Allegheny County’s household employment lagging

Summary: As 2020 began, Allegheny County Executive Rich Fitzgerald touted the economic performance of the county since 2000.  As noted in late 2019, an Institute Policy Brief (Vol. 19, No. 44) reported that the seven-county Pittsburgh Metropolitan Statistical Area’s employment growth has fared quite poorly recently compared to similar-sized metros. Allegheny County makes up about half the population of the seven-county region.

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The Policy Brief findings were based on surveys of employer payrolls. These surveys cover only metro areas and do not report data by county. However, U.S. Bureau of Labor Statistics does collect household employment and labor force data at the county level through phone surveys.   

In the earlier Brief, the Pittsburgh metro area was compared with the Charlotte, Cincinnati, Cleveland, Indianapolis and San Antonio metro areas. This Brief looks at household employment data for the counties that host the cities for which the metro areas are named. They are Mecklenburg, N.C. (Charlotte), Hamilton and Cuyahoga, Ohio (Cincinnati and Cleveland), Marion, Ind. (Indianapolis) and Bexar, Texas (San Antonio).  Additionally, this study will include the performance of the nation and state. 

Household employment for Allegheny County in 2000 stood at 612,461 people (all figures are the 12-month average for the year cited).  In 2019 employment had increased to 625,287—a rise of 2.1 percent. In the sample of counties, it ranks as fourth best ahead of Cuyahoga (-11.4 percent) and Hamilton (-1.4 percent), but well behind Mecklenburg (57.5 percent), Bexar (45.7 percent) and Marion (7.8 percent).  Nationally household employment rose 15 percent and Pennsylvania’s count moved up 6.5 percent. 

The first decade of the new millennium ended just as the deep recession was drawing to a close with four counties having lower household employment in 2010 than 10 years earlier (Allegheny, Cuyahoga, Hamilton and Marion).  Pennsylvania also saw a drop while nationally household employment posted a very small 1.6 percent gain.  Meanwhile, Mecklenburg and Bexar (16.4 and 18.4 percent, respectively) recorded solid growth. 

With a rebound from recession levels and ongoing strong gains in recent years, the national household employment count climbed 13.2 percent between 2010 and 2019 while Pennsylvania posted a 6.5 percent rise. Unfortunately, Allegheny County, at 6.4 percent, trailed well behind the national gain and managed to surpass only Cuyahoga’s 1.8 percent. Allegheny’s growth fell far behind Mecklenburg (35.3 percent), Bexar (23 percent), and Marion (17.7 percent). Hamilton County, at 8.9 percent growth, was marginally better than Allegheny County’s gain. 

Another measure of the economic vitality of an area is labor force growth. The labor force consists of those who are employed and those who are actively seeking employment.  It does not count members of the population under age 16, retired or in an institution such as a school or hospital. 

From 2000-19, labor force in Allegheny County ticked up from 638,137 to 650,557 or barely 2 percent.  Over the same period the national labor force rose 14.7 percent, while the commonwealth rose by 6.5 percent.  Among the counties reviewed, Mecklenburg County’s labor force jumped by 58.9 percent followed by Bexar County at 44.3 percent and Marion County at 8.4 percent.  Both Ohio counties, Hamilton and Cuyahoga, had losses of 1.5 and 10 percent, respectively. 

While better than two Ohio counties, Allegheny County’s very slow 19-year labor force gain does not signal strong economic vitality in comparison to the nation and many counties across the country.  

As mentioned above, labor force is dependent upon the population at large—generally speaking, a growing population allows for a growing labor force.  While the next decennial Census will be taken in 2020, recent county population comparisons can be made using annual population estimates, with the 2018 estimate being the most recently available from the U.S. Census Bureau.

In the 2000 Census Allegheny County’s population was recorded as 1,281,666. By 2010 the count had fallen by 4.6 percent to 1,223,348.  The losses slowed to just 0.4 percent between 2010 and the 2018 population estimate of 1,218,452.  Over the time frame 2000 to 2018, Allegheny County’s population fell by 4.9 percent. 

By contrast, Pennsylvania’s population count over the two decades increased by 4.3 percent.  The bulk of that increase happened in the first decade (3.4 percent) before cooling off to less than one percent between 2010 and 2018. 

From 2000 to 2018, Mecklenburg led the six-county sample with a jump of 57.3 percent to the population (695,454 to 1.1 million) and will likely surpass Allegheny County in the next Census count.  Bexar County’s population climbed 42.3 percent to 1.99 million people, up from 1.4 million in 2000.  Marion County grew 11 percent over the period. However, Hamilton County and Cuyahoga County each saw population losses. Hamilton’s drop of 3.4 percent was smaller than Allegheny County’s.  But Cuyahoga was very hard hit with a population loss of 10.8 percent. 

In short, Allegheny County’s economic performance, as measured by household employment and labor force gains in comparison with the nation and state and several counties, has not fared well over the last two decades.  Of course, part of that story is tied with the loss of population.  But it all comes down to the availability of jobs and the business climate.  Job availability draws people to a county and boosts labor force and employment levels.

As many earlier Policy Briefs have noted, the business climate in Allegheny County has been less than ideal for job growth.  It is not free market-oriented or business friendly. A large part of that is the stifling regulatory climate coming not only from the state level but also from the county’s core, the City of Pittsburgh.   

It also has a lot to do with burdensome taxes, such as the additional one percent Regional Asset District sales tax, the drink and rental car tax and the very high level of school real estate taxes within the county.  Until the county reverses course and becomes more welcoming to businesses—without using public subsidies to draw them here—the slow growth that characterized the first two decades of this millennium will continue.

Sluggish Economy Creates State Revenue and Budget Problems

Summary:  Three months ago (see Policy Brief Vol. 16, No. 47) we called attention to the slowdown in statewide employment since March of 2016. Data since indicates the slowdown has not been reversed. Recently released private sector employment figures for December 2016 continued to disappoint, dipping below November’s reading and standing only 37,000 above the December 2015 level. This weakness is having a ripple effect in the state’s economy and tax revenues that trail projected estimates and widening the budget deficit.  Fixing the economy should be top priority and talk of tax increases is exactly the wrong approach.

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Pennsylvania’s private sector job count in December 2016 rose only 37,000 from December 2015, well below the average gain of 52,000 from December 2010 to December 2015. Indeed, the pace of job growth coming out of the recession has been replaced by a cooling, especially noteworthy during the last few months of 2016 following a respectable first half. There can be little doubt that for much of the period of 2010 through 2015 the relatively strong job gains reflected the advent of Marcellus gas drilling and production.  Still, notwithstanding the stronger gains since the 2009-10 recession the average yearly job gains of 13,600 private jobs in the new century pale in comparison to the 84,600 average yearly rise in the late 1990s.

Sluggish growth of late can be traced to the weakness in goods producing categories, mining and logging, construction, and manufacturing. Reflecting the slide in natural gas prices mining jobs fell on a year over year basis every month in 2016—a trend that actually began in April 2015.  By 2016 the monthly average of the sector had dropped by 12,800 jobs (-34 percent).  And that decline has had a significant negative effect on other sectors.

Manufacturing tells a similar story, losing 2,300 jobs in 2016 compared to the 2015 yearly average.   After a small rebound from the recession low point, factory employment has been basically flat for four years. Moreover, the longer term picture is very poor with 2016’s average of 566,000 jobs a drop of 15 percent from 2006’s level of 670,400.

Employment in service producing industries has fared much better than in the goods producing sectors with education and health services leading the way.  For instance, private services employment grew 41,300 from December 2015 to December 2016. Moreover, the sector has added 30,600 jobs per year since 2006 thanks to a relatively strong performance after the recession that accounts for all the net private sector job gains during the period.

In fact, overall the private sector managed average annual increases of only 18,000 jobs from 2006 to 2016 reflecting the big losses in manufacturing.

With the new national emphasis on policies focused on stimulating manufacturing and energy production perhaps this picture might change for the better in the future.

For the present and near term, service sectors are keeping the Pennsylvania economy moving forward, albeit slowly. But the reality is that many of the service jobs being created are very low paying with few benefits and their output has little or no multiplier impact on the economy. Thus, a concentration of employment gains in low labor productivity, low wage jobs industries provide only a very small impetus to state revenue. This is evident in the state’s tax revenue collections data.

Moreover, the recent slackening pace of overall job gains and the dramatic shift in the industry mix of employment away from goods production are definitely having an effect on state revenue collections. Since the recession ended in 2010, annual (calendar year not fiscal year) general fund revenue has risen at a slow 2.5 percent average yearly rate, with the highest increase posted at only 3.7 percent in 2011 and two other years reaching just over three percent. 2012’s increase was barely two percent and 2013 registered a paltry 1.6 percent gain.  But the low point over the last six years was the 1.2 percent increase from 2015 to 2016. Thus far in the first six months of the current fiscal year, general fund revenue is maintaining its weak growth pattern and is up only 0.4 percent compared to the first six months of the prior fiscal year ($13.45 billion vs. $13.40 billion).

While this is a slim positive gain, it is $367 million or 2.7 percent below what the Commonwealth budget projected would be collected thus far ($13.82 billion).  And December’s monthly revenue collection was four percent below the budget estimate figure.

Based on the slow pace of revenue gains of late it is not surprising that year to date collections in all major categories of tax revenue (corporate net income, personal income and sales and use) are running behind the forecast for the first six months of FY 2016-17.

Of the three, the $116 million shortfall in the corporate net income tax is largest in percentage terms at 8.9 percent under forecast. The personal income tax has also performed below not just last year’s level, but estimated levels as well.  Through the first six months of FY 2016-17, the collections on personal income tax are $126 million or 2.3 percent under the budgeted figure. Meanwhile, sales and use tax revenue was $133.3 million (2.6 percent under budget.) These three account for most of the overall revenue shortfall although other categories were also lower and a few small sources registered increases.

Of course revenues are only half of the ledger—spending being the other half.  Thus far in FY 2016-17, general fund spending is running about $4.4 billion higher than revenues collected.  Typically, the first six months of the fiscal years have spending running ahead of revenues. With the heaviest revenue inflows in the spring, the spending–revenue gap is dramatically reduced. But for the last few years, the fiscal years have ended with increasingly larger deficits.

Just recently the Independent Fiscal Office (IFO) reported that it is now estimating the current year deficit at $700 million as a result of a forecast for a further $250 million revenue shortfall. The Director of the IFO in comments to the Associated Press on January 27th said, “We’re really not getting any kind of economic growth through January…So it’s very puzzling.”

On the contrary, slow growth in Pennsylvania is not much of a mystery. The state rates very poorly in state rankings of business taxes, business climate, and its two largest metro areas are among the lowest ranking for new business formations.  High taxes, the threat of more taxes, (especially on the gas industry) enormous unfunded liabilities in the state employee and teacher pensions that portend tax increases all hamper the state’s ability to grow and attract business.  Labor union problems, especially with public sector employees, combined with the rapid expansion of the number of Midwestern states adopting right to work laws will put the Commonwealth at an ongoing serious competitive disadvantage.

One thing should be perfectly clear. Raising tax rates or levying new taxes on business in an attempt to close the deficit will be counterproductive.  There is no substitute for adopting policies that favor free enterprise and making the state more business friendly.

Recent Weakness in Jobs and Earnings in the Pittsburgh MSA

Of late, the news regarding the Pittsburgh region’s labor market statistics has not been encouraging.  Following the 2011 rebound to the 2008 prerecession peak of 1,120,000 private sector payroll jobs, employment rose by 16,000 in 2012 but has slowed to much smaller increases of 1,600 in 2013, 3,500 in 2014, 3,300 in 2015 and is on pace to fall short of 3,000 in 2016 based on the jobs count through August of this year.  Interestingly and of concern,  the Department of Labor and Industry report for August shows that, on a seasonally adjusted basis, nonfarm jobs in the MSA were 8,300 lower in August of 2016 than in August 2015.

 

Meanwhile, August 2016 data from the household survey shows no gain in the number of area residents reporting they were working while the labor force rose from a year earlier.  As a result, the unemployment rate was up by almost a full percentage point from August 2015 to stand at 5.9 percent.  Only Allegheny County and Butler County were below six percent. The two highest seasonally adjusted unemployment rates were posted in Fayette (8.5 percent) and Armstrong (7.9 percent).

 

The latest weakness in payroll jobs reflects a declining trend in monthly employee count compared to the same month a year earlier in the goods producing industries. This pattern began in early 2015.  In August 2016, goods producing jobs were down 4,100 from August of 2015 while service jobs climbed by 2,100 resulting in a net loss of 2,000 private sector jobs compared to a year earlier. In the service producing sector, jobs have continued to rise but have slowed dramatically since the post-recession jump of 11,000 jobs from 2011 to 2012.

 

From 2000 to 2015, goods producing employment slumped by 39,500 jobs. A rise of 65,000 in service employment led to an overall increase of 25,500 private jobs during the 15 year period—an average gain of 1,700 per year. Compare this to the 105,000 gain in private employment from 1990 to 2000 or 10,500 per year, led almost entirely by service sector growth.  The slowing of service job gains from 10,000 a year to just over 4,000 per year since 2000 has been a major contributor to very weak overall gains during the last 15 years. This longer term weakness in total private employment growth has occurred despite three brief spurts of growth including the 2006 to 2008 period, the two years after the recession trough in 2009, and a short lived boost related to the Marcellus Shale gas drilling from 2011 to 2014.

 

Accompanying the slowing in private employment gains and the smaller share of relatively high paying goods producing employment and the greater share of lower paying service jobs, there has been a decline—albeit unevenly—in average weekly earnings in the region over the last 24 months beginning in August 2014.  The yearly average of weekly earnings in 2015 stood at $814.17, a decline from $829.40 in 2014. Through August of 2016, earnings continued to fall reaching $791.21, a drop of $22 or 3.8 percent from the August 2015 reading of $823.20.

 

Data for average weekly earnings is available only back to 2007 when the yearly average stood at $687.90. By 2015 the yearly average weekly income was $814.17. Thus, over the eight years from 2007 to 2015, weekly earnings climbed 18.4 percent. But, as pointed out above, earnings have continued their nearly two year slide in 2016 and are now only 15.3 percent above the 2007 level. Unfortunately, from 2007 through the first half of 2016, consumer prices have climbed 21.7 percent.  That means the August 2016 real average weekly earnings in the Pittsburgh MSA were almost six percent below the 2007 level.

 

Obviously, there are major differences in employee earnings throughout the region and even within each county.  There are areas of relative prosperity and areas that remained depressed—and some in between.  It is also true that nationwide real wages have stagnated and real GDP growth has been very anemic compared to other periods following recessions. This is largely a reflection of the fact that nationally aggregate hours worked in manufacturing are 14 percent lower than in August 2006. Contrast that with the 49 percent surge in aggregate hours in the leisure and hospitality sector over the last 10 years.

 

Manufacturing jobs nationally paid average weekly wages of $1,054 in August 2016 while leisure and hospitality weekly earnings were only $324. Wages represent productivity levels, so for every manufacturing job lost, there would have to be three or more leisure and hospitality jobs added just to hold total output constant. Moreover, leisure and hospitality jobs have a much lower export component and thus do not have a significant multiplier effect.

 

There can be little doubt that national, state and regional policies have made growth in mining and manufacturing tougher to achieve in the US and the Pittsburgh MSA. The result is weakened GDP expansion, falling real incomes and woefully inadequate high paying job opportunities.  If this trend is to be reversed there must be a major shift in policies toward business and the labor markets. Lower taxes, less regulation, replacing the job strangling, expensive and ineffectual Affordable Care Act and a genuine commitment to promoting the engines of growth—especially new business startups—are critical to getting the country and region back on a prosperous growth track.

The Drip, Drip, Drip of Government Acid on the Economy

While the local economy struggles to recover from a long running recession, the City and County governments seem intent on further undermining what’s left of the free market for labor in Pittsburgh and Allegheny County. The recent assault comes in the form of prevailing wage laws that will require artificial above market wages for employees working at firms who have received or are benefiting from "economic development" help from the City and County.

Proponents of the new wage laws argue there will be little impact on jobs and therefore using the strong arm of government to mandate higher wages is acceptable and justified. This argument fails to understand the cumulative impact of the government’s meddling in the economy and the role that meddling has played in holding down private sector job growth in the region for decades. Absent the health care and post secondary education jobs gains, the City, County and region have seen no net private employment gains for the last ten years and have averaged far slower than national growth for several decades.

Labor laws that are grossly unfavorable to businesses and taxpayers have already taken a terrible toll on the state and region. Prevailing wages in construction, public safety unions with labor favoring binding arbitration regulations, and teacher and transit unions with the right to strike have created an overly expensive and unfriendly climate for companies and high taxes for residents.

The City and County prevailing wage laws will add to the market disrupting forces already instituted and will require further interference later on as the unintended consequences multiply and insidiously stifle economic growth. More and larger taxpayer subsidies will be necessary to induce businesses to risk investing here to offset the higher wages that must be paid. These projects will have an even lower return for taxpayers than the ones currently receiving government aid-taxpayer assistance that was necessitated by the poor investment climate created by earlier misguided policies.

There is no way to recoup the enormous and rapidly accumulating deficit of jobs and income the City and County have already engendered by the anti-free market environment already in place. Unfortunately, those who live and vote for government officials in the City and County will pay the price for voting for candidates who choose to make things worse. Their children and grandchildren will poorer for those votes.