Geoscience Reference
In-Depth Information
Washington annual wage and salary disbursements per worker are about 5 %
higher than the U.S. average. Since 1970, however, wages per worker in
Washington and the United States have increased at the same average rate,
4.9 % per year. This is the principal reason why Washington and U.S. per capita
incomes have risen more or less together, 5.9 and 5.8 %, respectively, over the
same time period (Fig.
8.2b
).
Although strong economic growth will often lift regional per capita income
above its equilibrium level, there is no guarantee of it. Between 1983 and 1990,
Boeing and its aerospace contractors added approximately 42,800 high-wage jobs
at their Puget Sound facilities, contributing to an economic boom that created
702,400 jobs statewide (nearly one-fifth of today's employment). While the state
grew one and one-half times faster than the nation during this period, its relative per
capita income actually fell from 4.5 % above the national average in 1983 to only
1.5 % in 1990.
There appear to be three reasons for this unexpected outcome. First, aircraft's
high wages had no measurable effect on pay rates in other industries, as a flood of
migrants kept labor abundant. Second, through the multiplier process, the aircraft
industry indirectly created an estimated 140,000 jobs, many of which were in
low-wage industries like retail trade and personal services. Third, incomes in
some of Washington's other high-wage industries, principally aluminum
processing and lumber and wood products, declined during this period, at least in
real terms, for reasons unrelated to the Boeing expansion.
As a final point on mobility and equilibrium, goods and services can move from
place to place even more easily than labor. As a consequence, the prices of most
products, like cars, computers, processed food, and haircuts, are essentially set in
the national market. As it is with wage rates, Washington is a price-taker. One
exception is the price of houses, which are not mobile. Prices vary across regions
because of differences in transportation costs, but local and national prices tend to
move together over time. Since 1970 the Seattle inflation rate has averaged 4.5 %
per year, just 0.2 percentage points higher than the U.S. inflation rate (Fig.
8.2c
).
There have been periods of time, however, when the Seattle inflation rate has
diverged from the national inflation rate. In the 1990s, Seattle prices rose substan-
tially faster (3.5 % per year) than U.S. prices (2.8 %). An analysis of the consumer
price index by component revealed that local prices outpaced national prices in
every major category except medical care. However, housing accounted for most of
the difference between the Seattle and U.S. inflation rates. Because of a housing
bubble fueled by speculative demand (e.g., home-flipping), Seattle area home
prices rose 20 % in 1989 and 23 % in 1990. This had the effect of significantly
boosting the imputed housing rent component of the consumer price index for
several years in the 1990s.
7
7
The Puget Sound Forecasting Model provides strong evidence that prices are primarily deter-
mined in the national market. The equation forecasting the change in the Seattle consumer price
index has two explanatory variables: the change in the U.S. consumer price index and the relative
