September 1, 2002

The State of Working Pennsylvania 2002

By David H. Bradley, Stephen Herzenberg, and Andrew D. Pierce

A comprehensive review of the state of working Pennsylvania over the last year reveals three important developments.

Wages Rise, Recession Hits PA. Less Hard than U.S.

First, Pennsylvania has been hit less hard than the nation by the recession that began in March 2001.

• Hourly earnings of middle-wage Pennsylvania earners rose by 48 cents per hour in 2001, compared to 28 cents per hour nationally. Sustained over a full year for a full-time worker, 48 cents per hour adds up to $1,000.
• Hourly earnings for low-wage workers rose 36 cents per hour from 2000 to 2001, 15 cents more than nationally.
• Pennsylvania unemployment climbed from 4 percent in March 2000 to 5.4 percent in July 2002, a less sharp increase than the 3.9 percent to 5.9 percent nationally (from October 2000 to July 2002).

Recession did not leave Pennsylvania untouched. Some 91,900 more Pennsylvanians are now unemployed than in March 2000. While its job growth improved relative to other states in 2001 and 2002 (to 26th or 27th from 40th or worse), Pennsylvania had 48,000 fewer jobs in June of 2002 than 12 months earlier. In manufacturing, Pennsylvania has lost 78,000 jobs since January 2000. National data also show a slowing of wage growth in the first half of 2002. (We do not yet have any 2002 wage data for Pennsylvania).

PA. Cities in Distress

Second, data from the 2000 U.S. Census show that Pennsylvania’s cities experienced a traumatic 1990s, in many cases despite energetic efforts by local policymakers and civic leaders to promote community renewal. We examine 22 Pennsylvania cities, ranging in population from Philadelphia at 1.52 million to Pottsville at 15,549.

• Of these 22 cities, only two gained population at a faster rate than the state as a whole in the 1990s and 18 cities lost population. Pittsburgh, Wilkes-Barre, Chester, and Johnstown each lost 10-15 percent of their population.

• Only in Pittsburgh (by the smallest of margins) and Pottsville did the change in median family income since the 1990 Census exceed that in Pennsylvania as a whole. While median family income in Pennsylvania rose by 8.7 percent, median family income fell in 10 of Pennsylvania’s 22 cities, including seven of the largest 12 cities. In Reading, Allentown, Harrisburg, York, Chester, Easton, and Philadelphia, median family income dropped by more than 5 percent.

• While median earnings for male full-time workers climbed in Pennsylvania in the 1990s, it declined in 12 of 22 Pennsylvania cities, including two-thirds of the largest dozen. Median male full-time earnings plummeted 7 percent in Erie and Sharon, and about 5 percent in Allentown and York. Gains in female earnings also trailed the state substantially (although female earnings did increase in every city).

• Using a Middle-Class Prosperity index that ranges from zero (lowest possible) to 100 (highest possible) -- and that takes account of changes in population, median family income, and three other measures of middle-class well-being -- York, Chester, Harrisburg, Erie, Allentown, and Reading had the most difficult 1990s (with scores on our MCP index of 20, 30, 33, 33, 33, and 36, respectively).

• According to a nationwide analysis based on the 2000 Census, nine of the nation’s 64 most troubled cities – one out of every seven – are in Pennsylvania.
We have not yet analyzed Census data for older, inner-ring suburbs and smaller towns. Anecdotal evidence suggests that many of these established communities also experienced population loss and economic difficulties in the 1990s.

Economic Opportunity and Work-Family Time Squeeze

Third, Pennsylvania still has not achieved broad-based economic opportunity; in addition, the long-term trend of increased hours of paid work by families with children continued through the late 1990s.

Despite some progress since 1995, economic opportunity and security in the Commonwealth is elusive for many Pennsylvanians.

• Wages still lagging for many groups. National productivity has risen by 46 percent since 1979, but the wages of many groups remain lower than 22 years ago. In Pennsylvania, these groups include black men, white men, men and women without high-school diplomas, and men with a high-school degree and with some college education. Black men, disproportionately employed in manufacturing, saw their hourly wages fall $0.81 cents in 2001 and $3.05 since 1979. While gaining in relative terms, Pennsylvania women still earn $3.76 per hour less than men.
• Eroding benefits. The share of Pennsylvanians who obtain health care through a job has dropped by 13 percentage points -- from over three-quarters to less than two-thirds. The share of Pennsylvanians who obtain pension benefits through a job has fallen from 59 to 56 percent. More dramatic, there has been a pronounced shift away from guaranteed pensions (offering a defined benefit) and toward 401(k) plans -- only 19 percent of private-sector U.S. workers now have access to a guaranteed pensions (we do not have Pennsylvania figures for this statistic).

• The absence of institutional breaks on wage and benefit erosion. With unions shrinking as a share of the workforce and the minimum wage now $2.00 below most low-wage earnings, the only thing holding up wages and inducing companies to provide benefits has been a tight labor market. Sustained unemployment at today’s levels – or higher – is likely to halt the economic progress made by middle- and low-income workers.

The long-term trend of increased hours of paid work by America’s families continued through the late 1990s.

• Over the past two decades, Pennsylvania married families with children worked an additional 571 hours per year – more than 14 40-hour weeks – compared with an increase of 432 hours nationally.

• Pennsylvania married families with children worked an extra nine-plus weeks in the 1990s alone.

• Hours worked in Pennsylvania single-parent families rose to 2,168 from 1,487 from the end of the 1970s to the end of the 1990s, an increase of 681 hours compared to 367 nationally.

A Better Way for Pennsylvania

Data summarized in this report document three long-term economic trends that continue to undercut quality of life for Pennsylvania families:
• the uncertain state of economic opportunity and security;

• work-family stress brought on by the enormous increase in hours worked by families with children; and

• the downward spiral of cities losing their middle class (also a problem in many older inner suburbs and rural towns).

Opinion polls reveal that Americans and Pennsylvanians stand ready to embrace changes in public policy that would address these problems (Box 1). In response to the three problems we highlight and to the public mood, the conclusion to this report advocates that Pennsylvania’s next Governor establish a 13-point Post-Industrial Opportunity Initiative. (Pennsylvania also needs changes that would address inequitable school funding and environmental problems, which are not the subject of this report. On education, see also KRC’s A Blueprint for a Better Pennsylvania)

The Initiative we propose embodies four general principles:

Pennsylvania’s economic development policy must move into the 21st century – too much of Pennsylvania economic development policy remains captive of approaches and ways of thinking adopted in the industrial era. It focuses too heavily on individual firms, underplays the strategic role of government in building a learning and technological infrastructure that cuts across many firms, and fails to recognize the pivotal importance of government in shaping how companies compete.

Policy must strengthen industry clusters and networks, not individual firms. Economists from Harvard’s Michael Porter to Carnegie Mellon’s Richard Florida, have recognized that regional economic advantage today builds on concentrations of workers and firms whose knowledge and innovation feeds off one another. Even in non-tradable, non-mobile service industries, regional workforce and modernization partnerships are a key means to improving performance. Scarce public funds should be used to leverage private workforce, best-practice, and technology investments that bolster industry-specific regional networks.

Pennsylvania must pave the high road and block the low road. In industry after industry, wide gaps have opened up between high road (high-wage, high-skill, low-waste) and low-road (low-wage, low-skill, high-waste) companies. Encouraging the first can make Pennsylvania companies, communities, workers, and families all winners.

Pennsylvania must establish a more enlightened government relationship with business. In recent years, Pennsylvania policy has offered business freedom without responsibility. The next Governor should bring the business community into a two-way dialogue. He must listen to how government can be responsive to business, but he should also ask Pennsylvania business leaders to "own" the need to reinvigorate in our Commonwealth the American Dream of widespread opportunity. We think Pennsylvania’s many community-minded business leaders would warm quickly to this challenge.

Our proposed Postindustrial Opportunity Initiaitve (POI) includes 13 specific proposals that would expand economic opportunity in Pennsylvania. (Readers can find slightly elaborated versions of these proposals, and references to research documents that provide additional detail, in the Conclusion to this report.)

1. Provide state grants so that state regions can plan high-road regional economic development strategies that benefit all segments of society – business, workers and families, the community as a whole.

2. Build training partnerships and career ladders linked with groups of firms – these can ensure adequate investment in skills to meet the needs of cutting-edge firms, while enabling more workers to share in the prosperity of our postindustrial economy.

3. Reduce business subsidies for individual companies and improve accountability from companies that receive any remaining subsidies. Accountability provisions should include improved disclosure requirements, wage standards, clawbacks, and mandated sprawl-impact assessments.

4. Provide grants to performance-improving industry intermediaries -- organizations (industry associations, unions, partnerships, and others) that can demonstrate that their activities will enhance the performance of many other firms.

5. Fund the development of industry "high road" indices, which allow the state and major industries, to benchmark their progress toward the high road (using industry-specific measures of productivity, quality, innovation rates, investment in human capital, etc.).

6. Allow employees at private employers to participate in the state-managed deferred compensation plan, bolstering the tattered pension security of Pennsylvanians.

7. Raise the minimum wage to make up for erosion of the buying power of the minimum wage by inflation, and to discourage companies from competing using low-road strategies. Research indicates that this will not cost Pennsylvania jobs or disadvantage the state in attracting investment.

8. Establish quality care-quality job initiatives in child care, long-term care and mental health-mental retardation services. The choice between the high road and the low road in these industries is crystal clear, and Pennsylvania gets a double benefit – better quality service for the care recipients and better jobs for caregivers – from a strategic shift to the high road.

9 Establish paid family leave that would allow parents of newborns and adopted children at least a few weeks of compensated time at home – a benefit many managers and professionals already enjoy.

10. Develop a Pennsylvania pro-jobs, pro-environment, sustainable development plan that maps how Pennsylvania can achieve a cleaner, healthier environment and create more family sustaining jobs.

11. Encourage the flow of capital to companies that create family-sustaining Pennsylvania jobs, critical to stemming the hemorrhaging of high-paying manufacturing jobs.

12. Revitalize cities, inner suburbs, and town by shifting from today’s dumb growth policies to tomorrow’s smart-growth policies -- strengthening regional planning, implementing regional tax-based sharing, using state infrastructure and transportation dollars to combat urban and inner suburban decay. (Increasing state educational funding – permitting cuts in local property taxes and funding adequate for school excellence in middle- and low-income school districts -- is another pivotal step in stemming middle-class flight from struggling communities.)

13. Develop a Pennsylvania new economy higher education plan to reduce the share of Pennsylvanians who have only a high school education and to expand the supply of technical and other occupational skills critical to employers offering good careers.

The 2002 Gubernatorial race in Pennsylvania provides an opportunity to debate the changes the state needs to flourish in the years and decades ahead. When economic trends fray communities, leave too many workers uneasy, and stretch families to the breaking point, they undercut our values. Such trends call for a change in direction.

Until very recently, a serious discussion about direction was not in the cards. The most powerful parts of our society enjoyed great prosperity in the 1990s. After mid-decade, the middle class began to gain as well. The media were in a mood to celebrate the New Economy not find, never mind remove, its warts.

In recent months, corporate accounting scandals and the volatile stock market have brought a new sobriety – and realism – to discussions about the New Economy. There is much to celebrate: productivity growth, for example, may be on a higher-growth trajectory. There could be much more. It is time for state policies that translate a strong economic foundation into tangible improvements in people’s lives.

This document is an on-line summary of a Keystone Research Center report. The entire report is available for download as a PDF file at the KRC Web site www.keystoneresearch.org © 2001 Keystone Research Center