Stagnant Southern Nevada Wages Are Preventing a Full Recovery

Posted on by & filed under Nevada by the Numbers Blog.

In recent months, we’ve been told by a variety of sources that the Southern Nevada economy is in full recovery and firing on all cylinders. That would be nice if it were true. Most Las Vegas economic metrics have indeed improved since the depths of the Great Recession, but one of the most critical components of any economic engine is still a bit wobbly and is slowing down the wheels of a “full steam ahead” economy.

I am referring to wages, and more specifically to inflation-adjusted (“real”) wages. This metric is crucial because it represents the actual purchasing power of consumers. People who are economically positioned to consistently spend money in the economy are the real long-term job creators. In fact, consumer purchasing power is probably the most important indicator of a region’s economic well-being. It is also a critical contributor to economic growth and development.

The latest private sector wage data for Clark County shows the “truthiness” (thank you, Stephen Colbert) of claims that Southern Nevada is seeing across-the-board economic growth. I say the numbers are “truthy” because while they seem good at first glance, they are actually tied to non-inflation adjusted numbers which considerably skews their real world value.

The graph below shows where inflation-adjusted private sector wages were in Southern Nevada in Q4, 2015 compared to where they were in Q4, 2007, at the start of the Great Recession.

wage graph
(Note: Q4, 2015 is the latest wage data available, by industry, for Clark County.)

The bar on the left side of each two-bar cluster in the graph is the Q4, 2007 average weekly wage. The bar on the right is the inflation-adjusted Q4, 2015 wage. As we can see, only five of the 11 private sectors showed real average weekly wages higher in 2015 than they were in 2007.

For all private industries combined, the 2007 wage was $865 versus $794 in 2015, a -8% difference. The biggest drop was in Professional and Business Services with a -23% difference. (The professional services sector was decimated during the Great Recession, due to a hit on those firms servicing the real estate industry.) The same trend can be seen when we view average weekly wages for the Goods Producing group versus Service Producing group. Both are lower in 2015.

Leisure & Hospitality

What exacerbates the wage problem in Las Vegas is that our jobs remain concentrated in one industry, Leisure and Hospitality (L&H), a sector dependent upon the relatively low wages of workers as well as on the discretionary spending of consumers. Despite recent economic development and diversification efforts, Southern Nevada’s job concentration has not changed much in the last 20 years. L&H continues to represent about 30% of the region’s job-base, as shown in the graph below.

updated diversity graph

To be fair, an argument can be made that wages in L&H are understated because many employees earn tips that are then under-reported. If one assumes that’s true — and that markets work as expected and L&H companies must pay a competitive wage — one can still look at the difference between what Las Vegas pays compared to what is paid nationally and approximate the local tip “premium.”

For example, the Bureau of Labor Statistics (“BLS”) reports that the average hourly wage (not including tips) for gaming dealers in Las Vegas is 23 percent higher than what dealers earn nationally. Specifically, the average base-wage for dealers in Las Vegas is $10.49 an hour versus the U.S. average of $8.53. The percent differential likely (and partially) reflects the wage premium, but it is also likely that tip income creates an even larger differential, Las Vegas being the “Entertainment Capitol of the World and all. If we assume another 20% adjustment for tips per 40-hour work week, it would increase average Nevada dealer weekly wage to $504 from the $420 base-wage. Given a 52-week pay year, the $504 is equivalent to $26,208 in annual wages.

For bartenders, based on the same BLS data, the differential is just over 16% – $11.59 per hour for the U.S. versus $13.49 for Las Vegas. The equivalent weekly wage estimate, then, is $540. Increasing the $540 by another 20% to reflect likely average tips would result in a weekly wage of $648.

Again, Clark County data shows that the average wage for all occupations in L&H was $606 in Q4 of 2015.

National Numbers

As for the broader national metrics, inflation-adjusted U.S. wages are slightly better than in Nevada, but not by much. National price indexing, such as the Consumer Price Index (“CPI”), provides the framework through which we can evaluate the real purchasing power of American households.

If we look at CPI-adjusted U.S. average weekly wages over 40 years, the results are telling. As shown in the following chart, when weekly wages are adjusted for inflation (orange line), and assuming 2015 values, you can see how little they have grown in real terms over four decades.

us weekly earnings Clearly, the consumer purchasing power problem is not relegated to Nevada. One begins to understand at least some of the voter frustration we are seeing this campaign season.

Wages aren’t the only way workers are compensated, of course. Health insurance, retirement account contributions, and other benefits all can be part of the pay package. However, wages and salaries are by far the biggest component (about 70%, according to the Bureau of Labor Statistics) of employee compensation. And, as mentioned earlier, they are also the component that is tied directly to consumer spending, a key driver of the economy.

Any claims of an optimally performing, finely-tuned economic engine operating without real wage growth – whether in Nevada or across the nation – are truthy indeed. When it comes to their paychecks, the vast majority of workers are still not fully benefiting from the economy’s slow recovery.