Pennsylvania’s Private Sector Job Growth Sluggish and Unbalanced

July’s report on Pennsylvania’s establishment payroll employment reveals an overall slowing growth trend and a very unbalanced situation regarding job gains. 

 

 

Consider that total private jobs rose by 82,600 from July 2010 to July 2011; 57,200 over the next twelve months, and only 36,800 from July 2012 to July 2013.  It is noteworthy that private total jobs remain 30,000 below the peak levels reached in 2008.  It is also important to remember that the growth in the 2010 to 2011 period reflected some rebound from the recession losses so that weakening in subsequent years is not overly surprising. But just as in the nation as a whole, post-recession job gains in Pennsylvania are anemic, especially over the last twelve months.  Nationally, private jobs remain 1.5 million below the 2008 peak.

 

But perhaps more concerning than the slow pace of gains is the limited number of sectors adding jobs. Of the 36,800 increases in jobs over the last twelve months,  four industry groups account for the entire rise; namely, education and health care, leisure and hospitality, professional and technical service and finance.  Meanwhile, goods producing sectors were all flat or down slightly, information was lower, transportation and utilities slipped, retail and wholesale jobs were lower.

 

Amazingly, employment in accommodations and foodservices that represents eight percent of all jobs accounted for a third of the total private employment increase with education and health care combined with professional and technical accounting for most of the rest.  

 

Somewhat surprising, employment in mining and logging slipped in the last twelve months and has grown very little since the big jump from 2010 to 2011.  Construction and manufacturing remain flat following modest rebounds in 2010.  On a positive note, finance and private education showed renewed strength over the last twelve months after period of stunted gains in previous years. Then too, the solid growth in professional and technical employment is somewhat reassuring, although the limited data detail does not permit a clear picture of which particular subsectors are propelling the gains. This sector covers a very wide range of services including legal, accounting, public relations, scientific, consulting, architecture and engineering.  It is likely, although not yet provable, that the advent of Marcellus Shale activity has produced a substantial share of the employment increases in the professional and technical sector in Pennsylvania.  

 

Overall, the relative weakness in recent total job gains, especially when private sector employment remains well below the five year earlier level, is bothersome. And compounding the consternation is the limited sources of job growth. Health care continues to be a stalwart and has accounted for a third of net private job gains for the last three years. This sector is driven in part by massive increases in federal program spending as Medicaid and Medicare demands rise exponentially.  It is not clear what will happen to health care job growth after the Affordable Care Act is fully implemented.  But it seems reasonable to conclude that strong gains will continue at least initially.

 

At the same time, large gains in the foodservices component that account for an outsized share of private  employment growth  are hardly reassuring since those jobs are typically low wage and increasingly involve shorter hours with no benefits. This is just one of the easily predictable and actual undesirable consequences of the Affordable Care Act.

 

While some of the recent job growth weakness in the Commonwealth can be laid at the feet of the policies emanating from Harrisburg, as was the state’s below national average growth in the preceding decades, it is clear that much of the fears, concerns and wariness in the business community that hinders expansion and hiring stems from exceptionally disturbing national economic, regulatory, fiscal, monetary and tax policies.  Sadly, the potential for major changes in those policies seem far off.

 

In the meantime, Pennsylvania needs to address more forcefully its own business inhibiting policies and regulatory environment.  The list is familiar.  Enact a right to work law, get rid of prevailing wage requirement on public projects, lower business taxes and enact substantial and meaningful reform of state and teacher pensions.  Getting Pennsylvania into the 20th century regarding property assessment laws would be very helpful. Getting rid of the right of teachers and public transit workers to strike would also move Pennsylvania closer to the rest of the country.  Assuming some normalcy will eventually return to D.C., Pennsylvania needs to  have more than Marcellus Shale gas going for it if it is to achieve a path of broad based prosperity.

Any Closer on Parks Cooperation?

Whenever the topic of merging or consolidating City and County services comes up, there is a regular recitation of what has been done (think 911 and purchasing) and what could be relatively easy to do in the future (think parks). Since both the County and the City have park land this has always been mentioned as a slam dunk.

Earlier reports that have extolled the elimination of duplicative services (the 1996 Competitive Pittsburgh report, and the 2008 merger report come to mind). The 2009 Act 47 plan instructed the City to "explore the creation of a non-profit park commission to oversee all City and County RAD-supported parks". There has been some talk that the current County Executive and one candidate for the Mayor’s office would like to see cooperation on parks.

Since the 2009 directive the County has created its own non-profit to help the County parks separate from the non-profit that assists with fundraising for City parks and the City is working on its OpenSpace plan under its 25 year planning document. The document has a section under "Policy Framework" and the "need for partnerships" but there is no mention of partnering with the County. It is possible that should an accord between the City and the County come to fruition that there might be changes to the planning document, the relationship between the separate non-profits, the respective departments that provide services to the parks, etc. but that seems a long way off.

What exactly would be up for grabs? The nine County regional parks have a combined 12,014 acres. The City’s four regional parks have 1,972 acres: adding in the acreage of community, neighborhood, riverfront, and special use parks the total acreage is 2,887. Only the County parks and the four regional parks receive RAD funding and it is those parks that are usually included in discussions.

The Trust for Public Land measured the City’s parkland, added in Point State Park, and calculated that Pittsburgh had 10.1 acres of parkland for every 1,000 residents, which was third highest according to the Trust’s segmentation of cities based on population density. Producing a similar measurement for the remainder of the County (895,000 people) and not including the acreage that exists in municipal parks in the County and outside the City the acreage per 1,000 non-City residents in Allegheny County would be 13.4.

A New Federal Urban Agenda?

A Pittsburgh newspaper whose op-ed writers are hopelessly enamored of Federal government programs to solve any and all problems now think it would be just grand if the Federal government would launch a new urban agenda. One has to wonder where the writers have been.

Does anyone need a reminder of all the efforts the Federal government has launched over the decades to help cities? Public housing funding, block grants, all sorts of welfare programs, dollars for education programs, major financial assistance for mass transit infrastructure, and so on and so on.

Did all those programs stop Detroit or Philadelphia or Stockton, California and countless other cities from developing very serious or crisis proportion financial problems and massive loss of population? No. The cause of the problems can largely be laid at the feet of horrendously counterproductive policies by the local, state, and national governments. Public sector unions, a breakdown of law and order (in many cities), a collapse in public education quality as a result of educational folly masquerading as reforms (including a refusal to allow publicly funded voucher programs) and political correctness run amok.

The argument that people moved out of cities for greener pastures because they were induced to by Federal policies is getting stale. People left because living in the suburbs was more attractive than staying in the cities. Lower crime, better schools and all the reasons people want to be safe and comfortable.

Perhaps the original exodus was initiated by demographic and social phenomena, but there can be little doubt that the headlong rush toward public sector unionization, the attendant sharp rise in expenditures and tax burdens, runaway crime problems and rapidly decreasing academic performance in public schools encouraged more people to leave. Many cities became increasingly dominated by one party rule-the party being one of statist and government growth inclination and a party with practically no patience with free market capitalism. An almost guaranteed slow downward spiral began in many of the currently worse off cities. The worse they became the more Federal and state financial assistance was forthcoming in some form or other. Economic development, redevelopment, infrastructure, housing, education, social welfare payments, early childhood education, learning programs, jobs programs-the mind boggles.

And still, Detroit bankruptcy happened, Philadelphia is scrambling to open schools this fall because of a lack of money, Pittsburgh is under state oversight and is likely to remain so for a long time, Chicago is closing schools at a breakneck pace because students have abandoned city schools and it has gigantic pension problems looming.

These wounds have been self-inflicted by politicians and policies that can only be described as progressive, liberal, statist, and politically correct. Politically correct is a polite term for trying to force adherence to certain acceptable behaviors and thoughts through intimidation, ostracizing, or attempting to shame or embarrass anyone not subscribing to the latest fad in liberal dogma-dogma that gets more bizarre by the month. Little wonder thinking people want no part in it.

The worst part: calling for a new Urban Agenda is just a dreamed up politically correct scheme to avoid dealing with disasters created by earlier statist schemes.

USAirways Merger with American Hits Turbulence

The Federal Department of Justice has been joined by the attorneys general from six states (including Pennsylvania) and Washington DC to stop the proposed merger between USAirways and American Airlines.  They have filed suit in Federal court claiming that the merger would create the world’s largest airline resulting in higher fares and less service and competition.  This is an unexpected turn of events.  Since the two companies had announced their merger plans earlier this year, things had been moving along without turbulence as the plan was approved by each company’s shareholders along with American’s creditors as that airline departs bankruptcy. 

 

 

So what does this mean for Pittsburgh?

 

As we had written in a Policy Brief earlier this spring (Volume 13, Number 17), the burning question for local officials is the fate of USAirways’ flight operations center which was partially funded by taxpayers.  If the merger goes through it will certainly mean that facility would be closed in favor of American’s center in Dallas.  Shuttering the facility will mean the loss of 600 Pittsburgh jobs. And those would be in addition to the thousands of employees at the airport who have lost jobs since the USAirways bankruptcies and tremendous downsizing and the de-hubbing of Pittsburgh International (PIT).  Clearly, there are many workers who will be hoping for the merger to be blocked by the courts.

 

The suit to stop the merger has come at nearly the last minute as the bankruptcy court was set to hear final arguments for the plan to exit bankruptcy, a plan supported by the unions and creditors. 

 

The Justice Department, in moving to block the merger, asserts the merger would be strongly anti-competitive.  And there is some reason to agree with that.   Although it is interesting to note that the Justice Department in recent years approved the mergers of Delta/Northwest, United/Continental and Southwest with Airtran.  If this merger is allowed, it would leave the country with four airlines controlling 80 percent of the market. On the one hand, American argues that United and Delta are already hogging the markets in several cities. But would any of the smaller point-to-point discount carriers, such as JetBlue Airways step up and enter more markets if the merger is not allowed and American is forced to shed routes?  Profits are a strong motive for new entrants in any industry.  As USAirways’ CEO once said, the airline industry is “far too hard to predict”. 

 

But there is a broader question. If the merger is denied what happens to American’s effort to get out of bankruptcy?  Will its creditors and employees be at substantial risk of loss? Will American have to cut service?  Lots of questions for the bankruptcy court to ponder.   If the merger is denied by the courts through the lawsuit and American fails to come out of bankruptcy, then there would still be less competition. 

 

If the Justice Department prevails, the traffic control center in Moon will almost certainly get a reprieve and many workers can breathe a sigh of relief.  And a diminished American presence at the airport could provide an opening for USAirways to offer more flights to take up the slack.  Of course other carriers might go after good routes.

 

But as we have written before, PIT is now an origination and destination (O/D) airport that needs to concentrate on lowering fees to entice more airlines, be they the major players or smaller flyers, to start offering more flights thus drawing more O/D passengers.  With the advent of drilling money from future Marcellus Shale wells entering the picture and gaming money being used to lower terminal related debt, PIT has already taken a step in that direction.  A growing economy that generates both increased business and pleasure travelers will be key to helping O/D demand to rise and possibly induce more carriers offering more seats to more destinations.

 

Nonetheless for the time being the holdup in the merger has added to the uncertainty about will happen at the Pittsburgh airport.

Merger on Hold?

The Federal Department of Justice has been joined by the attorneys general from six states (including Pennsylvania) and Washington DC to stop the proposed merger between USAirways and American Airlines. They have filed suit in Federal court claiming that the merger would create the world’s largest airline resulting in higher fares and less service and competition. This is an unexpected turn of events. Since the two companies had announced their merger plans earlier this year, things had been moving along without turbulence as the plan was approved by each company’s shareholders along with American’s creditors as that airline departs bankruptcy.

So what does this mean for Pittsburgh?

As we had written in a Policy Brief earlier this spring (Volume 13, Number 17), the question for local officials is the fate of USAirways’ flight operations center which was partially funded by taxpayers. If the merger goes through it will certainly mean that facility would be closed in favor of American’s center in Dallas. But if the lawsuit is successful will it give the facility in Moon a reprieve? This is certainly something to watch as the court takes up this matter.

Parking Garage Economics

Leasing or selling public parking garages to shore up finances. Readers of the Institute’s work will recall days of yore around 2009 and 2010 when the City of Pittsburgh had a plan to lease the garages and meters to put the proceeds into the pension system. That did not happen, but the details of the plan are touched upon here, here, and here.

The idea did keep traction in the capital city of Harrisburg: we wrote in June 2011 that the Act 47 recovery plan for Harrisburg mentioned the possibility. Instead of paying off pensions, the 2012 final recovery plan noted "if the parking assets are included in the debt solution, the proceeds from the parking assets transaction will first need to be applied to repay the existing debt of the Harrisburg Parking Authority. The remaining proceeds…could potentially be used to pay a portion of the incinerator debt and to contribute over time to address a portion of the City’s structural deficit".

Such deals can be quite complex and raise a lot of questions. One that was raised in a news article is whether the Harrisburg arrangement is a lease or a sale. When the arrangement involves not leasing the garages to a private interest but a state-level economic development authority who will also involve another local non-profit economic development agency and then two private interests will have a role in managing property and parking operations, things can get a bit complex.

Why the involvement of the other authority and the non-profit? Because locals were worried "…that parking rates could increase out-of-control to boost profits while the assets themselves could languish and degrade in the hands of a company with no long-term interest in the welfare of the city." Similar thoughts arose many times during the debate in Pittsburgh. Of course, it is safe to assume that policymakers in both cities did not contemplate that a private operator would have to pay property taxes (unlike a municipal or authority owner), collect parking taxes, pay expenses, and still make a profit while recognizing that simply imposing higher rates would eventually result in a drop in parking customers.

Comparing Pittsburgh Metro Job Gains with National Performance

In June, the seven county Pittsburgh metro area (MSA) unemployment rate stood at 6.8 percent. In the same month, the national rate was 7.6 percent. So, does that mean the Pittsburgh area jobs market was significantly better than the national? 

 

The unemployment rate is derived from information obtained in a survey of households wherein each month a sample of people are asked to self-report their employment and labor force participation.  As a result, this survey does not tell us a great deal about what industries are adding or cutting jobs. Moreover, the survey tells us little about the quality or wages associated with jobs.

 

Fortunately, there is also a survey of establishments that hire and pay employees from which we learn a lot more about where the jobs are, the hours worked and the pay rates.  All of which are vital in assessing the state of the economy in terms of income and output growth.

 

Returning to the question of how the region is faring compared to the nation, this analysis looks at the regional and national payroll employment changes by important sectors over the last twelve months (June 2012 to June 2013) to ascertain whether there are significant differences in the jobs performance. The analysis focuses on the private sector on the premise that all real prosperity in the U.S. is measured by private sector activity; after all, unless there are producers and taxpayers, the government sector will have no real resources to spend.

 

Total private employment nationally rose by 2.1 percent from June 2012 to June 2013. Meanwhile, private jobs in the Pittsburgh MSA climbed by 1.6 percent. And, over the last three years the national job growth was 6.2 percent and the region’s gain was 5.8 percent.  Interestingly, while the national gains for both the three year period and the one year period are slightly above the Pittsburgh area increases, the national employment total remains 1.5 million below the peak level reached in 2007. On the other hand, Pittsburgh metro area jobs, while growing slightly slower, have climbed well above (31,000) the pre-recession peak set in 2008.

 

Bear in mind that from 2003 to 2007, the nation added 7.2 million private jobs, a rise of 6.6 percent.  Employment in the Pittsburgh MSA-during the same four years-expanded by only 2 percent.  For the decade, employment gains for the country and region were virtually the same in percentage terms.  The explanation? The nation suffered an enormous 7.1 percent employment drop during the recession while Southwest Pennsylvania experienced a much smaller 2.5 percent decline thanks to the absence of a housing and construction boom and a very favorable mix of recession resistant sectors.

 

Focusing on industry growth over the last year, a few similarities and differences stand out. Manufacturing, for example, has managed small gains of less than a percent nationally and locally. Likewise, the leisure and hospitality sector, a major source of job strength in both the region and the country, had almost identical employment gains of around 3.3 percent.  Health care gains were reasonably close at 2.9 percent in the region and 2 percent nationally.

 

Sectors exhibiting very different growth rates include professional and technical services, construction, retail trade, finance, mining, and private education.

 

The U.S. jobs gain in construction was much stronger than the region, rising 3 percent while the Pittsburgh area had a small decline. This undoubtedly reflects to some extent a rebound from the almost 30 percent loss in construction employment the nation felt in the recession. The Pittsburgh loss was far lower at 13 percent.

 

A similar pattern was seen in retail trade. Nationally, jobs managed a pickup of 2.1 percent over the past year, in sharp contrast to the region’s slide of nearly 2 percent.  Indeed, the area’s retail jobs in June 2013 remained almost 9 percent lower than ten years earlier. In contrast, U.S. retail jobs are above the ten year ago level although still not completely recovered from the recession induced losses.

 

Private education jobs nationally increased by just under one percent in the last year. Pittsburgh area employment tumbled by 4 percent after a smaller but significant drop the year before.

 

Obviously, since the region’s private job growth was in the ballpark with the national gain, not all local sectors could have had slower rises than the country as a whole. Most prominent among the sectors rising fastest in the region is the industry called professional and technical services, a sector encompassing engineering, accounting, management consulting, scientific research, architecture, public relations, computer systems design, marketing and legal services. Unfortunately, for the Pittsburgh MSA, data is collected for only a few of the sub-sectors in this category so that we cannot say with certainty what is driving the gains.

 

The good news is that over the last year the MSA has seen a major jump of 8.2 percent (6,100 jobs) in the professional and technical category. That means this fairly small sector-it represents only 7 percent of all employment-has generated a third of all net gains. And interestingly, this sector has added more jobs than health care over the last year even though it’s only one third its size in terms of employees on the payrolls. This is a category that bears watching in the future and more research into what is driving it. A reasonable speculation would be that there is considerable outsourcing from other industries. Another would be that the Marcellus Shale gas drilling activity has produced significant demand for scientific and engineering assistance.

 

Financial services jobs have fared better in Pittsburgh as well, moving up 4.3 percent over the past year.  Nationally, the uptick was far more modest at only 1.4 percent.  And, countrywide, financial services employment remains well below the 2003 level and a half million under 2007. They were hit very hard by the financial crisis and are having trouble recovering. On the other hand, Pittsburgh MSA financials jobs have moved well above ten year ago levels and are contributing a significant fraction of the net job region’s gains.  

 

Finally, it is noteworthy that mining and logging jobs climbed 10 percent in the past year compared to just 2 percent nationally. This undoubtedly reflects the impact of Marcellus Shale on the area. While the MSA mining jobs growth rate is impressive, it must be remembered that the employment base is small so that 10 percent is only 1,000 jobs. Still the overall impact of Marcellus on the area’s employment and income are quite substantial and are a boon to the MSA’s economy. 

 

In sum, the local and national economies are performing somewhat similarly overall in terms of private employment gains. But in light of the depth of the national recession and the expectation of some rebound, the job growth for the country over the past three years and last year must be considered extraordinarily slow. And it is a great disappoint in light of the employment increase over the years leading up to the recession. Pittsburgh MSA employment expansion since the recession has been strong relative to its pre-recession pattern and in all likelihood reflects some structural industry shift. Whether that shift will continue to add impetus as we have seen in the last three years remains to be seen. 

Twice as Many Counties Using 100% PDR

Near the start of 2013 the Governor signed Act 2 of 2013, which moved the formerly independent State Tax Equalization Board into the Department of Community and Economic Development. We wrote about this change in a Brief earlier this year and the Tax Equalization Division has its own section of the DCED website.

There’s some data available (some it was there when STEB had its own site) but one interesting aspect is to look at the pages on common level ratios in 2002 and 2012. Besides showing that four other counties reassessed at the same time as Allegheny County (on the 2012 page, but they went into effect in 2013) it is interesting to see that there has been an increase in transparency since 2002 in terms of counties equalizing their pre-determined ratio (PDR). This ratio is defined by the PA Tax Manual as "the ratio of assessed to actual value". Allegheny County used to have a PDR of around 25%: that is, if a house’s market value was $100,000 it would have an assessed value of $25,000. Millage rates appeared much higher (from 1996-2000 the millage rate was 25.2). Following the 2001 assessments the PDR was changed to 100% and now assessed values are the same as market values. Only applied discounts (homestead exceptions) lower the assessed value relative to the market value.

Looking at the 2002 common level ratio page, 20 counties in Pennsylvania had a PDR of 100%. In 2012, 41 counties have moved to a PDR of 100%. Act 93 of 2010 requires counties (not Allegheny, which operates under Act 71 of 2005) to adjust their millage rates to be revenue neutral if they make a change to the PDR.

Minimum Wage Foolishness

Once again local liberal op-ed writers are pushing for increases in government mandated wages. According to the latest misguided screed, workers cannot live on fast food minimum wages, fast food chains make buckets of money, the workers are poorly treated and there is a lot of turnover. Solution; the government should force restaurants to pay more. After all 100 economists have signed a letter saying that $10.50 an hour would raise prices of a burger by only a nickel. But it is almost a certainty that none of those economists have worked in or managed a fast food restaurant.

There is so much wrong with the argument for minimum wages, especially a Federal minimum wage, that it is almost a waste of time to rehearse them here because the advocates will never be convinced and those who understand economics and free markets have no need to be reminded.

However, this latest offering contains a remarkable admission for a paper that has strongly supported the President’s policies. It says "The reality is that the economy has contracted so dramatically in recent years that downsized workers who would never have considered a job in fast food are now working there, many to raise families." And why has the economy been so stagnant even though the Federal Reserve has been running the most expansive monetary policy in history for over three years and the Federal government has run massive deficits to stimulate the economy?

In a nutshell, the answer is the administration’s onslaught of stifling regulations from the EPA, the NLRB, the limitations on drilling on Federal lands, and the granddaddy of job killers-Obamacare.

How interesting. Their solution to the damage done by intrusive and excessive government regulations that destroy job growth is more government intrusion and regulation. And when that kills even more jobs, the answer will be more stimulus, more regulation and more income redistribution. This is a movie we have seen too many times already but as long as the American people are easily led by government promises that their lives can be made better by adding more to the deficit, easy money and more constraints on the marketplace, the movie will keep playing.

What’s worse, the liberal media refuse to see the connection between the influx of low skill, illegal immigrants who depress market wages in low skill occupations. And they advocate a path to citizenship for those already here, guaranteeing more will come. So, to keep wages from falling, it will be necessary for the government to raise the minimum wage thereby destroying more jobs. A futile and counterproductive strategy if ever there was one.

Here’s an idea. How about an economy that promotes solid economic growth? That will require an end to crony capitalism, lowering taxes, sensible and reduced levels of regulations, pulling the plug on Obamacare and getting Federal spending under control. But none of this will happen as long the current state of politics prevails in the country.

Multi-City Look at OPEB Funding

As touched upon by our Brief this week the Pew Center for the States looked at the funding of retiree health care in 61 cities. The data, which reflects fiscal year 2009, shows how much money the city is required to put in (ARC), how much they actually put in, the total liability, and the percentage at which the other post-employment benefits (OPEB) are funded.

Let’s start with the last point first. It was only a few years ago that cities were required by accounting standards to begin showing an actuarial statement on OPEB, and there is no requirement to pre-fund or set aside assets for OPEB the way things are done for pensions. That’s why only 23 cities of the 61 showed a greater than zero balance in terms of percent funded. Los Angeles was the highest at 55% and Denver was close behind at 51%.

Total liability ranged from a high of $73 billion in New York City to $3 million in Cheyenne. Eighteen other cities besides New York had OPEB liabilities of $1 billion or more.

Several cities-including Charlotte, Little Rock, Phoenix, and Virginia Beach-paid in more than 100% of what was required under the terms of the annual required contribution.

One city that was not included in the measurement? Our very own Pittsburgh, PA. It takes OPEB measurements every other even year (2008, 2010, 2012); in 2008 its total (unfunded, as there are no assets set aside) liability was $359 million and by 2010 it had climbed to $488 million. In 2009 it was required to pay in $29 million but put in 70% of that ($20 million).