Houston playing catch-up on wages
Compensation growth is slow in a region still haunted by 2016 oil bust
Houston’s economy looks hot. The June unemployment rate of 3.8 percent was nearly a percentage point lower than a year ago. Job growth was the strongest in five years. Hiring is up across nearly all sectors.
But not all the benefits of economic expansion are finding their way to workers. Despite a tightening labor market, the growth in wages and salaries has slowed here for nearly two years, according to Labor Department data. Wages and salaries in Houston are rising at just half the national rate while significantly lagging the increases in other metropolitan areas.
Wages and salaries increased just 1.5 percent in Houston over the past year, compared to 3 percent nationally and 2.7 percent in Dallas, according to the Bureau of Labor Statistics’ employment cost index.
Total compensation, which includes benefits, grew just 1.4 percent in June over the past year in Houston, compared to 2.6 percent nationally and 2.2 percent in Dallas.
The slowing growth in compensation here, said Patrick Jankowski, an economist for the Greater Hous
ton Partnership, a business-financed economic development group, is “great if you’re a business, but not so great if you’re an employee.”
‘Late to the party’
As recently as September 2017, wages and salaries in the Houston area were growing at about the same pace as the nation, rising at about 2.6 percent a year. But as the accelerating national economy — fueled by tax cuts and increased federal spending — drove unemployment to half-century lows, wages and salaries finally began to pick up after nearly a decade of sluggish growth.
Houston, however, has not kept up. As with so much of the Houston economy, economists said, the energy sector continues to be a major influence.
Economists said wages and salaries here are squeezed between the oil and gas industry’s recent past and near future. The last oil bust, which ended approximately in 2016, destroyed thousands of energy and energy-related jobs, boosting the unemployment rate and increasing the number of people looking for work, even as the national economy picked up and employers in other regions found it harder and harder to find workers.
“This labor market slack (in Houston) didn’t get cleaned up until this year,” said Pia Orrenius, an economist at the Federal Reserve Bank of Dallas. “Houston is a latecomer to the tight labor market, and that has been affecting the growth of wages. They’re coming a little bit late to the party.”
Economists expect that wages and salaries should begin to accelerate in the oil and gas industry again soon, but companies are running into a difficult outlook for the energy sector. Oil prices are stuck in the $50- to $60-a-barrel range, enough to make money, but hardly sufficient to fuel significant expansions or hiring. That’s making it difficult for employees who are still trying to work back up to the salaries they lost in 2016.
Bonnie Milne-Andrews, who worked as a technical and commercial business manager in energy exploration and production, said she was making about $300,000 a year before she was laid off during the oil bust in 2015. Now, she’s earning less than half that as a consultant.
She said she and many of her older colleagues who were laid off during the bust have been unable to get back into the industry because they’re seeking high-paying jobs based on their years of experience. Oil and gas companies appear unwilling to pay to get back some of the knowledgeable workers they shed during the bust, she said. It they’re hiring, it’s cheap, recent college graduates.
“Companies are screaming for experienced staff, but they don’t look at people over the age of 45,” said Milne-Andrews, who was 58 when she was laid off in 2015. “I have had a wonderful career, but it’s just sad that for many people of my age, their career began with a bang and ended with a whimper.”
More turbulence ahead?
The oil and gas extraction sector only began to add jobs in Houston on a year-over-year basis in February, turning positive for the first time since 2014. In the second half of 2019, economists will watch whether slowing in the oil and gas industry will hurt Houston’s employment and wage growth.
“The headwind for Houston is the slowing in energy,” said Orrenius, of the Dallas Fed. “If the weakness in energy spills over into the Houston labor market, then that’s a real concern.”
In recent earnings reports, many companies said they are cutting or restraining spending, and some said they are laying off workers. The Houston oilfield services company Halliburton said last month that it cut about 8 percent of its North American workforce.
Sarah Smith, who worked in human resources for oil and gas companies for the majority of her career, chose to quit her job in 2017 because she and her husband, Colin, who still works in oil and gas, were concerned the industry was too volatile.
They worried they might both lose their jobs in a downturn, and their family would suddenly be left without health care. Now, with analysts and economists forecasting another slowdown in the sector, the salary loss that came with moving to first to manufacturing, and recently to health care, appears well worth it.
“It’s a little sad when you spent so much of your time there, but I don’t think you could convince me to go back,” Smith said about leaving the oil and gas industry. “I left for a pay cut, but moving out of the industry felt like the right thing to do to give ourselves stability.”
Trade tensions that are slowing the global economy and signs of weakness in worldwide energy demand, which is pressuring oil prices lower, may be leading local employers to delay hiring and raises. The price of oil plunged after President Donald Trump proposed tariffs on the remaining $300 billion of Chinese goods exported to the United States.
“Companies are reluctant to pay higher wages when they’re concerned about uncertainty in the economy,” said Jankowski, of the Greater Houston Partnership. “Right now there are two (uncertainties). One is the oil and gas industry and the other is global trade.”
Wage growth slow nationally
As Houston tries to catch up, now, wage growth is beginning to show signs of slowing nationally. Year-over-year growth in employees’ compensation, which the Labor Department calculates as the cost employers pay for wages, salaries and benefits, decelerated to 2.6 percent in June from 3 percent December.
Elise Gould, an economist at the Economic Policy Institute, a think tank in Washington, said that the national slowdown in wage growth in the nation is one reason why she believes the Federal Reserve was right to cut interest rates last week to boost the economy.
Many workers have just begun to see wage gains during the slow recovery that followed the last recession, the worst in 70 years, she said. If the economy weakens, those gains would quickly come to a halt, Gould said.
In addition, workers have less bargaining power than prior to the recession, she said, as fewer employees belong to unions and worker protections get eroded. The memory of the last recession also remains a lingering fear for employees, who may be reluctant to ask for a raise.