Recent economic news is not so good. A recession looms. But over the past decade and more, the economic progress of Washington state and Seattle, in particular, has been remarkable. Few people realize how amazing it has been.
The key to high wages is to produce a high value per person employed — in other words, high labor productivity. Labor doesn’t get all this value because it isn’t responsible for all of it. Much of it reflects the amount of capital, physical and intellectual, per worker. But labor gets a large share.
In Washington outside of King County during 2021, the median wage — half the workers get less, and half get more — was $25.81 an hour. In Snohomish County, which has the second-highest wages of any county in Washington, the median wage was $30.08. In King County, it was $40.48. Compared to our past, or to the present in most of the world, this is a high wage.
Labor productivity is measured by value added per hour of work. Among the states our state is second out of 50 in median value added per hour of work. Here are the top five states:
$117.86 New York
$106.09 Washington
$104.53 Delaware
$103.30 California
$100.72 Massachusetts
Here are the figures for several other states:
$90.44 Alaska
$73.62 Oregon
$62.61 Montana
$59.93 Idaho
$58.03 Mississippi (the lowest)
“Productivity” brings to mind auto workers replaced by robots, grocery cashiers replaced by the scan-it-yourself aisle, etc. Replacing people with machines is part of it, but a bigger part is innovation, so that workers are doing new things worth more than the old things. The state of Washington has been remarkably good at that — better, in fact, than any other state in the union.
Consider the growth in productivity over time. If you set the median output per worker in each state in 2007 at 100, by 2021 the top five states in productivity growth were:
145 Washington
142 California
132 Oregon
131 Massachusetts
127 New York
120 New Hampshire
If you set labor productivity at 100 in 2012, by 2021 Washington is on top again nationwide, with an index figure of 130. If you look at it for just the year 2020-21, Washington is on top again, with an index figure of 106.4.
All this productivity growth has been good for worker pay. Last June, the federal Bureau of Labor Statistics reported that the median increase in employee pay and benefits in the area around Seattle and Tacoma (King, Island, Skagit, Snohomish, Kitsap, Pierce, Thurston, Mason and Lewis counties) was 8.7 percent, the highest rate of increase of the 15 U.S. urban areas measured. The average in urban areas in the Western states was 5.5 percent.
In October, the unemployment rate in King County was 3 percent, which is about as low as it ever gets.
Politicians may want to take credit for this progress, and part of it may be because of things they did. But it is likely the smaller part. Most of the credit for the progress of the private sector goes to the people in that sector. And they have been doing remarkably well.
Keep that in perspective as the not-so-good news rolls in.
Seems to me the real question is whether all this economic good news is the end of the ride or a forecast into the future. The strange nervousness in Seattle suggests that many are poised with this question unanswered. Does prosperity breed prosperity or is it a storm signal? My reason for optimism is the quality and inventiveness of all the talented, young people who have streamed into the region.
Please help me understand this business about “value added” per hour of labor. This is value in a meaningful sense, right? Like, value to society.
If I paid someone $50 to scratch something offensive on a shop window, and it took him 15 minutes, that couldn’t possibly be productivity P = $50 / (15/60)?
I’m glad, of course, at the prevailing livable wages being paid to Seattle workers, particularly compared to the rest of the country. (In Arkansas, the minimum wage is $11.00. South Caroline has no state minimum wage. ) And yet, in King County, we still have draconian protections levied against small businesses, individuals, and homeowners, that aren’t justified by Seattle’s healthy economy. In particular, rentals and leases, which should be a business decision between homeowner and tenant, dictated by the Seattle City Council.
Much of Seattle’s “high productivity” has been driven by venture capitalized startup tech companies, many of whom aren’t even profitable, paying high salaries to people who aren’t yet paying their way in real terms. As unprofitable companies trim workers, that number could plunge.