The State of Working Pennsylvania 2008

Stephen Herzenberg
Publication Date: 
September 1, 2008


The year-old national economic crisis triggered by rising mortgage foreclosures, falling home prices, and severely stressed financial institutions has already damaged the economy here in Pennsylvania, according to a new report from the Keystone Research Center in Harrisburg.

In its State of Working Pennsylvania 2008, KRC’s annual check-up on the commonwealth’s economy—with a focus on working families—KRC economists Mark Price, PhD, and Stephen Herzenberg, PhD, found that the wages of most Pennsylvania workers are stagnant and the concentration of income among the richest 1 percent of earners is approaching the level of the 1920s.

“From the perspective of Pennsylvania’s middle class, the state’s economy is performing poorly,” Dr. Herzenberg said.

The State of Working Pennsylvania 2008 was released a week before its usual publication on Labor Day weekend. There was a good reason for the early dissemination, Herzenberg said.

“With the Democratic and Republican national conventions just around the corner and with Pennsylvania a ‘swing state’ in November’s general election, the current condition of the commonwealth’s economy deserves the attention of both presidential candidates,” he noted. “It also deserves the attention of the millions of hardworking Pennsylvanians who have the power to tell the candidates—loudly and clearly—that our nation needs new and creative economic policies that are friendly to business and families.”

Since December of 2007, according to the report, Pennsylvania has lost 4,500 jobs, and state unemployment rolls have risen by just over 62,000. But even before the economy began to falter, the report points out, Pennsylvania workers were not doing well.

“The expansion that began in November 2001 was characterized by slow employment growth, and the share of the population employed failed to reach the levels achieved in the late 1990s,” Price and Herzenberg write. “Weakness in the labor market translated into anemic wage growth that failed to even keep pace with inflation.”

In 2007, the report finds, the wages of the typical Pennsylvania worker remained 1.6 percent below the levels of 2001. What’s more, with the economy likely now in recession and inflation growing at 5.5 percent a year, the typical Pennsylvania worker will probably lose ground more rapidly, Dr. Price said. 

Between 2001 and 2005, the average income of most of the Pennsylvania population—the bottom 90 percent of families—fell by 4 percent.

These figures on middle-and low-wage workers contrast sharply, Price said, with new data on incomes for the wealthiest Pennsylvanians. Figures for 2005, the most recent available, show the incomes of the richest 1 percent of commonwealth residents increased by 31 percent from 2001 to 2005.

The income of the very wealthiest Pennsylvanians—0.01 percent or one out of every 10,000 taxpayers—rose by 47 percent over the same time period.

Taken together, the income trends at the top and in the rest of the distribution mean that the richest 1 percent of commonwealth families captured 79% of total growth in Pennsylvania personal income between 2001 and 2005, Price said.  This is a stunning reversal from the late 1990s, when the top 1 percent captured just 10 percent of the growth in total Pennsylvania personal income.

Although wages have not been on the upswing, many Pennsylvania families did benefit from the rapid rise in housing prices between 2001 and 2007, KRC finds. But even that sparkle in the otherwise gloomy economic picture has now disappeared.

Home prices have begun to fall. Since the first quarter of 2007, housing prices dropped by 7 percent nationally and by 4 percent in Pennsylvania. (An alternative national housing price index, not available for Pennsylvania, shows an even larger drop.)

Falling home prices are now eating away at family wealth. Noted economist Dean Baker of the Center for Economic and Policy Research in Washington, DC, projects that a 10 percent decline in national housing prices will, by 2009, lower the household wealth of a typical U.S. family in the 45 to 54 age cohort by 35 percent.

“With both wages and home prices falling, and savings rates close to zero, families are being squeezed in a way that is likely to depress consumption spending in the months ahead,” Price said. “Since consumption makes up about 70 percent of Gross Domestic Product, these trends do not bode well for the broader economy.”

In summarizing KRC’s new report, Herzenberg noted that deregulatory national economic policies have marked the three decades analyzed. Based on economic performance in the economic slowdown of the past year, the preceding 2001-2007 growth period, and the time span that began in 1979, Herzenberg said that a jury of middle-class Pennsylvanians would judge our national experiment with deregulation a failure.

“Given the experience of the last year and the last eight years especially,” Price said, “it’s easy to understand the high level of concern about the economy that’s showing up in current election polls. People ‘get’ that the economy is not working for them and they want a concrete plan for changing that.”

The end of The State of Working Pennsylvania 2008 argues that a presidential transition combined with an economic slowdown that discredits deregulatory policies provide an opportunity to chart a bold new path that will deliver both prosperity and equity—a New Deal for a New Economy.

“We need policies equal to the polarizing pressures on the U.S. economy—policies that will raise wages and give workers new opportunities to advance,” said Herzenberg. “An integrated new economic vision can also strengthen America’s competitiveness and help address the challenge of environmental sustainability.”

“The opportunities in front of us in the coming year—to bring our policies and institutions up to date with the needs of our economy and our families—come along only once in a lifetime,” Herzenberg concluded. “We can’t afford to miss this chance.”