Wage growth is now outpacing inflation in Minnesota but still hasn't caught up

For the second month in a row, wage growth in Minnesota outpaced inflation as employers continue to offer incentives to find and hold on to workers in a tight labor market while price increases have slowed down.

Average hourly wages for all private sector workers in Minnesota rose 5% in January from a year ago, according to data released Thursday by the Minnesota Department of Employment and Economic Development (DEED).

Meanwhile, the consumer price index, a commonly-used measure of inflation, rose 3.1% during that same timeframe.

"If you compare those two figures, that means wage increases outpaced inflation by 1.9% over the year, which ultimately is good news for workers and for household budgets," said DEED Commissioner Matt Varilek.

It's a reversal from what was going on in 2022 when inflation surpassed 8% in some months while wage gains were consistently closer to 5%. Wage growth has generally slowed down since then, but popped back up in January.

When taken together over a longer horizon, though, workers' paychecks are still catching up and have not kept up with long-term inflation. If you take a three-year time period, wages in Minnesota have increased 15.7% while inflation has jumped 17.9%.

DEED also reported Thursday that the state added 3,000 jobs in January, and the unemployment rate held steady at 2.7%, which was the same as the revised December rate.

The state jobless rate continues to be lower than the U.S. rate, which was 3.7% in January.

Job gains in January were led by education and health services, followed by trade, transportation and utilities and leisure and hospitality. Meanwhile, some other sectors such as government, manufacturing and financial activities lost jobs.

Minnesota also saw a small number of workers leave the labor market in January, leading its labor force participation rate to tick down one-tenth of a percentage point to 67.9%.

As for wages, Angelina Nguyễn, director of DEED's labor market information office, said the state has seen "healthy wage growth" over much of the last year while inflation has come down quite a bit and is now closer to the level economists want it to be at.

"Some months in the last three quarters — about a little more than half — wage growth has outpaced inflation for Minnesota," she said. "And the other half, it's been close but has not beat the inflation rate. So overall, we're on a good path."

Still, she added that Minnesota has generally trailed the nation when it comes to wage gains in the past year.

The January jobs report comes out a little later than other months because of annual revisions done around this time of year for jobs and employment data for the previous few years. While in some years, the revisions have been quite large, they were fairly small this time around, Nguyễn said.

"What it changed for the big picture is our labor market is a little tighter than we had originally thought," she said.

The state's unemployment rate was revised to be a little lower, particularly in the last half of 2023. And the labor force participation rate was also revised a bit lower as well, she said.

At the same time, overall job growth in Minnesota last year was also revised downward.