Wages and Prices in Wisconsin

How are wages moving in Wisconsin, relative to the cost of living (as measured by the CPI)? It’s hard to tell.

BLS reports average hourly earnings for Wisconsin, but not for Wisconsin. Rather, as noted here, BLS reports the CPI for the Midwest Region, and the East North Central Division of the Midwest Region (see discussion in this post). I plot earnings and CPI, normalized to NBER peak at 2020M02:

Figure 1: Average hourly earnings of all workers in the Wisconsin private sector (blue), and CPI-all urban for East North Central Division of the Midwest Region, seasonally adjusted using Census X12 by author (brown), and corresponding not seasonally adjusted official BLS series (light brown), all in logs, 2020M02=0. NBER defined recession dates peak-to-trough shaded gray. Source: BLS, NBER, and author’s calculations.

The cost of living has risen faster than average earnings. This stands in contrast to the national figures:

Figure 2: Average hourly earnings of all workers in the US private sector (blue), and CPI-all urban for for the US (brown) all in logs, 2020M02=0. NBER defined recession dates peak-to-trough shaded gray. Source: BLS, NBER, and author’s calculations.

Why has the CPI for the Midwest risen faster than for the nation as a whole? (year-on-year inflation for East North Central comprising Illinois, Indiana, Michigan, Ohio, and Wisconsin is about the same as that for the Midwest as a whole.). Two items stand out — Food and housing costs are about a percentage point higher in the Midwest — at 7.1% and 5.1% respectively — than in the nation as a whole. (Midwest CPI stats here.) The CPI weights for those two components (at the national level) are 14% and 42%.

One big problem with the comparison of average hourly earnings is that they don’t account for sectoral differences. I show below the evolution of average wages in Wisconsin manufacturing and in leisure and hospitality services. Clearly, in the latter case, wage growth has exceeded the growth rate in the cost of living (not accounting for compositional changes).

Figure 3: Average hourly earnings of all workers in the Wisconsin manufacturing (blue), and in leisure and hospitality services (purple), and CPI-all urban for East North Central Division of the Midwest Region, seasonally adjusted using Census X12 by author (brown), all in logs, 2020M02=0. NBER defined recession dates peak-to-trough shaded gray. Source: BLS, NBER, and author’s calculations.

It would be good to account for changes in the composition of the workforce. You can see that this is important at the national level by disaggregating, as one can if you slice the data using the Atlanta Fed wage tracker (which uses CPS data). Unfortunately, there is no equivalent adjustment at the state level.