Policy Brief: Pennsylvania’s Lagging Economic Growth

Authors: 
Stephen Herzenberg
Publication Date: 
March 4, 2014

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An examination of state employment from 2009 to 2013

Executive Summary

Pennsylvania’s economy, jobs, and unemployment continue to be among the top issues of concern for state residents in opinion polling.[1] With state-level jobs data now available for all of 2013, the Keystone Research Center has assessed Pennsylvania’s economic performance in the last year and over the past several years, with comparisons to the nation and to other states. This briefing paper presents the basic facts on the performance of Pennsylvania’s economy, its metropolitan regions, and counties. The brief updates with six months of new data the more detailed analysis presented in The State of Working Pennsylvania 2013.[2]

In short, Pennsylvania’s economy has not performed well over the past year or several years. For the state as whole, job growth has slowed over each of the past three years. Relative to the nation, Pennsylvania’s economy has also performed poorly since the beginning of 2011, measured by job growth and the state’s unemployment rate. 

The performance of the economy at the metropolitan and county levels has varied, with only a few areas mirroring exactly the statewide trend of declining job growth each year after 2010. Even so, in all but a few metro areas and counties, job growth was lower in 2013 than in 2010.  

Pennsylvania’s Statewide Jobs Performance

According to many observers, the most basic test of economic policy is job creation.[3] Figure 1 (below) shows total job growth in Pennsylvania beginning in 2010, the first year within the current economic recovery.[4] Overall job growth — in both the public and private sector — has slowed every year in Pennsylvania since 2010. Figure 2 (below) shows a similar picture for private-sector job growth only.

Figure 1. Overall job growth in PA has slowed down

Figure 2. Private sector job growth in PA has slowed down

Another way to assess job growth during the economic recovery is to evaluate it compared to the jobs lost in the recession.[5] As Figure 3 shows, in the past three years — 2011, 2012, and 2013 together — Pennsylvania has gained less than half (43%) of the jobs it lost during the recession.[6] Measuring jobs gained in the last three years as a share of jobs lost during the recession, Pennsylvania ranks 38th out of the 50 states. Even if you count the jobs gained in 2010, the first full year of the recovery, Pennsylvania has only gained about 80% of the jobs lost during the recession.

Figure 3. PA has made less progress each year since 2010 replacing the jobs lost as a result of the Great Recession

Job Performance by Metro Area and County Table 1 shows job gains by metro area in 2010, 2011, 2012, and 2013. The numbers fluctuate more year-to-year, especially in smaller metro areas, than they do at the state level. Nonetheless, in 12 of 14 metro areas, job growth was lower in 2013 than in 2010 (the exceptions being Lancaster, by a small margin, and State College). In eight of 14 areas, job growth in 2013 was less than half that of 2010. Similarly, in 13 of 14 areas, average job growth in 2011 through 2013 was less than job growth in 2010 alone, and in seven of 14 areas, average job growth over the past three years was less than half the job growth in 2010.

Table 1. Job Growth by PA Metro Area, 2010-2013

Table A1 in the Appendix shows job growth by county, with counties grouped into “rural” and “urban” using the Center for Rural Pennsylvania definitions. (For data availability reasons, Table A1 uses employment levels of county residents, some of whom may be employed in other counties, rather than the number of jobs within the county.[7]) In both groups of counties, the jobs picture was tougher in 2013 than in 2010. Urban counties actually experienced a decline in resident employment in 2013. Rural counties experienced about 60% as much resident employment growth in 2013 as in 2010. Rural counties also experienced about 60% resident employment on average over the past three years (from 2011 to 2013) as in 2010.

Pennsylvania Ranks 48th in Job Growth

Perhaps the most frequently cited job number for Pennsylvania is the state’s “job-growth ranking.” Figure 4 shows Pennsylvania’s job growth ranking in every year from 2000 to 2013 (based on December-to-December job growth, so “2000” in the chart means December 1999 to December 2000). Pennsylvania’s job growth ranking for the most recent year, 2013, was 48th. This was the state’s lowest job-growth ranking in the period shown and a dramatic fall from the 2008-10 period.

Figure 4. PA's ranking in terms of job growth has not improved

Pennsylvania’s Unemployment Rate Remains Above the National Rate

Another measure of economic performance is unemployment, which reached a five-year low in 2013, a sign of progress. Pennsylvania, however, made less progress on unemployment than the rest of the country in the last several years. From mid-2008 through most of 2011, Pennsylvania’s unemployment rate ranged between one and one-and-a-half percentage points below the national average. Since 2011, as the state’s job growth has slowed, this “Pennsylvania Advantage” has disappeared. The state’s unemployment rate has now hovered at or above the national unemployment rate since mid-2012.

Figure 5. PA's unemployment rate was lower than the national rate but no longer

Pennsylvania Takes on Water as It Rides the National Economy’s Wave

Many observers share the view that job creation, particularly in a slow recovery, should be the test of policy success. It is important to note that the overall national economy has a bigger impact on a state’s economy than the policies of a governor or state legislature. Thus, Pennsylvania’s economy has improved somewhat since 2010 as a result of the national recovery. State policies do make a difference, however, to how well a state does as it rides the wave of the national economy. Does it take on water or does it ride high above the waves? Relative to other states, Pennsylvania’s economy was riding high in 2010, but since 2011 it has been taking on substantial water. 

State budget policies are one major factor that Pennsylvania’s economy is taking on water. Recent state budgets have relied primarily on spending cuts to balance the books, with business tax cuts further eroding available revenues. This unbalanced approach has translated into deep cuts, especially in education spending. In an economy well below full-employment and in which private consumer and business spending are insufficient to fuel a strong recovery, spending cuts are exactly the wrong approach. Public-sector layoffs resulting from budget cuts have starved the private sector of desperately needed economic demand. Simply put, laid-off employees and their families cannot buy groceries or other consumer goods at local businesses. If the state had avoided business tax cuts, enacted a real natural gas severance tax, and invested the additional revenues in Pennsylvania’s schools and communities, the state’s job performance would have been considerably better in the last year and last three years.

Another reason for Pennsylvania’s slow job performance has been the failure of the state to invest in transportation infrastructure over the past three years despite a strong bipartisan consensus that this was needed and historically low borrowing rates and infrastructure costs (the latter because road and bridge contractors bid low when they need work). The belated passage of a transportation infrastructure package last year should gradually remove this drag on the state’s economy.

Third, the state has done nothing to boost middle-class wages. Along with slow job growth, flat wages are a central reason that private consumption has not rebounded more quickly from the recession. By contrast, three neighboring states, including two with Republican Governors, increased their minimum wage in January — to $8.25 per hour in New Jersey, $8 in New York, and $7.95 in Ohio.[8] If Pennsylvania had increased its minimum wage, providing workers more purchasing power, that too could have helped boost the recovery.

Pennsylvania policymakers should reverse the misguided policy choices outlined above in order to lay the groundwork for a better 2014 on the jobs and unemployment front. Pennsylvania should accept federal funding to expand Medicaid health coverage under the Affordable Care Act, enact a real natural gas severance tax, and eschew further unaffordable business tax cuts that have not created jobs. Pennsylvania could then use these additional funds to invest in education, health care, and worker training for good jobs in demand. In addition, policymakers should implement the transportation infrastructure package with an urgency missing during the last three years of treading water.

Investing in the future, accepting federal dollars available to improve the health of Pennsylvanians, and smart business taxation (such as a severance tax on drilling paid mostly by people out of state) will allow us to make the investments that create jobs and keep our heads above water.

View Appendix A

Footnotes

[1] For example, see Franklin and Marshall College Poll, Survey of Pennsylvanians, Summary of Findings, January 30, 2014, online at http://www.fandm.edu/uploads/media_items/january-2014-franklin-marshall-college-poll-release.original.pdf.

[2] Mark Price and Stephen Herzenberg, The State of Working Pennsylvania 2013, Keystone Research Center, online at http://keystoneresearch.org/publications/research/state-working-pennsylvania-2013. 

[3] For example, Governor Tom Corbett stated in his budget address on February 4, 2014: “If you make job creation the test for most every policy, you’ll never go wrong.” Text of Governor Tom Corbett’s Budget Address, February 4, 2014, online at http://www.witf.org/news/2014/02/read-governor-corbetts-budget-address.php.

[4] Employment change is measured from December to December of each year beginning in 2009.

[5] Governor Corbett used this metric in his budget address. Text of Governor Tom Corbett’s Budget Address, February 4, 2014, online at http://www.witf.org/news/2014/02/read-governor-corbetts-budget-address.php.

[6] Rather than rely on one month of data and in order to use comparable months of the year, we define the jobs lost in the recession as the jobs lost between October-December 2007 and October-December 2009. We define job gains in the last three years as jobs gained from October-December 2010 to October-December 2013. Pennsylvania’s actual job-low month since the recession began was February 2010. Using single-month data, the jobs gained from December 2011 to December 2013 equal 40% of the jobs lost from December 2007 to February 2010.

[7] At the county level, data are only currently available for 2013 for “resident employment.”

[8] The Economic Policy Institute estimates that increasing the minimum wage to $10.10 per hour would create 140,000 jobs by the time it is fully phased in, including 5,000 in Pennsylvania. See David Cooper and Doug Hall, Raising the Federal Minimum Wage to $10.10 Would Give Working Families, and the Overall Economy, a Much-Needed Boost,  http://www.epi.org/publication/bp357-federal-minimum-wage-increase/.