State of Working Pennsylvania 2014

Natalie Sabadish
Stephen Herzenberg
Publication Date: 
August 28, 2014

WITF Smart Talk Interview with Dr. Stephen Herzenberg

Media Conference Call




Read the press release

Executive Summary

It is now more than six-and-half-years since the Great Recession began. After three years in which Pennsylvania job growth declined each year, Pennsylvania has seen more rapid job growth in 2014 and a significant decline in its unemployment rate. Yet even in July 2014, the latest month for which we now have data, Pennsylvania still had 20,000 fewer jobs than in December 2007 – with no jobs created to absorb Pennsylvania’s population growth of 3.7% since then (which would require another nearly 220,000 jobs). These facts set the context for our annual review of the Pennsylvania economy. Pennsylvania and the nation have experienced a deep and traumatic recession and a long, slow, and painful recovery. The evidence we present in this report indicates that the recovery has been longer, slower, and more painful than it needed to be because of misguided policies crafted in Washington D.C. and Harrisburg.

Since the end of 2010, as the successful American Recovery and Reinvestment Act began to wind down, economic policy from Washington and Harrisburg have been guided by the idea that we can cut our way to prosperity – that reducing spending at a time of high unemployment and sluggish economic growth would restore the economy to health.

This approach, which flies in the face of an overwhelming body of experience, has not worked.

We start this report (in Chapter 1) by presenting the basic facts on Pennsylvania’s recent economic experience, in some cases comparing it to the nation.

  • Pennsylvania job growth per month finally picked up at the end of 2013 and in 2014 but remains below the level of 2010.
  • The Pennsylvania unemployment rate has fallen substantially in the past year, to 5.7%, and is once again below the national unemployment rate, albeit not as far below as from 2009 to 2011.
  • A broader and more reliable definition of the share of people who have less paid employment than they would like, the “underemployment rate,” remains at 12.5% in Pennsylvania, one out of eight of all employed plus underemployed people.
  • Partly as a result of continuing labor market slack, inflation-adjusted hourly wages in 2013 in Pennsylvania remain below their 2010 levels, 35 to 55 cents per hour below for the lower 80 percent of the distribution – roughly $750 to $1,150 dollars less per year for a full-time worker.
  • From 2010 to 2012, preliminary data show that the top 1% in Pennsylvania received more than 100% of the increase in total income in Pennsylvania. While the average income of the top 1% climbed nearly $150,000 in just these two years, the average income of the bottom 99% declined.

Chapter 2 steps back to the policy context for Pennsylvania’s recent economic performance, at the national and state level: the ascendancy of “austerity economics” in Washington and Harrisburg following the 2010 mid-term elections, an economic approach that emphasizes cutting government spending even in a high-unemployment economy.

Chapter 3 then compares Pennsylvania’s economic performance against that of other states since the more explicit and pronounced turn to a cuts-only approach to economic policy in Washington and in Harrisburg – i.e., since 2010 (or since January 2011 for indicators available monthly). We examine the performance of the state’s economy on four categories of indicators: job growth, labor-market slack, income and wages, and economic growth. We rank Pennsylvania on each indicator against other states. To make the bottom line findings easier to understand, we convert these rankings into “grades” based on a curve that translates a mid-point ranking (25th or 26th) into a C+, gives 11 states some kind of A, and only the bottom three states an F. We also produce an overall summary grade. (See the online technical appendix for the data and rankings for each state.)

Pennsylvania’s overall grade over the past three-and-half-years is a C-. Eight states received a lower overall grade.

1. Job Growth: Pennsylvania’s received its lowest ranking and grade on job growth, the first of our four categories of indicators.

  • Thanks to improved performance in 2014, Pennsylvania has climbed from 49th place since January 2011 to 47th place – moving the state from an F to a D-. While the state often ranks low for job growth because of low population growth, state job-growth rankings depend less on population growth during a recovery, as indicated by the state’s top 10 ranking in 2010.
  • The improvement in the state’s job performance this year stems partly from job growth in the construction industry. One factor in this improvement could be the transportation infrastructure package enacted by the legislature near the end of 2013 – a move away from a cuts-only approach and towards investing in the future.
  • Pennsylvania also received a low grade for manufacturing job growth (D).

2. Labor Market Slack: Pennsylvania had a more mixed performance on labor market slack.

  • Both the Pennsylvania and U.S. unemployment rates have fallen substantially in the past year, to 5.7 percent and 6.2 percent respectively.
  • Measured by the percent change in the unemployment rate since January 2011, Pennsylvania ranks 23rd, earning a B-. Over this period, the state’s unemployment rate declined by 2.4 percentage points from 8.1%.
  • Since the unemployment rate is an imperfect measure – sometimes improving because more people who cannot find jobs drop out of the labor force – we also measure labor market slack using the underemployment rate. This includes “discouraged workers” and people working part-time when they want full-time jobs. On underemployment, Pennsylvania ranked 38th since 2010, earning a grade of D+.
  • The underemployment rate fell from 14.7% in Pennsylvania in 2010 to 12.5% in 2013-14. Over the same period, the national underemployment rate fell further, from 16.7% to 12.9%.

3. Wages and Income: nationally and in most states, wages and income have been flat since 2010 and all the way back to 2000. Against this backdrop, Pennsylvania finished somewhat below the middle.

  • Pennsylvania’s median wage fell 3% since 2010, ranking 32nd and earning a C-.
  • “Market income” measures income excluding public assistance. This measure improved in most states as the economy climbed out of the Great Recession and more people found jobs. On this measure, Pennsylvania saw an increase of 5.8% since 2010, ranking 29th and earning the state a C.

4. Economic Growth: on two measures of economic growth, real per capita GDP growth and growth in real consumption expenditures, Pennsylvania ranked slightly below average (30th and 31st), receiving a C.

In sum, Pennsylvania’s economic performance has been a little below average in three areas (labor market slack, economic growth,and wages and income), and near the bottom in the fourth area (job growth).

One question, of course, is how much this reflects state policies versus factors beyond the short-run control of legislators and the Governor. As we explain in the conclusion to this report, we think it clearly reflects both.

When it comes to job growth, for example, there is a direct connection between the state’s education funding cuts and the layoff of 27,000 public education employees. The delay in the state’s decision to invest in transportation infrastructure also contributed to the state’s D- in job growth. Similarly the delay in the state’s acceptance of federal dollars to expand Medicaid is slowing job growth  this year. The reduced job growth resulting from these policy decisions, in turn, also impacts our other indicators, lowering Pennsylvania’s overall grade on economic performance.

In absolute and relative terms, this year’s The State of Working Pennsylvania makes emphatically clear, our economy is not performing well from the perspective of typical families. The embrace of a cuts-only approach to managing the economy at the national and state level have been a dismal failure. Middle-class families across Pennsylvania continue to pay the price.