Latest / Wages and Prices with Fexingo: Cost of Living, Pay Raises, and Workers' Purchasing Power / Why Your Paycheck Outruns Prices in Some States
Transcript
- Lucas: So last week the April wage and CPI numbers came out, and on the surface they look like the same story we've been telling for a year — wages up a bit, prices up a bit, real growth barely positive. Average hourly earnings hit $37.40, CPI at 332.4, so the gap is still narrow. Luna: Right, about a tenth of a percent real gain month over month. But the national average is hiding a huge split between states. Lucas: Exactly. I pulled state-level data from the Bureau of Labor Statistics, and the difference between best and worst is striking. Take Washington state — they've got a $16.28 minimum wage, a tech-heavy job mix, and their real wages grew about 3% year-over-year. That's real, tangible purchasing power improvement. Luna: Three percent is significant. Compare that to Florida, where nominal wages are up maybe 2.5% but rent in Miami is up 8% — those workers are losing ground fast. Lucas: Florida's a good counterpoint. Their economy is heavily tourism and hospitality, which tend to be lower-wage, plus there's no state income tax, but property insurance and housing costs are skyrocketing. So even if you get a raise, your rent eats it before you feel it. Luna: And that's the thing — the national CPI is a blended average. It doesn't capture that your rent in Tampa is not the same as rent in Spokane. Lucas: Right. The regional CPI data shows the South Atlantic region — which includes Florida — had inflation about 0.4 percentage points above the national average over the past year. Meanwhile, the Pacific region, including Washington, was 0.3 points below. So the gap is real. Luna: So what's driving Washington's outperformance? Is it just the minimum wage law, or something else? Lucas: It's a few things. The minimum wage helps at the bottom, but the bigger factor is industry mix — tech and aerospace pay well, and those sectors have been adding jobs. Also, Washington has a more progressive tax structure and a higher union density rate, about 16% versus Florida's 6%. Unions have been negotiating cost of living adjustments that actually keep up. Luna: Union density as a real wage protector — that's a narrative we don't hear often. And Florida's lack of collective bargaining in right-to-work laws probably makes it harder for workers to push for inflation-adjusted raises. Lucas: Exactly. And then there's state policy on things like the Earned Income Tax Credit. Washington doesn't have a state EITC yet — they passed one but it's not funded until 2027 — but other states like California and New York do, and that effectively boosts take-home pay for low-income workers. Luna: So the policy toolkit matters a lot. Minimum wage, EITC, union laws, housing policy — they all feed into whether a raise actually means something. Lucas: And the market is pricing in that inflation is cooling. The ten-year breakeven inflation rate dropped to 2.39% this week, down from 2.44% a month ago. That suggests bond traders think the Fed's rate hikes are working, at least at the national level. Luna: But state-level inflation might not cool as fast. If Florida's housing costs stay high, workers there won't feel the national improvement. Lucas: That's the tension. The Fed fights national inflation, but the pain is local. And the new Fed chair, Kevin Warsh, was sworn in on Friday — we'll see if he shifts focus toward regional disparities at all. Luna: That's a good point. Warsh has talked about labor market tightness, but not much about geographic inequality. Lucas: Look, I think this matters because the worker in Orlando isn't comparing their wage to the national CPI. They're comparing it to their rent and their grocery bill. And if those are rising faster than the national average, the economy feels bad even if the data says 'moderate growth'. Luna: So what's one takeaway for our listeners? If you're negotiating a raise or thinking about moving, what should you watch? Lucas: I'd say look at the regional CPI for your metro area. The Bureau of Labor Statistics publishes it every two months for 23 metro areas. And compare your industry's wage growth to that number. If your raise is below local inflation, you're effectively taking a pay cut. Luna: That's concrete. And if you're in a state that's considering a minimum wage hike or an EITC, that could make a real difference over the next couple of years. Lucas: Yeah, and speaking of things that make a difference — we keep this show ad-free thanks to listeners who chip in. If today's episode was useful to you and you want to keep it that way, buy me a coffee dot com slash fexingo helps. Luna: It's a small way to support independent economics journalism. We appreciate it. Lucas: Alright, so back to the data — one more number I want to highlight. The employment cost index for wages hit 177.5 in the first quarter of this year, up from 176.23. That's a 0.7% quarterly gain, which is decent, but it's decelerating from last year's pace. Luna: So employers are still raising pay, but less aggressively. That could be a sign that the labor market is cooling, or that workers have less bargaining power. Lucas: Right. And if workers in high-inflation states aren't getting those raises, the gap widens. I think over the next year, we'll see more political pressure at the state level for cost of living adjustments in minimum wages and public sector pay. Luna: Especially with consumer sentiment hitting a record low in May, according to the latest survey. People are feeling squeezed even if the national numbers look okay. Lucas: Exactly. Sentiment is driven by local reality. So the takeaway is: don't just look at your paycheck. Look at your local prices. The national story is only one piece of the puzzle. Luna: And if you're in a state with strong policy support, you might be doing better than you think. Or worse, if you're not. Lucas: That's the divide. Thanks for listening, Luna. Luna: Thanks, Lucas. See you next time.