Pennsylvania's Economic Performance May Reemerge as Major Campaign Issues Says Keystone Research Center

Job Creation Lags Population Growth, Manufacturing Crisis Continues, Poverty Up

Job Quality Down as Wages Stagnate and Health Benefits Are More Scare

Harrisburg – If Pennsylvania voters follow the conventional political wisdom and vote their pocketbooks this November, the returns could be bad news for incumbents. A new review of the Pennsylvania economy by the Keystone Research Center shows the state is still struggling to recover fully from the last recession.

The State of Working Pennsylvania 2004, available for download from www.stateofworkingpa.org, finds that:

• In July 2004 Pennsylvania had 81,300, or 1.4%, fewer jobs than when the recession began in March of 2001.

Pennsylvania’s manufacturing employment crisis continues. In July 2004 the state had 151,600 fewer manufacturing jobs than when the recession started, a 17.9% percent loss. Pennsylvania’s manufacturing job loss since January 2001 is 87 percent of the state’s manufacturing job loss over the last decade.

• As of July 2004 the state is 181,000 short of the number of jobs needed to keep pace with growth of Pennsylvania’s working-age population. The state’s job creation performance after the 2001 recession is the fourth worst since World War II.

• Wages are down for every group except white women and African American men. The average wage of production workers was lower in July 2004 than in any of the three previous years. At $15.08 it is about a dollar an hour lower than the national average of $16.05.

• Between March 2001 and July 2004 employment in the state’s high-wage industries has fallen by 5.6% while employment in low-wage industries has grown by 2.9%.

• The number of Pennsylvanians without health insurance has grown. In 2003, the last year for which data are available, 1.38 million Pennsylvanians did not have health insurance, a 40 percent increase since 1999.

• Poverty in Pennsylvania increased substantially in the last year, especially for children. The share of children in poverty increased by 12.2 percent from 2002 to 2003 and by 33.7 percent from 2000 to 2003. Over the same periods, the share of adults in poverty increased 10.5 percent and 22.1 percent, respectively.

“This is a year in which the economic facts speak for themselves,” said Stephen Herzenberg, and economist and executive director of the Keystone Research Center. “By most measures, the performance of the state’s economy has been lackluster over the last year. If the economy matters to the election, it can’t be good news for the incumbent president.”

The economic facts reported in The State of Working Pennsylvania 2004 help explain recent poll results that show Pennsylvanians increasingly dissatisfied with the way things are going in state. A poll conducted by IssuesPA.net earlier in August found that 48% of respondents identified economic issues as the most important problem facing the state. The number of respondents dissatisfied with current conditions rose to 49% from 44% a year ago.

On the national level, the Conference Board’s consumer confidence index fell by seven points in August, reflecting according to some analysts renewed concern about the softness of the job market and the recent slowdown growth.

Asked why the state’s economic performance has lagged, Herzenberg explained that federal policy has failed to produce effective stimulus. “The last round of tax cuts was off the mark. The cuts went largely to those least likely to spend the money in their local economies.”

The high value of the dollar relative to other currencies and trade policies that have promoted overseas expansion at the expense of domestic production have also has a negative impact, especially on manufacturing, Herzenberg said.

The Rendell Administration has taken some recent steps to do what can be done at the state level said Herzenberg. “The Governor has begun to develop a high-road manufacturing policy aimed at supporting industries in high-end markets that are somewhat insulated from wage and price pressures.” The administration has also begun a significant retooling of the state’s workforce programs according to Herzenberg.

“One has to say, however, that the state-level strategies, however valuable, are ones that will take time to pay off,” said Herzenberg. “Actions that might have more immediate effects will have to come from the federal government.”

The most import steps for the federal government to take now, Herzenberg suggested, are to raise the minimum wage, reform national trade policies, and replace tax cuts for the rich with direct government spending plus tax cuts for the middle class.

“The minimum wage has not been raised since 1997 and it has lost 8 percent of its purchasing power since then. At the same time, worker productivity has grown by some 22 percent. Workers should be sharing in the benefits of increased productivity. Our trade policy should work to help enforce fair labor standards in low-wage trading partners. Most immediately effective would be to shift tax cuts for the rich to direct government spending on critical needs -- such as health care, infrastructure, and worker training ” said Herzenberg.

Over the next few weeks, KRC will issue a number of reports on the economic health of Pennsylvania’s metropolitan areas. These reports will be made available at www.stateofworkingpa.org.