we
  have a cost of living index relative to the
  national average
• National Average 100
• Monroe 95.6
• 4.4 below the national average
• 116th highest of 234 MSAs

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Wage Index and Real Wages

• Using data from the Bureau of Labor Statistics we
  develop a wage index for each MSA relative to the
  average US wage
• US average wage 100
• Monroe 77.6
• 22.4 below the national average
• 214th highest of 234 MSAs
• Real Wage Wage Index/ACCRA Index
• Gives the real wage in each MSA relative to the
  national average real wage

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Wages and Prices
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Statistical Correlations

• In general, wages do not keep pace with the cost
  of living across MSAs
• For each 10 increase in the cost of living wages
  increase by only 7.4
• Consistent with reports of falling real wages

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Relative Real Wage Ranking

• Relative Real Wage Wage Index/Price Index
• Shows each MSAs real wage compared to national
  average
• 234 MSAs in sample
• 1. Durham, NC 1.29
• 94. Jackson, MS .93
• 104. Little Rock, AR .92
• 152. Shreveport, LA .88
• 148. Tyler, TX .88
• 176. Lafayette, LA .85
• 212. Monroe, LA .81
• 234. Honolulu, HI .62

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Similar Sized Cities

• How does Monroe compare to other cities close in
  size?
• We ranked cities by population size and examined
  the 10 cities above and below Monroe in this
  ranking
• Monroes real wages are 20th highest out of 21
  cities
• Only Las Cruces, NM fared worse

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Labor Force Participation Rates

• Real wages are major determinant of labor force
  participation rates
• Our real wage index explains 30 of variation in
  participation rates across MSAs
• Given that we have real wages well below the
  national average we should expect that we have a
  lower than average labor force participation rate
• Monroe 64.7
• US 65.9

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Real Wages and LFPRs
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A Closer Look at the Wage Distribution
Percentile Monroe All MSAs of All MSAs
10th 13,170 15,890 82.9
25th 16,600 21,177 78.4
50th 24,220 32,260 75.1
75th 37,300 50,921 73.3
90th 54,030 76,386 70.7
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Educational Attainment
Education Level Monroe Percent of Population over 25 US Percent of Population over 25
Less than HS 18.3 15.9
HS Degree 35.1 30.2
Some College 24.6 26.9
Bachelors Degree 15.9 17.1
Graduate Degree 6.0 19.9
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Education, Wages and Poverty
Education Level Median Wage -- Monroe Median Wage -- US of US median Poverty Rate -- Monroe Poverty Rate -- US
Less than HS 11,941 18,641 64.1 34.6 23.7
HS Degree 22,905 26,123 87.7 18.8 11.5
Some College 27,414 31,936 85.8 14.1 7.8
Bach Degree 37,199 45,221 82.3 4.7 4.1
Grad Degree 46,220 59,804 77.3 2.3 3.1
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Location Quotients

• What kinds of jobs do we have relative to the
  rest of the country?
• For any given industry/occupation the location
  quotient, L, is defined
• L local employment/ national employment
• L lt 1 we are below national average
• L gt 1 we are above national average
• L gt 1.25 we are an exporter

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Industry Location Quotients for Monroe

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Occupational Location Quotients

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Questions