The State of Working Utah, 2008 Looking Back on the Boomimg.ksl.com/slc/786/78681/7868162.pdfper capita, Utah bucked the nationwide trend of rising unemployment— for the time being

The State of Working Utah, 2008

Looking Back on the Boom

State of Working Utah, 2008

Executive Summary

• At the peak of the latest business cycle in 2007, Utah posted impressive gains in overall economic growth and unemployment rates relative to the previous peak in 2000. Still, because of rapid population growth, the state did not grow as quickly as the U.S. in per capita terms.

• Most Utah wages and salaries grew in real (inflation-adjusted) terms from 2000 to 2007. However, Utah’s median wage remains below the U.S. median primarily because wages for the highest-paid workers grew very quickly nationwide.

• In spite of wage gains, household incomes stagnated from 2000 to 2007. Combined with inflation in housing prices, health care and fuel, this means that low-income working families struggled to make ends meet even during the state’s boom years.

• Increased wages for many workers appear to have had little impact on the state’s children. Utah’s rate of child poverty grew by over 30% from 2000 to 2007, and one in three Utah children lived below 200% of the Federal Poverty Level.

• As in the rest of the U.S., the rate of uninsured Utahns is growing quickly. The rapid increase in the number of uninsured children, however, soon may begin to fall, thanks to 2008 legislation which will keep CHIP enrolment open year around.

• In view of these data and worldwide economic prospects, the primary concern for Utah policymakers should be supporting struggling families. The lack of economic progress for most families during the latest boom means that many are already on the verge of financial collapse. Helping families maintain or recover their spending power will heighten prospects for local economic recovery.

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Voices for Utah Children

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Contents

Executive Summary ............................................................................. iii

Introduction ...........................................................................................1

How Hot was Utah? Overall Economic Indicators, 2000 to 2007 ..........................................2

Utah’s Low-income Workers Made Gains.............................................3

Income for Utah Households Stagnated...............................................6

Younger and Older Utahns Continued to Work at High Rates .............8

Child Poverty in Utah Surpassed the U.S. Rate .................................10

Rates of Private Health Insurance Kept Falling ..................................11

Definitions ...........................................................................................13

Methodological Note ...........................................................................14

About this Report ................................................................................15


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Introduction Utah enjoyed unprecedented levels of overall economic growth during the business cycle that lasted from 2000 to 2007. Gross state product grew quickly after the initial slowdown from 2001 to 2003. Utah ended the period with the lowest unemployment rate in the nation, a boom in construction, and brimming state coffers. This report considers the extent to which this strong overall economic performance was shared equitably among the families who made it possible. Did Utahns of all income groups enjoy the fruits of their hard work? Or, as data from the U.S. Census and from the IRS show for the United States as a whole, was there mostly a concentration of newly generated wealth in the hands of the highest earners? The State of Working Utah, 2008, explores these questions by analyzing U.S. Census data on key indicators during the peaks of the two most recent business cycles. This technique tends to be more reliable than year-to-year comparisons, especially in a relatively small state like Utah, where annual fluctuations can be large. (See Methodological Note on page 19 for more information.) As the analysis in this report makes clear, there is no simple answer to the question of whether Utah’s recent growth was shared equitably among all the people who made it possible. Instead, the data in this report paint a rather complex picture of how workers, families and households fared during the latest economic cycle. For example, Utah ended 2007 with its highest inflation-adjusted median hourly wage since at least 1979. Nevertheless, like their counterparts in the U.S. as a whole, most Utah households experienced falling incomes from 2000 to 2007. Today, in the midst of mounting economic uncertainty and accumulating inflation, household incomes should be the primary concern for public policymakers in Utah. The lack of substantial economic progress over the past business cycle has left most Utah families with little economic


“cushion” in their budgets to fall back on as global conditions worsen. Many Utah businesses depend on local consumers for their livelihoods. Until the economy begins to recover, leaders would be wise to shore up state supports available to working families to help them, and the businesses that depend on them, remain viable until better times return. Indeed, as two highly regarded economists wrote during the last recession, “Reductions in government spending on goods and services, or reductions in transfer payments to lower-income families, are likely to be more damaging to the economy in the short run than tax increases focused on higher-income families.”1

How Hot was Utah?

Overall Economic Indicators, 2000 to 2007

Much has been made of the rapid pace of Utah’s overall economic growth in 2006 and 2007. But according to several general economic indicators, the results of Utah’s 2000 to 2007 business cycle were not as rosy as they may have looked at the time. For example, the state’s gross product grew by 28%, substantially surpassing national growth for this period (Figure 1). However, when Utah’s rapid population growth is taken into account, a slightly different picture emerges: Utah’s per capita gross product grew slightly slower than the national average. For this reason, in spite of rapid economic growth, the actual dollar gap between Utah’s per capita gross product and the national average increased from 2000 to 2007.

1 The economists are Nobel Prize winner Joseph Stiglitz of Columbia University, and Peter Orzag, director of the Congressional Budget Office. Source: Peter Orszag and Joseph Stiglitz, Budget Cuts vs. Tax Increases at the State Level: Is One More Counter-Productive than the Other During a Recession? Center on Budget and Policy Priorities, revised November 6, 2001.

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Figure 1. Utah’s economy boomed, but population boomed faster

Gross Product (millions of chained 2000 dollars)

Per Capita Gross Product (chained 2000 dollars)

2000 2007 Change 2000 2007 Change

Utah $67,568 $86,698 28% $30,105 $32,774 9%

United States $9,749,103 $11,467,503 18% $34,547 $38,020 10%

Difference - $4,442 - $5,286

Source: Derived from Bureau of Economic Analysis, U.S. Dept. of Commerce.

In contrast, Utah’s unemployment rate dropped after 2000 from 3.3% to 2.6% in 2007, and was at or near the lowest in the nation for 2006 and 2007. The national unemployment figures were 4.0% and 4.6% during those years.2 In other words, in spite of slower growth in state product per capita, Utah bucked the nationwide trend of rising unemployment—for the time being.

Utah’s Low-income Workers Made Gains Utah’s median wage grew 2.2% between 2000 and 2007, to $14.55 ($30,264 annually). That is, half of all workers earned more than this amount and half earned less. This is the highest inflation-adjusted median wage that the state has seen since at least 1979. The median wage for the U.S. as a whole in 2007 was $15.10 ($31,408 per year), reflecting slightly faster growth than Utah’s since 2000, at 2.5%. More information regarding these pre-tax wage patterns is apparent in an analysis of decile wages in Utah (Figure 2). These data show that wage gains during this period were distributed across the spectrum, although the amount varied. In general, the news is good for low-income Utahns, with higher gains realized at lower wage levels. At the same time, the

2 Source: derived from EPI analysis of Current Population Survey data.

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especially large gain for the 90th percentile echoes the pattern nationwide, albeit to a lesser degree (see below).

Figure 2. Change in Utah's decile hourly wages over recent business cycle (adjusted for inflation )

$30.97

$8.03$9.63

$10.97$12.70

$14.55$16.84

$19.22

$23.31

$0

$5

$10

$15

$20

$25

$30

$35

10th percentile

20th percentile

30th percentile

40th percentile

Median

60th percentile

70th percentile

80th percentile

90th percentile

20002007

Source: derived from EPI analysis of Current Population Survey data.

The interpretation of these median wage gains is open to some debate. Taken at face value, the trend would suggest that the state’s very low unemployment rates of recent years have had some effect on wages, as employers increasingly competed to attract workers. A more nuanced analysis, however, would note that the individual wage-earners included in each of these decile categories do not necessarily remain the same over time. This means that if workers at the low end of the wage-scale were leaving their jobs in great numbers, these median wage gains would reflect merely the movement of slightly higher-paid workers into lower deciles. For example, as the construction market slowed at the end of 2007, employers likely followed the “last hired, first fired” principle, laying off workers whose lower wages reflected their brief time on the job. This would remove the lowest-wage workers from the decile wage calculations and result in apparent gains even if actual wages for remaining workers were unchanged. A similar pattern may hold

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elsewhere as employers in the volatile restaurant and retail sectors see the need to cut costs. Whatever the underlying explanation, Utah’s wage data for the 2000 to 2007 period echoes an established state pattern of relatively greater equality among workers compared to the national level. In essence, Utah’s lowest wage-earners tend to earn slightly more than their counterparts nationwide, while the highest wage-earners earn slightly less. A closer look at changes in decile wages from 2000 to 2007 tells the story a different way, emphasizing that the greater gains for Utah workers were at the lowest wage-scale, while the greatest gains nationwide during this period were for the highest earners (Figure 3). So pronounced were these patterns that Utah’s median remains below the U.S. median essentially because of the exceptional growth in wages for the highest paid workers nationwide.

Figure 3. Comparison of change in decile wages, 2000-2007

2.2%

3.4%3.2%

4.3%

0.2%

2.4% 2.4% 2.5%2.8% 2.8%

4.4%

2.4%2.2%

0.2%

-1.2%

0.9% 0.8%

7.0%

-1.5%

-0.5%

0.5%

1.5%

2.5%

3.5%

4.5%

5.5%

6.5%

10th

perce

ntile

20th

perce

ntile

30th

perce

ntile

40th

perce

ntile

Median

60th

perce

ntile

70th

perce

ntile

80th

perce

ntile

90th

perce

ntile

UtahU.S.

Source: derived from EPI analysis of Current Population Survey data.

The apparent gains at the low end of the wage scale likely contributed to the sharp drop in the share of Utahns who earned poverty-level wages. This decreased by 6.5% from 2000 to 2007 (Figure 4). During the same

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period, the share nationwide who earned poverty-level wages actually grew slightly. The result is that for the first time in many years, Utah’s share of workers earning poverty-level wages dropped below the nation’s in 2007.

Figure 4. Share of workers earning poverty-level wages

2000 2007 Growth rate

Utah 28.2% 26.3% -6.5% United States 26.4% 26.8% 1.4%

Source: Derived from EPI analysis of Current Population Survey data.

Unfortunately, however, by the end of 2007 rising costs in housing, health insurance and fuel are likely to have outpaced any wage gains for the lowest-earning Utah workers. Indeed, costs for housing and health insurance (including premiums, deductibles and co-payments) had already been increasing at rates faster than inflation before 2007, forcing families to devote an increasing share of their incomes to these necessities. Inflation, combined with trends in family and household incomes, suggests that rough times are ahead and that state government will be increasingly called upon to provide a variety of supports to struggling families—even those who manage to remain employed. This kind of support is in the state’s interest since consumer spending drives large sectors of the local economy.

Income for Utah Households Stagnated

At the national level, a fair amount of attention has been paid to recent evidence that illustrates a concentration of income among the wealthiest families since 2000. For example, IRS data analyzed in a recent Wall Street Journal article suggest that “The wealthiest 1% of Americans earned 21.2% of all income in 2005… [surpassing] the previous high of

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20.8% set in 2000.” In addition, “The bottom 50% earned 12.8% of all income…a bit less than their 13% share in 2000.”3

Similarly, U.S. Census data analyzed in The State of Working America, 2008, show that 2007 was the first year since World War II that in which family income ended up lower at the end the business cycle than it had been at the beginning.4 Unfortunately, limitations of the Current Population Survey data make direct comparisons of Utah’s median family income impossible. However, data is available for a similar group, Utah households.5 In spite of wage gains for workers, median income for Utah’s households fell between 2000 and 2007, and at a faster rate than the U.S. as a whole (Figure 5). At $53,529, Utah’s figure still exceeded the nation’s median household income, but the margin of difference dropped by nearly $3,400. Thus, it is clear that growth in per capita gross state product during this period, at nearly 9%, did not “trickle down” across wage groups in the form of substantially higher earnings for most Utah families, either.

Figure 5. Median household income, 2000-2007

$57,248

$53,529

$50,554$50,233

2000 2007

UtahUnited States

Source: derived from Economic Policy Institute analysis of Current Population Survey data.

3 Wall Street Journal, “Income-Inequality Gap Widens,” October 12, 2008. 4 Economic Policy Institute, The State of Working America, 2008, http://www.stateofworkingamerica.org/. 5 The U.S. Census Bureau differentiates between family and household income. Households include all families, as well as unrelated individuals who share a home and single-person households.

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Younger and Older Utahns Continued to Work at High Rates Utah’s overall labor force participation rate has exceeded the nation’s by four or five percentage points since 1984, and it continued to do so in 2007. However, labor force participation among Utahns in their prime working years, ages 25 to 54, is virtually identical to the national average. This means that the overall difference is due to substantially higher labor force participation rates among younger and older Utahns. Indeed, both younger and older Utahns participated in the labor force at unusually high rates in 2000, and these differences actually grew by 2007. Older Utahns increased their labor force participation by nine percentage points, while this figure increased by only seven percentage points nationwide (Figure 6).

Figure 6. Labor Force Participation, 55 years and older

37%

46%

32%

39%

2000 2007

UtahUnited States


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In contrast, although labor force participation for younger Utahns dropped by five percentage points during this time period, the drop was even larger for this cohort nationwide. (Figure 7).

Figure 7. Labor force participation 16 to 24 years old

75%70%

66%

59%

2000 2007

UtahUnited States


Because of the sheer size of Utah’s young population relative to other age groups, the drop in their labor force participation may well explain why household incomes fell from 2000 to 2007, in spite of higher median decile wages. More difficult to explain, however, is why labor force participation dropped in this age group.6 This may be more evidence that employers have followed the last-hired, first-fired principle, since younger

orkers are likely to earn lower wages.

w

6 Note that full-time students are not included in the calculations of labor force participation. This means, for example, that full-time college enrollments could increase or decrease without affecting labor force participation rates.

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Child Poverty in Utah Surpassed the U.S. Rate An especially troubling aspect of the nationwide changes in wages and jobs from 2000 to 2007 is that they have been accompanied by a notable increase in the number of children living in poverty. Utah is justifiably proud of the fact that its rates of child poverty typically trail those of the nation as a whole. During the recent business cycle, however, child poverty increased so quickly in Utah that the state’s advantage is no longer great (Figure 9).

Figure 9. Poverty rate for children (under 18), 2007 Share below

100% poverty

Growth since 2000

Share below 200%

poverty

Growth since 2000

Utah 13% 32% 34% 7%

United States 18% 11% 39% 4%


The share of children living below 100% of the poverty threshold—that is, whose incomes for a family of four were less than $20,650—increased by one-third from 2000 to 2007. The share living below 200% of the poverty threshold ($41,300 for a family of four) grew more slowly, but now includes one of every three Utah children. Perhaps more than other indicators, these figures emphasize that the good news of increased gross state product and median wages has not resulted in tangible benefits for many Utahns.

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Rates of Private Health Insurance Kept Falling For decades, health insurance coverage in the U.S. has been linked to employment and provided through the private sector. Changes both in the terms of employment and in the healthcare industry have meant that this is no longer the case for everyone. Utahns are more likely than others in the U.S. to enjoy private health insurance coverage, but the size of their advantage fell from 2000 to 2007 (Figure 10). The pattern of falling rates of private insurance coverage is repeated for children in Utah, who lost coverage even faster than adults.

Figure 10. Health insurance coverage

Covered by private

insurance Covered by

government insurance Uninsured

2007

Change 2000-2007 2007

Change 2000-2007 2007

Change 2000-2007

Utah total 76% -5% 19% -3% 13% 11%

U.S. total 68% -7% 28% 13% 15% 12%

Utah children 75% -6% 19% -7% 10% 27%

U.S. children 64% -9% 31% 27% 11% -5%


Part of the reason for these trends is that even for employer-provided health care benefits, the size of out-of-pocket payments for premiums, deductibles and co-pays have increased. In Utah, as in other parts of the country, these out-out-of pocket payments are highest both in absolute and relative terms for the lowest quartile of wage earners.7

7 Source: Medical Expenditure Panel Survey data, http://www.meps.ahrq.gov.

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As Americans—adults and children—lose their private health insurance coverage, increasing numbers are turning to government-sponsored insurance programs like Medicaid and CHIP. In addition, in the U.S. as a whole, the general aging of the population is rapidly increasing the rolls of Medicare. Utah’s data does not reflect these changes, since its general demographic profile includes far more young people as a share of the total. In fact, Utahns of all ages actually became less likely to use government-sponsored insurance programs between 2000 and 2007. This trend helps explain why the share of uninsured Utah children, in particular, grew substantially during this period. Presumably, many of these uninsured children would have been eligible for coverage by Utah’s CHIP or Medicaid. Unfortunately, the past pattern of opening and closing enrolment for CHIP each year because of limited funding likely discouraged many parents from enrolling their children in either program. With the passage of 2008 legislation that mandates keeping CHIP enrolment open year around, the share of uninsured children in Utah may soon stabilize and even begin to fall.

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Definitions Inflation: Throughout this document inflation is calculated for the national level using the CPI-U-RS. Labor force: People aged 16 to 65, who did at least 1 hour of paid work during the week of the CPS reference period either for an employer, in their own business or profession, or on their own farm. Median: For our purposes, the number that divides the higher half of a population from the lower half. The median of a list of numbers can be found by arranging all the observations from lowest to highest value and picking the middle one. Half the population has values less than the median and half have values greater than the median. Poverty: Households in poverty have wages or income that are insufficient to lift them above the Federally-established poverty line, or who fall within a certain percentage of this line ($20,613 for a family of four in 2006). Unemployment: The number of persons 16 years to 65 years old, who had no employment but were available for work, and had made specific efforts to find employment sometime during the previous four weeks. Wages: Payments for work, whether on an hourly basis or as salaries.

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Methodological Note This report is designed to inform policy makers and the public about the changing character and conditions of employment, the labor force, wages, poverty and health insurance in Utah. It is structured to compare data about these key indicators at two peaks in the business cycle, a technique that can be more reliable than year-to-year comparisons, especially in a relatively small state like Utah, where annual fluctuations can be large. The basic assumption is that 2007 marks the peak of the current business cycle, one that dates back to the previous peak in 2000. This seems like a fairly safe bet, judging by the quickly deteriorating economic conditions since late 2007. The 2000 to 2007 period also encompasses the national economic downturn in 2001, as well as Utah’s own construction and spending boom associated with 2002 Olympics. Readers who are interested in reviewing longer-term trends are encouraged to consult last year’s more comprehensive report, The State of Working Utah, 2007, which includes data from as far back as 1979. The information presented in this report is based on figures calculated by the Economic Policy Institute (EPI), and derived from a series of monthly nationwide surveys conducted by the U.S. Census Bureau, known as the Current Population Survey (CPS). The Current Population Survey (CPS) is conducted by the Census Bureau for the Bureau of Labor Statistics (BLS). This monthly survey of the population uses a sample of households that is designed to represent the civilian non-institutional population of the United States. Each month, the BLS analyzes and publishes statistics derived from the CPS on the labor force, employment, and unemployment, classified by a variety of demographic, social, and economic characteristics. The State of Working Utah, 2008, was prepared in conjunction with the Economic Policy Institute’s biennial State of Working America report. It is one of approximately thirty such state reports prepared by local organizations. More information on this project is available at http://www.earncentral.org/swx.htm.


About this Report Author: Allison Rowland is Director of Budget and Research at Voices for Utah Children. She leads the State Fiscal Analysis Initiative for Utah, researching issues related to state budget and tax policies, with an emphasis on impacts for low-income children and working families. Rowland has a PhD and a Master’s degree in Policy, Planning and Development from the University of Southern California, and a Bachelor’s degree in Political Science from Yale University. Acknowledgements: Funding for this project comes from the Annie E. Casey Foundation and the Public Welfare Foundation. Our SFAI project also receives assistance from the Center on Budget and Policy Priorities. Kai Filion at the Economic Policy Institute provided access to data, technical assistance and other support. We thank all of these people and institutions for their support but acknowledge that the findings and conclusions presented in this report are those of the author, and do not necessarily reflect the opinions of those named above. Voices for Utah Children is the only statewide, multi-issue child advocacy organization that speaks out on behalf of children. We are a credible, nonpartisan, and forceful voice for children and families. For more than twenty years, we have improved children’s lives by combining policy expertise with the power of strategic communications and advocacy to achieve real results.

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Documents

The State of Working Utah, 2008 Looking Back on the Boomimg.ksl.com/slc/786/78681/7868162.pdfper capita, Utah bucked the nationwide trend of rising unemployment— for the time being