Low-cost cities in the U.S. lead to wage growth, ADP study finds

A study released Thursday by payroll processor ADP analyzed wage increases in U.S. cities before and after the coronavirus pandemic for wage earners in the bottom 5% of the wage distribution.

The strongest increases were in places where initial income was low and where living was cheaper based on local house prices. People in those places are more likely to rely less on their own income from work and more on a spouse’s or family member’s income, pension benefits, government support or other sources, the study authors suggest.

The result: Companies need to start paying wages quickly to hire people.

“Employers went back to work as a result of the rapid reopening of the economy,” but over time “they left behind a pool of candidates accustomed to living outside the workforce,” ADP Research Institute’s Issy Rohm and ADP Chief Economist Nela Richardson wrote in the study.

“Going out of a job is more likely in low-income cities because the cost of living and lost income are generally lower there … This explains why employers in those cities raised wages even more strongly,” the authors wrote.

Topping the list is New Orleans, where the monthly income of the lowest-paid 5% of workers grew 42% from 2019 to 2021, compared to a .7% increase for the lowest-paid workers nationally at 10.3%. For all salaried employees. The study, which took advantage of ADP’s access to payroll data, looked at salaried employees, so changes in wages indicate higher wages; Hourly workers may earn more or less because of the hours they work.

While this is positive news from one perspective, for example helping to reduce income inequality, it could present bigger problems, Richardson said.

The study did not specify how recent price inflation would change job choices, but all things considered, if workers in some cities simply changed their jobs, it would mean the country’s overall employment rate would be lower than it was before the pandemic. To organize their lives.

The employment rate reflects the proportion of adults who are working or looking for work. Since the turn of the century, the employment rate in the U.S. has fallen steadily as the population and more people retire, but before the pandemic it began to rise in an environment of rising wages and low unemployment.

US officials hope the percentage will rise again to 63.4% in February 2020, just before the start of the pandemic, but has stagnated at around 62.2% in recent months.

Distribution of income

The ADP study also points to another problem. At the high end of the spectrum, the biggest increase has been in the top 5% of income earners in coastal cities where incomes were already high, potentially widening the gap between already expensive places and the rest of the country.

“While the cost-benefit of expensive urban living appears to favor the highly educated, rising housing prices have made it increasingly disadvantageous for the less qualified,” the study concluded, showing migration patterns in the U.S. at the start of the pandemic. Result..

Demographic sorting has concentrated graduates and their high wages in the country’s expensive metros, leading to greater economic – and political and cultural – polarization.