(The Center Square) – A period of rising wages and a shortage of workers in mountain states appears to be ending, according to an analysis by the Federal Reserve Bank of Kansas City.
The analysis in the bank’s Rocky Mountain Economist, a quarterly publication providing economic information for Colorado, New Mexico and Wyoming, said the regional and national economies experienced labor shortages and increasing wages during the last few years but are showing “some signs of subsiding.”
“Labor market tightness contributed to rising wages, which coincided with outsized inflationary pressures, especially in expenditure categories closely tied to higher labor costs,” the analysis stated.
Businesses are expecting the labor trend to continue into this year. After a 4.3% gain in jobs in 2022, the pace slowed to 1.8% through October last year in the three states.
“Compared to this time last year, fewer respondents plan to add workers and a majority plan to keep current staffing levels, all suggesting weaker labor demand ahead,” the economists said.
The research found wage growth retreated substantially in the three states. Wages grew 4.1% in Colorado in 2023 after an 8.1% increase in 2022. Wage growth also declined in New Mexico, from 9.8% in 2022 to 0.2% last year, and in Wyoming, from 4% to 3.6%.
“Compared to 2022, the share of business contacts providing wage increases to all new hires fell by half,” the article said.
The economists said the amount of employees reporting their wages remained unchanged exceeded those reporting above average increases.
“Not only are companies reining in wage gains, but they are now more discerning about how wage increases will be distributed, choosing to allocate wage increases to only some categories of workers,” the authors wrote. “Ultimately, this survey evidence corroborates recent regional labor data (i.e., slower employment and smaller wage gains), and suggests softening labor demand.”
After increasing wages and benefits to fill positions, the researchers said businesses focused on retention and training less qualified workers who were hired. The trends will contribute to higher productivity and lower job turnover will lead to less competition for open positions.
“This reduces the likelihood firms have to compete on wages to attract employees, thus alleviating overall wage pressures,” the researchers wrote.
The report concluded the trends could signal a return to a more normal labor market.
“Additionally, more workers are re-entering the regional labor force, adding much needed supply to a labor market seeking greater balance,” the analysis stated. “All together, we may anticipate softer labor market conditions for the regional economy in the upcoming year but must monitor whether businesses’ expectations will come to fruition.”
