7/6/98

KUFM / KGPR

T. M. Power

Changing Industrial Structure and Wage Declines in the Pacific Northwest

Although the Montana economy has been in a state of expansion since the late 1980s, adding on average about 14,000 jobs per year, critics of that economic performance point to the downward pressure on real earnings. It is not hard to find comparative statistics that show that workers in Montana, on average, are near the bottom of the barrel among all the other states in terms of the money wages they earn.

The standard explanation for these depressed wages, despite a decade of economic expansion, is that not only are the new jobs "lousy" jobs but for two decades now Montana has been trading high wage jobs in mining, metal smelting, forest products, and railroads for even more of these "burger flipping" minimum wage jobs.

A somewhat more sophisticated version of this argument admits that quite a few high wage jobs have been created in, for instance, business and medical services, but argues that these replacement high wage jobs are not accessible to those losing jobs in the natural resource sectors. As a result, a gulf is growing between high and low wage sectors as the less skilled and less educated are confined now to only low wage economic opportunities while college graduates snap up the new high paid jobs.

In both characterizations of Montana’s economic problems, the fault is found in the negative changes in Montana’s industrial structure, primarily the loss of jobs in our historic natural resource sectors. That, we are told, has cause our relative wages to decline and inequality among our citizens to increase.

Similar arguments are heard in the other Pacific Northwest states, Idaho, Oregon, and Washington, where forest industry jobs have also been in decline.

A recently completed statistical analysis of wages paid to workers in the Pacific Northwest states, including Montana, sought to evaluate exactly these familiar claims. The study sought to take into account all of the different variables that could be expected to affect wages: the industry of employment, the occupation held, years of education, age, gender, marital status, etc. The question being analyzed was exactly that at the heart of the claim that industrial structure has deteriorated: to what extent can wage changes be explained by shifts in employment from industries that pay unusually high wages to industries that pay lower wages.

There was no lack of evidence that real wages had deteriorated for many workers. During the 1980s workers younger than 35 who had not completed high school saw their real wages decline by 25 percent. Young workers with only a high school diploma saw their real wages declined by a sixth. Even college graduates experienced a small decline in real wages. Similarly, inequality increased, especially among younger workers where the pay to college graduates rose from about twice the pay received by those without a high school diploma to almost three time that level.

When these negative economic trends we analyzed to determine just how changes in economic structure had contributed to them, little or no support was found for this common explanation for the economic problems we face. For young workers without a high school diploma, whose real wages had decline by over 25 percent during the 1980s, the change in industrial structure not only did not contribute to this decline but worked in the opposite direction. This suggests that young relatively uneducated workers did not have access to these jobs to begin with. For older workers without a high school diploma, the decline in wages was much more modest, less than ten percent, and the change in industrial structure did contribute to this decline but was responsible for only a small part of it, about a fifth. For young workers who finished high school but not college, the decline in real wages was about 20 percent, but only about a tenth of this was tied to shifts in the regions’ industrial structure.

In general, changes in regional industrial structure can explain very little of the decline in real earnings and the increased economic inequality. What does explain the vast bulk of these negative changes? The answer is simple: nationwide trends that have put substantial downward pressure on the wages paid to our less educated and skilled workers. Workers in Montana and the Pacific Northwest are primarily being impacted by national forces, not by home-grown problems particular to our region. The problem is not with our evolving industrial structure but with the fact that our public policy and economy no longer support a middle class standard of living for those with relatively low levels of education and skill. There are two solutions. First, we individually and collectively can seek to boost the education and skill levels of those segments of our workforce that are increasingly disadvantaged. Second, we can reconsider the abandonment of the social institutions that for half a century protected wage earners at the lower end: labor unions, effective minimum wages, a real social safety net, and protection against the export of jobs overseas. These are real, practical steps that could be taken as opposed to hand-wringing fantasies about bringing back the economy of the "good old days."