–Through 2018, average wages increased substantially in King County, and tracked national trends in Pierce and Snohomish counties.
–Income inequality, as expressed in the Gini Index, has increased in all areas, but remains lower than the national average.
–Incomes at the lower quintiles have been flat for 30 years.
The impact of job losses during the coronavirus shutdown have fallen disproportionately on the less skilled part of the workforce, as shown in this Indexer article. To the extent that these job losses do not bounce back during a fast recovery, we will see further erosion of the economic position of those in the least skilled, and least well-paid positions. This erosion will start from a position that was not good to begin with. While average wages have grown in the region, as with most of the country, wages at the bottom have struggled to advance.
Average wages in the region
Average wages have grown substantially in King County over the past generation. They have grown much less in adjacent counties. Figure 1 shows average wages, expressed in 2018 dollars, for the three counties and the nation in ten year increments since 1990. Snohomish County has kept pace with the nation during this time and winds up slightly ahead of the national average. Pierce County pulled slightly closer to the national average.
King County saw major increases in average wages during the 1990s. The software industry, with its generous compensation, took off in that decade. And, most notably, stock options at Microsoft began to show up in the data and pull average wages sharply up. King County went flat during the 2000s. The first wave of economic distress came from the Dot.Com bust and large-scale layoffs at Boeing in response to slowed deliveries caused by the 9-11 attacks. Then, just as the economy was recovering, the housing bust and Great Recession pulled the rug out from under wages again. Since 2010, wages have resumed their upward trajectory, although at about half the growth rate of the 1990s.
In 2018, the average wage in King County was 57 percent above the national average. Snohomish County’s average wage is 6 percent above the nation and Pierce County’s average wage is 8 percent below the national average.
When it comes to wages and wage growth, averages are quite deceiving. The Puget Sound area follows the national pattern of widening income inequality. Figure 2 shows the Gini index for the three counties since 1990. The Gini index compares the aggregate amount of income held by each portion of total households, starting with the household having the least income. For example, for a given county, the lowest-income 30 percent of households might bring in 20 percent of the total income taken in in the county. A Gini index of zero indicates that income is totally equal, and a Gini index of one indicates that a single household has all the income. The higher the Gini index, the higher the level of inequality.
Figure 2 shows the change in the Gini index for the three counties and the U.S. since 1990. For context, it brackets the three counties with two extremes. New York County (Manhattan Island) has the nation’s highest Gini index for a non-rural county, and Prince William County, Virginia, in the Washington DC suburbs, has the lowest non-rural Gini index.
It is notable that the Gini index has been rising in all three counties, but at no more than the pace of the nation. All three counties have Gini indices below the national average, which stood at 0.48 in 2018, and the Gini index for Snohomish County is near the national low.
A useful tool to get past the use of averages, which are misleading, is to examine the trend in incomes at different levels. Figure 3 shows inflation adjusted upper bounds for the five income quintiles for King County. (The top quintile is defined at the 95th percentile level, or the lower limit of the top 5 percent, since the 100 percent level would be marked by the income of the highest earning household, which would not be a helpful measure).
Figure 3 reveals an often told story of growing income inequality. The upper bound of the lowest quintile shows very little growth over 30 years, meaning that the household at the 20th percentile level had only a slightly higher income level in 2018 the household in that position had in 1990. Each succeeding quintile grows faster than the one below it. And note the sharp increase in the 95th percentile from 1990 to 2000 as Microsoft Stock options were recorded.
Over the 1990-2018 period, the upper bounds of the quintiles grew as follows: lowest—18 percent; second—25 percent; third—37 percent; fourth—47 percent. The household at the 95th percentile level saw income growth of 42 percent during that time. Note that the largest gains were in the fourth quintile, which saw its income grow 2.6 times as much as the income for the lowest quintile. There is no data on the income growth of the top 5 percent.
Some economists argue that these measures overstate inflation and understate the impact of improvements in product and service quality. If this argument is correct, this data would understate improvements in living standards and overstate inequality. Lower income people consume more products that are subject to inflation and quality increases, so this analysis might result in some reduction in inequality. Also, measures of income do not capture all of the public benefits that are available to lower income households, and if these benefits are added, inequality of total resources (not just monetary income) may be lower.
Income growth in King County has far outpaced income growth in the adjacent counties. But even with the substantial incomes of the technology sector, the region’s income inequality picture is not out of line with the national picture. Questions going forward are:
- Will a slow recovery from the coronavirus shutdown exacerbate income inequality?
- Will King County residents, with their higher incomes, continue to outbid existing residents of Pierce and Snohomish counties for housing?
- To what extent will downsizing at Boeing erode the region’s historically strong base of middle-income jobs that mitigate income inequality?
- Can the region find ways to increase the productivity of those in the lowest income quintile so that their incomes can grow at a faster pace?