Andrew Zehner

Research Fel I ow, I nd ianaEconomic DevelopmentCouncil, lndianapolis

New Data lor the Labor Market

new set of labor market data is available thatemployers, workers, and researchers will findquite useful. The new data describe the wagesHoosier workers earn in each of several hun-dred specific occupations. In addition to ex-

plaining these data and how they can be used, weshall discuss some limitations of wage analysis andrecommend ways in which the new data relate toI ndiana's current labor shortages.

Until recently, the office of Labor Market Infor-mation Services (LMIS) at Indiana's Department ofWorkforce Development produced a biennial report ofwages for each of 150 occupations. The latest versioncovered 1994-95 and reported wages for each ofIndiana's 16 service delivery areas. lt also disclosedwhat six different industries paid for the same occu-pation. This wage survey was a good tool. Unfortu'nately, other states did not use the same methodol-ogy, so our rates could not be compared with them.

The Federal Bureau of Labor Statistics (BLS) hasjust released the first findings from a new wage sur-vey that will make cross-state comparisons possible.The early release of the data is 0n the Internet athttp://stats. bls. gov/oes/oes-data. htm. This new BLSwage information is going to be the only source formost communities. because the state LMIS is discon-tinuing its survey.

New Wage Data From BLSThe new 0ccupational Employment and Wage Datareport covers three points of data for each of 476occupations: (1) the estimated number of workersemployed in the occupation; (2) the mean, 0r average,hourly wage; and (3) the median hourly wage. Table 1shows a small sample of the data.

The BLS will survey a rotation of employersevery year and estimate wages from a combination ofthree years of data. Most forms of direct financialcompensation will be included (except tips and over-time pay), but the value of fringe benefits will not beconsidered in the survey.

Much of what is revealed in these new data isnot surprising. The highest-paid occupation is physi-

cians, at $53.71 per hour. Dentists, lawyers, pharma-cists, and engineering and science managers com-plete the top five. According to the BLS, the numberof Hoosiers holding these jobs is 23,090. This meansthat one out of 130 working Hoosiers is in this groupof top earners.

The five lowest-paid occupations are lunchcounter workers, fast-food and short-order cooks,waiters and waitresses, parking lot attendants, andushers and ticket-takers. Indiana has 87,430 workersin these occupations, so one in 35 Hoosier workers isemployed in one of the five lowest-paying jobs.

Indiana workers earn less than their nationalcounterparts in most occupations. According to theBLS, Indiana wages are about 92.8% of the nationalrate for the ten largest clerical occupations. Produc-tion wages are the exception. Indiana employers paymore for five of the ten largest production occupa-tions. Hoosier assemblers and fabricators make$10.88 per hour-more than a dollar per hour morethan their national counterparts.

Putting The New Data To UseAccurate, detailed, and current occupational wagedata are potentially useful for employers, iob seekers,students, economic developers, and almost anyoneelse interested in the labor market. lt is relatively easyto obtain anecdotal salary information about a specificiob opening. lt is much more ditficult t0 get accurateinformation about the entire pool of workers in theoccupation.

Economic developers will use the new data toshow business prospects what they will have to payto compete for workers with necessary skills. Andbecause the survey is done the same way in everystate, it will be easy to compare Indiana's labor coststo those of other locations. Workers and employersboth can use the data when they are negotiating con-tracts.

Job seekers and students can consider wagerates when they are deciding where to look for workor what career to prepare for. lt is hoped that whenstudents see the low wage rates otfered for someIndiana iobs, they will remember that the cost ofliving in Indiana is below the national rate. Accordingto the American Federation of Teachers Index, Indi-ana's cost of living was 91.4% of the United States in1995. Thus, a worker's actual purchasing power maybe greaterin Indiana despite lower nominal wages.

Providers of training services, welfare reformers,and other social mechanics may find these new datailluminating. A great national debate is bubbling as towhether there are enough jobs for welfare recipientswho are moving into the work force. The new data setreports the number of Hoosier workers in each occu-pation.

Table 1New 0ccupational Employment and Wage Data: A Sample

0ccupation TitleAutomotive mechanicsAutomotive body and related repairersMotorcycle repairersBus and truck mechanics and diesel engine specialistsMobile heavy equipment mechanics

Source: Fedenl Bureau of Labor Statistics

Employment14,0706,060

1606,9002,240

Mean Wage12.7313.0410.3613.4613.44

Median Wage12.2512.1210.3012.94't2.42

The difference between the median and meanwage provides a glimpse at the potential for upwardmobility within each occupation. When the median issignificantly lower than the mean (as in Table 1, inwhich the median wage for Mobile Heavy EquipmentMechanics is92.4o/o of the mean), most workers inthe occupation earn relatively low wages, whereas asmaller number earn wages that are quite high. Whenthe median and mean are very close (as with Motor-cycle Repairers in Table 1), there are fewer low-endiobs in the occupation and fewer highly compensatedcareer-track jobs.

The Inexact Science ol Selting Wage RatesThe new data will help employers set wage levels fortheir iob otfers, but it cannot make the task easy.Setting wages is not an exact science. The most ratio-nal strategy for an employer is to pay the lowest wagesufficient to attract, retain, and motivate an adequatenumber of workers with necessary qualifications.Employers who pay less than the sutficient wageoften experience understaffing, high rates of turnover,or unmotivated and unproductive employees. Employ-ers who pay more waste money.

Many employers around Indiana these dayscomplain of having hiring problems. ln particular, theyspeak of chronic understaffing, high rates of turnover,and unmotivated and unproductive employees. Thereis no doubt that the Indiana labor market is not work-ing etficiently. Demand exceeds supply, and disequi-librium persists. Shop marquees that once describedthe wares available to customers now advise passers-by of job opportunities within. Radio advertisementsfor restaurants proclaim not that you might want t0eatthere, but that you might want to workthere. Thevoices of business-such as the Indiana Chamber ofCommerce and the Indiana Manufacturers Associa-tion-have become active promoters of training andlabor exchange improvement. Coping with the "labor

shortage" is one of the top issues facing state andlocal public officials. But the problem is not purely ashortage of workers.

Indiana has more than 3,000,000 working peoplein its population. Seventy-one percent of all Hoosieradults are in the work force. And for nearly a decadethere has been a stream of in-migrating workers fromother states and countries. All this translates into a lotof working people! So the labor supply may not bedue only to a genuine shortage of workers. lt mightbe caused by faulty market signals. Employers whohave persistent problems hiring and retaining workersmust acknowledge that there are plenty of people whowant to work, then ask themselves why those peopledon't especially want to work for them!

An employer who is in a bad location or has abad reputation will be forced to pay more to attract

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and keep workers, whereas a company with a goodreputation will have no shortage of applicants. Com-panies that want to retain the most experienced ormost skillful workers available will pay extra for them,whereas those that pay less will hire novices and loseexperienced workers.

Wages are not the only form of compensation.Fringe benefits, such as health insurance, trainingallowances, and flex-time, are increasingly importantin today's workplace. Some workers even prefer bet-ter benefits to higher pay. For these reasons, wagedata alone cannot be an exact indicator of what anemployer should pay or a worker should demand.Nevertheless, clear, detailed, and timely wage infor-mation can help labor market participants get a betterhandle on at least one part of the combination.

The Meaning ol lhe MeanThe new BLS wage data presents the mean (average)wage for each occupation. But although this is whatmost data customers ask for, mean wages are a weakindicator. First, the average for all workers is nearly

"There is no doubt that thelndiana labor market is notworki ng efficiently.. . . Shopmarquees that once describedthe wares available to customersnow advise passersby of iobopportunities within."

always higher than the starting wage employers ex-pect to pay new hires. So even when a firm has anaccurate and up-to-date indicator of the overall wagefor the occupation, it will stil l be left guessing howmuch less to pay a beginner.

More important, the average does not provideany picture of the actual distribution of wages. Here isan example of the limited power of averages to de-scribe groups. The average age in the author's house-hold is 1 7 years, but no teenagers live there at all.Instead, there are three young children and two adultsin their 30s. Thus, the numerical average is a g00dsummary statistic for "central tendency" when thepopulation is distributed in a bell curve. But it is oftenimpossible, as in this example, to discern the realdistribution from the average. Such is the case withwage distributions. lnstead of being bell-shaped, thedistribution of wages for most occupations is roughlylinear.

Figure 1Machine 0peralot Wages

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Wages ($ per hour)

number of new workers attracted by an increment ofpay diminishes, just as it does at the high end ofFigure 1. The flatness at the top end of both curvesprobably corresponds to the small subset of workerswhose skill and seniority allows them to commandpremium wages.

The two preceding examples illustrate that em-ployers can infer more about the labor market fromthe distribution than from the average wage. They canmore clearly understand where their wages fit in thespectrum and can more reasonably anticipate how thepool of workers will respond to a new wage offer. Anemployer who boosts the wage for machine operatorsfrom $10.50 to $12.00 could expect to expand thepool of workers by 13%. But an employer who waspaying $12.00 and boosted the wage by the same$1.50 increment would increase the pool by only 4%.In the case of electrical repairers, an employer paying$12.00 would increase the labor pool by 15% byboosting wages $1.50 per hour. But that same incre-ment would expand the supply by a whopping 41% inthe $13.50 to $15.00 range.

These wage curves show that the number ofadditional workers attracted by an increment of wageswill change at points along the wage distribution. Inneither case (nor in other occupations we at the IEDChave studied) are wages normally distributed aroundthe mean wage.

When we say additional workers are "attracted"

by an increment of wages, obviously we don't meanthat the actual number of applicants turning up at thehiring desk will be regulated by the wage offer. Butevery employer is competing for a share of a finitepool of workers with particular skills. Employers whopay less than the top wage-which is most of them-are competing for a subset of the pool. In generalterms, the higher the wage, the larger the pool of ableand willing workers. An employer may choose t0compete in any number of ways: offering flexiblework conditions, free transportation, better benefits,and so on. Knowing the wage distribution can helpthe employer understand what part of the labor pool itis competing for.

Making the Dala User-FriendlyWage distributions and industry-specific details arenecessary for good wage analysis. Hoosiers will needoccupational wage data that differentiates by regionand industry. The BLS internet site does not currentlyprovide that, and probably will not for several years toc0me.

Fortunately, the Indiana Department of Work-force Development's 0ffice of Labor Market Informa-tion Services has been reporting wages by region andindustry for years. LMIS should be encouraged toproduce regional reports from the BLS data just as

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Figure 2Electrical Bepairer Wages

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1 3 1 4 1 5

Wages ($ per hour)

Figure 1 shows the cumulative distribution ofwages for Machine 0perators in 1994. The averagewage was $10.14, but some employers were paying$4 per hour less and others were paying twice theaverage. In a bell-curve distribution, most workerswould earn near the average, and few would earnsignificantly more or less than the average. But Figure1 shows that the number of workers is not clusteredaround the average. lt is just one point along the line,with no more significance than any other point alongthe line.

Figure 2 shows the wage distribution for Electri-cal Repairers. The curve grows steeper in the middle,indicating that an increment of pay attracts an in-creasing number of potentialapplicants in the $13 to$1 5 range. Above $1 5, the supply slackens and the

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