By: Matthew Weinstein, State Priorities Partnership Director, Voices for Utah Children
Editor’s note: The Kem C. Gardner Policy Institute occasionally publishes blogs from partners in our community. This blog features research by Voices for Utah Children. The opinions and research expressed are those of the author alone and do not reflect an institutional position or research by the Gardner Policy Institute. We hope the information shared contributes to Utahns’ understanding of wages, and in turn help people formulate INFORMED DECISIONS™.
For many years, Utah economists have debated the question of whether or not it is accurate to say that Utah is a low-wage state. A decade ago, for example, the issue was addressed by the Utah Foundation in a report arguing that Utah’s apparently low wages can be explained primarily by our youthful demographics.
This debate has important implications for two of the state’s main economic goals – two goals that are actually somewhat at odds with each other:
- A substantial part of Utah’s success in attracting investment from outside our borders and spurring growth within is believed to come from our relatively low cost of doing business, including relatively low wages compared to states on the east and west coasts.
- But if our economic development strategies succeed and we attract more businesses ready to pay Utahns higher wages, leading to a higher standard of living, do we kill the goose that laid the golden egg by pricing ourselves out of the market with a higher cost of doing business?
Voices for Utah Children’s new benchmarking report comparing Utah to Idaho presents data addressing this question. The report finds that Utah currently ranks 27th in the nation for median hourly wage based on 2017 data, after ranking similarly in both previous Working Family Benchmarking Project reports released in 2017 and 2015.
Based on the populations of the 26 states ranked above Utah and the 23 ranked below, Utah sits at the 42nd percentile for median hourly wage. In other words, 41% of the US population live in states with a lower median hourly wage, while 58% live in states with a higher median hourly wage.
It seems reasonable to define “middle-wage” as being between the 40th and 60th percentiles; thus, it seems reasonable to say that Utah has worked its way out of the status of being a “low-wage” state and into middle-wage status, even before trying to account for our younger demographic and our lower cost of living.
However, when we adjust the rankings for each state’s cost of living, we find an unexpected result: Utah’s ranking actually falls rather than rising. When we adjust each state’s median hourly wage for its cost of living based on the Regional Price Parities index of the Bureau of Economic Analysis of the federal Department of Commerce, Utah’s rank for 2016 (the most recent year for which BEA published this index) falls from 26th place to 38th.
This finding could detrimentally impact Utah not once, but twice. First, seeing our ranking fall to 38th implies that our true standard of living may not have risen as much as the unadjusted ranking appears to indicate. Second, the higher unadjusted ranking would still seem to be the relevant factor by which employers from outside of Utah would evaluate the cost of doing business here compared to other states. Thus, it appears that we may be losing the advantage of being a low-wage state for purposes of attracting employers without gaining the benefits of a higher standard of living.
This finding also raises the question of what our goal should be in this important regard. Should our goal be to remain a low-cost-of-doing-business state or set our sights on becoming a higher-skilled/higher-wage state? Addressing this question in greater detail may actually resolve the potential contradiction described above between Utah’s two economic development goals (to maintain our low cost of doing business while raising our standard of living, defined here by our median hourly wage).
The potential contradiction described above may only be a real contradiction if Utah maintains our current mix of jobs while trying to achieve a higher median hourly wage. In the best-case scenario, we evolve toward a mix of jobs and industries that includes more higher-skill/higher-pay jobs, enabling us to achieve a higher standard of living while still maintaining our cost-of-doing-business advantage in those particular higher-wage jobs and industries. (Conventional measure of cost of doing business do not consider the mix of jobs and industries and how these differ among the states. A state can be considered, in the aggregate, as a “high cost of doing business” state while maintaining competitive wages in the sectors that matter most for attracting investment and achieving a rising standard of living.)
Utah has come a long way in recent decades, with a growing reputation nationally and internationally. This accomplishment is a credit to the state’s strong economy, not just in terms of the quantity of new jobs but also in terms of quality. The state’s economy ranks as the most diverse in the nation, thanks to our success at attracting and growing new industries and new employers. The years to come will determine whether we can continue our upward trajectory and follow in the footsteps of states like Colorado and Minnesota that have achieved the higher education levels required to become high-wage states.