Getting Pennsylvania’s Economy Back on Track: Federal Policies Save Thousands of Jobs and Prevent Much Higher Unemployment Across Pennsylvania

Authors: 
Stephen Herzenberg
Publication Date: 
October 27, 2010

Overview

While some observers think of our economy as self-regulating, experience teaches that it is not. The health of our economy is, in fact, shaped very much by policy choices. At the current political and economic juncture, with unemployment still above 9%, it is critical to remember the impact of policy choices and for policymakers to make the right choices in the months ahead.

This point in time is also defined by a political discussion that takes increasingly seriously policy choices dismissed by economists across the political spectrum since the 1930s. The idea that government should  cut federal spending and tackle the deficit IMMEDIATELY is gaining credence.

This briefing paper seeks to establish that this would be the wrong choice. It does so by asking the following question: what would the Pennsylvania jobs situation and unemployment rate look like today if federal policymakers had not intervened in the economy, including through deficit spending in the form of the $787 billion American Recovery and Reinvestment Act?

The Pennsylvania Economy's U-TurnWe estimate below for every metro area in Pennsylvania the shortfall in jobs and the rise in the unemployment rate absent federal action. Unemployment rates absent federal action are also estimated for each of Pennsylvania’s 67 counties.

Our estimates for Pennsylvania metro areas and counties derive from national estimates developed by Princeton economist Alan Blinder and John McCain economic advisor Mark Zandi. In a report called How the Great Recession Was Brought to an End, these authors estimate what total nonfarm employment would have been, and what the national unemployment rate would have been, if the federal government had not intervened in the economy to stabilize financial markets and to increase aggregate demand through a mix of tax cuts and direct government spending.

The answer we get to our question makes a compelling case for the success of the federal Recovery Act and the need to continue public intervention so that the economy doesn’t get derailed again. Federal action on the economy saved nearly 400,000 Pennsylvania jobs. Absent federal action, unemployment would be rising above 15% rather than at the 9% September rate.

The Jobs Deficits and Unemployment Rates in Pennsylvania Metro Areas

The current jobs and unemployment situation across Pennsylvania and nationally are not good. In addition to a 9% unemployment rate, Pennsylvania has shed 217,500 jobs since the start of the recession in December 2007. 

As grim as these statistics are for Pennsylvania workers and their families, the joblessness we now face could have been substantially worse but for the extraordinary interventions in the economy by the Federal Reserve, the Bush and Obama administrations, and Congress.  The State of Working Pennsylvania 2010 summarized the evidence for Pennsylvania as a whole.   A later section of this briefing paper updates our analysis for Pennsylvania as a whole and also updates three of the key charts showing the Pennsylvania economy’s U-turn. In this section, we focus on Pennsylvania metro areas and counties, for which this report presents the first analysis of the impact of federal action on jobs and unemployment rates.

For each Pennsylvania metro area, Table 1 presents four numbers. The first is the actual job loss between December 2007 and August 2010.  The second is the actual jobs deficit, which is defined as the actual job loss plus the additional jobs needed to keep pace with the growth of the working-age population. (In four metro areas, the actual jobs deficit is below actual job loss because the working-age population of the area is declining.)  The third number is the jobs deficit absent federal intervention in the economy.   The final column in Table 1 is the difference between the jobs deficit absent federal intervention and the actual jobs deficit—i.e., the number of jobs saved thanks to federal action.

Table 2 turns from jobs deficits to unemployment rates. The table estimates, for each metro area, the actual unemployment rate and the unemployment rate absent federal action. 
For each of Pennsylvania’s 67 counties, Table 3 (at the back of the report because of its length) shows the actual unemployment rate and an estimate of the unemployment rate absent federal action. (Lack of recent employment data by county makes it difficult to estimate the jobs deficits, and jobs saved, with and without federal action, at the county level.)

FULL BRIEFING PAPER: Read the full briefing paper here.

LOCAL CHARTS: Access charts showing the actual unemployment rate in each metro area and county, and the unemployment rate absent federal policy action.