Wisconsin wage growth, labor force participation slowing in 2019

Wisconsin’s economic data demonstrates plenty of reasons to be optimistic. The state last year posted its best year of GDP growth since 2010, unemployment has regularly been at or below 3%, and the number of people working has been at or near record levels.

Wisconsin’s economy, however, tends to follow the trend of the national economy, which is now in its longest expansion on record. So is the state exceeding its growth expectations given the national environment, or are the record numbers the result of riding the country’s coattails?

The answer depends on the metric in question.

Take gross domestic product. Last year’s 2.5% increase in real GDP for Wisconsin was the 17th strongest growth rate in the country, but the U.S. grew 2.9%. The 0.4% gap was the smallest between the state and country since Wisconsin outpaced the U.S. in 2010 and 2011.

Since 2009, the year the Great Recession officially ended, Wisconsin’s real GDP has had a compound annual growth rate of 1.7%, ranking 27th in the country, compared to 2.2% for the U.S. as a whole, according to data from the U.S. Bureau of Economic Analysis.

The state’s job growth has lagged behind over that period too, averaging 0.5% behind the country in the last decade. Last year, private sector employment nationally increased 1.7%, compared to 1% for Wisconsin, according to data from the U.S. Bureau of Labor Statistics.

Thomas Walstrum, a business economist at the Federal Reserve Bank of Chicago, said there is generally a negative correlation between job growth and a state’s dependence on manufacturing for employment. Wisconsin is the second most manufacturing heavy state behind Indiana.

“The fact that Wisconsin, like the rest of the Midwest, has been growing more slowly than the U.S. as a whole, to me doesn’t necessarily mean that the Wisconsin economy is not doing well, because we’re still seeing growth in real per-capita income,” Walstrum said.

From 2013 to 2017, Wisconsin has averaged 1.8% annual growth in real per-capita personal income, nearly the same as the United States over the same period, according to BEA data. In the five quarters since the end of 2017, the state’s per-capita personal income averaged 4% growth, higher than the country’s 3.5% growth.

“It’s not like Seattle or San Francisco where things are going crazy and rents are going up like mad because there’s all this demand for lots of tech workers; that’s not Wisconsin’s case,” Walstrum said. “It’s also not the case that because Wisconsin is not Silicon Valley, that the people living in Wisconsin are really lagging that much behind anywhere else.”

The Chicago Fed publishes two indexes that try to capture how the Midwest is performing. The Midwest Economy Index looks at the region compared to historical growth trends. Wisconsin has made positive contributions to the MEI in 65% of months since the start of 2013, including 79% since the start of 2017.

The second index, the relative MEI, looks at the Midwest in comparison to the national economy. A positive reading suggests the region is performing better than expected given a certain level of national growth.

As with the regular MEI, Wisconsin has made a positive contribution to the region in 65% of months since the start of 2013, but since the start of 2017, the state’s contribution has been positive in just 34% of months.

One area where Wisconsin has diverged from national trends is in labor force participation. Employers point to the state’s low unemployment rate as a reason for slower job growth, but Kurt Rankin, an economist and vice president with the PNC Financial Services Group, said the low rate is being sustained by labor force declines.

Since reaching its most recent peak of 68.5% in mid-2017, Wisconsin’s seasonally adjusted labor force participation rate has fallen 1.2 percentage points to 67.3% in May. The shift equates to more than 24,000 people leaving the state’s workforce.

An aging workforce and retiring baby boomers would seem to explain the decline, but Rankin said that is not the case nationally.

“Unless Wisconsin is bucking the national trend, which I doubt … older workers, by and large, are choosing to remain in the workforce,” he said.

In May 2017, Wisconsin’s labor force participation ranked seventh in the country at 68.5%, but by May of this year, the state had fallen to 12th. Only four other states – North Dakota, Alaska, Hawaii and Utah – saw larger percentage point drops in their rate during that period.

“The fact that we’ve got the workforce nationally seeing steady gains (and) Wisconsin seems to be missing out on that reinforces that labor force decline,” Rankin said.

Despite the low unemployment rate, Wisconsin has not seen strong wage growth in recent months. During the first five months of the year, average weekly wages have declined an average of 1.1% compared to the prior year, the second lowest wage growth of any state in the country.

Rankin said businesses might be too picky in hiring workers, but regardless, wages should rise in a tight labor environment. Since the start of 2017, Wisconsin’s weekly wages have averaged a 3.1% increase, ranking 30th in the country.

“You’re going to have to offer higher wages if your business is looking to hire and can’t find workers in such a very tight labor market such as Wisconsin’s,” he said.

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.