Eds and Meds Back as Pennsylvania’s Biggest Job Creator

Pennsylvania’s June employment report sounded an old theme: almost three quarters of net new jobs are accounted for the education and health services sector. Leisure and hospitality also continues its stronger than average growth while good producing industries slipped from May to June. The Professional and Business Service component was also weak in June, after some fairly robust gains.

To say the least it is never a good sign when one sector hogs the growth in jobs. It is not clear how long the strength can continue in light of the medical insurance issues looming nationally. Far better to have some gains in manufacturing, construction and mining as well as broader gains in the service sector.

Still, some job gains are better than none. But there is no gainsaying the worrisome aspects of a jobs picture that is so imbalanced.

The national employment situation is far from solid and Pennsylvania’s policymakers have failed to make the kinds of strategic changes that would energize the state’s economic forces.

A Glimpse into Pennsylvania’s Economic Thinking

The debate over privatization of Pennsylvania’s liquor stores has uncovered a very sad and costly lack of understanding of economics and a very strong attachment to union doctrine.

No statement has been more revealing than the comment by a Turtle Creek resident who said she was opposed to privatization because it would eliminate jobs. First of all, private liquor stores will need employees. How will shelves get stocked or sales rung up or bookkeeping and accounting done without employees? Thus, the resident’s comments show either a complete lack of understanding of how business works or belief that if a job is not held by a union employee it does not count. Either way, the opinion of this person reflects the thinking of a large portion of Pennsylvanians. And that thinking remains one of the biggest obstacles to strong job growth in the Commonwealth.

Ironically, the comment came in a report on polling results that found Pennsylvanians view the economy and jobs as very important while the privatization of liquor stores by comparison was only moderately important. Ironic because of the difficulty in creating a pro-growth environment in a state where a huge fraction of voters are still in thrall to the idea that unions create good jobs and where the government has been a hand maiden to union entrenchment in the economy and delivery of public services.

Sometimes a short response to a reporter’s question encapsulates a boat load of information about an issue. The Turtle Creek commenter has done just that.

Unheralded Source of Jobs Strength in the Pittsburgh Region

There’s a new jobs producing hero in town.  Actually it has been around for a while but has stepped to the front of late. 



Professional and Technical Services now lays claim to being the biggest jobs producing sector even though at 76,600 in total employment it represents just under 8 percent of all private sector jobs. Over the last twelve months, this sector grew by 6.2 percent adding 4,500 jobs and accounting for nearly half of the total private employment gain during the period.  To put this in perspective consider that the once mighty private Education and Health Services sector saw a contraction in employment over the twelve months ending in November.  Eds and Meds as they are known were for many months during the long economic slowdown that began in 2008 the major source of jobs stability in the region.


Professional and Technical Services are made up of some high fliers and some also-rans. For example, the Architectural and Engineering Service component posted employment growth of 5 percent while Scientific Research and Development jobs climbed 4.6 percent. Unfortunately, those are the only two sub-component sectors reported for the Pittsburgh MSA and they account for only a fourth of the total Professional and Technical service employment pickup. So, what else could be driving the strong gains in the sector?


Because the Professional and Technical Services sector has been a major contributor to employment gains in Pennsylvania and the nation over the twelve months ending last November, it is reasonable to assume that the faster growing components of the sector in the state and nation are also enjoying stronger gains in the Pittsburgh region.


For example, nationally Computer and System Design employment has been moving up rapidly in recent years, gaining 5 percent over the twelve months ending last November and is up almost 15 percent since 2009. This sector, which represents about 1.5 percent of all establishment payroll jobs, has increased its jobs count by over 200,000 since 2009 continuing a phenomenal period of growth leading up to the recession. And during the recession it saw only one year of decline (2008). That drop was erased dramatically in 2009 and the sector has been moving up rapidly since.  Thus, it seems very plausible that Computer and Systems Design employment is a significant contributor to gains in the region’s private sector employment.


Similarly, Management and Technical Consulting services have enjoyed tremendous jobs growth nationally for the past decade and in Pennsylvania the pace has quickened since the recession. Thus, this subsector would appear to be a logical candidate to explain some of the strong rebound in jobs in Professional and Technical Services in the Pittsburgh MSA.  Meanwhile, Accounting, Bookkeeping and Tax Preparation have rebounded from recession declines to reach levels above the pre-recession high points.  This subsector has enjoyed solid gains through most of the last decade except for the sharp recession pullback. In all likelihood, this relatively small subsector has played a solid role in lifting regional jobs in the Professional category.


On the other hand, and perhaps somewhat surprisingly, based on the Pennsylvania numbers and the long term trend in the national data, Legal Services do not seem to be a reasonable explanation for job gains in the Professional category. In both the state and the nation Legal Services employment is virtually unchanged from the decade earlier levels after rising slightly to a peak in 2007-08.


For quite some time the Pittsburgh MSA jobs story has been focused on the robust growth in the Education and Health Services sector and the substantial and broad ranging impact of the Marcellus shale activities. We have commented on the earlier strength in trucking and warehousing as a likely consequence of the buildup of gas drilling and producing activity. Likewise accommodations and food services undoubtedly experienced a boost in sales and employment as a result of the surge in Marcellus Shale activity. Recently, however, the strongest increases in jobs have been in the Professional and Business Services and Financial Services. It is noteworthy that Financial Services until very recently had been a no growth sector for the last decade.


This shift in sector momentum is quite remarkable and will bear watching to see if it represents a fundamental change or if there is just some catching up by some sectors as others take a breather. If it is a permanent shift, it will become important to assess the implications as to the effects on income growth and possibly the impact on the geographic distribution of the new jobs.  

Keystone Research Jobs Confusion

Parroting President Obama’s notion that job growth nationally has weakened because of the layoffs of government workers, the Keystone Research Center says that Pennsylvania’s slowdown in job growth is also due to government layoffs. Some facts might be useful. Over the last twelve months government employment fell by 10,800 in the state while private employment expanded by 48,000 jobs-not stunningly good but okay. In June of this year, government payrolls jumped by 9,000 over the May figure (seasonally adjusted so it is not due to seasonal hiring factors) while private jobs managed only a 5,400 pickup.

Several private sectors showed decrease in employment in June including construction, trade and transportation, information and education and health. The big increase in leisure and hospitality employment (7,000) kept the private monthly figure from showing a decrease. So, over a period when government jobs fell, private sector jobs were moving higher at a reasonably good pace with broad based gains led by mining and leisure employment but when government jobs jumped, private jobs were very weak except for one sector. Now how does the President’s theory explain this? It cannot.

First of all, increasing or maintaining government jobs means resources have to be taken from the private sector to cover the costs of government workers. Moreover, government workers in many categories receive higher salaries and much richer benefits than comparable private sector workers. Certainly that is true for teachers, who account for the largest single share of government jobs. And because the competition in most private sectors is absent in government, it is a virtual certainty that comparably situated employees in government jobs are less productive. Indeed, it is not clear how to measure productivity in government jobs.

Second, most government workers in non-supervisory positions are unionized in Pennsylvania. And Pennsylvania laws protect unionized government workers. Pension obligations-no matter how generous-have to be met, unlike the private sector where bankruptcy can reduce such obligations for employers. Teachers cannot be laid off for economic reasons. Unless enrollment declines or entire programs are cut, teachers’ jobs are safe and they will get any wage or benefit increases called for in a contract regardless of the financial situation in a school district.

In short, the Keystone Research Center has it exactly backward. A growing government sector, for any reason other than population growth, is detrimental to the private sector where real, measurable production takes place and is necessary to support whatever government exists. Keeping government small is the best strategy. Privatize, outsource wherever possible. It can be done if the will is there to do it.

Some PA Senators Want Obama Lite Plan to Stimulate Job Growth

Following the precepts of the Obama "jobs" bill, several state senators are proposing to boost employment by stepping up the pace of water and sewer projects, supporting green jobs industries, job training and promoting home ownership. The $1.2 billion plan would use existing funds and a fee on Marcellus drilling.

Let’s take one flaw at a time. First, we do not need special subsidies for green industries. As Obama is proving, such a use of taxpayer money is a gigantic waste. Solar energy is growing on its own. Windmills have been used for almost 40 years now. There is no need to subsidize these efforts. Shovel ready sewer jobs? Not likely. It takes a long time to plan new projects or rehab on major installations. Besides, all such jobs created would be at best short-lived and little more than a payoff to unions who would get all the work because of the prevailing wage law.

More money for job training? What, we do not spend enough on education and training already? And the proposal to promote homeownership is outright ridiculous. Have we learned nothing about the negative consequences of putting people in homes they cannot afford? Interest rates are at the lowest levels ever. If that is not stimulating home buying there is little left for government to do but wait on the market to right itself.

If the senators want to see faster job growth in Pennsylvania, they might want to look at what Wisconsin is doing to rein government unions and they might want to think about repealing prevailing wage rates. Getting government out of the way is a far better jobs program than wasting $1.2 billion trying to boost employment through a sham development scheme. We have seen this movie. Governor Rendell spent a half billion a year attempting to boost the economy. And we got precious little to show for it.

Job Numbers in Allegheny County: Who is Right?

"At a time when the entire country is struggling, Allegheny County is performing better (in employment) than the state and the nation". This quote is attributed to the spokesperson for the gubernatorial campaign for the current Chief Executive of Allegheny County. Other gubernatorial candidates have questioned the job numbers cited in the Chief Executive’s campaign ads.

Though it is impossible to determine from the quote which exact metric (unemployment rate, number of Allegheny County residents employed, number of jobs in Allegheny County) or time frame (since 2000, since 2008, since 2009) it is clear that the intent of the statement is to say that Allegheny County is doing better than the rest of PA and the U.S. Is that true?

Let’s look at the period since January 2004, when the Chief Exec took office, to January 2008, pre-recession. Overall unemployment rate in the County fell 1.1 percentage points from 6% to 4.9%; private job count in Allegheny County went up 0.3% (from 600.8k to 602.9k); and Allegheny County residents holding jobs rose 1.8% (from 599k to 610k).

How does this compare to the state as a whole? Statewide the unemployment fell 1 percentage point, a tenth of a point less than the County’s change (and probably not statistically significant); the private job count went up 4.5%, and the Pennsylvanians holding jobs grew 4.2%. On both the establishment and the household counts the state bested the County’s rate by 3 percentage points.

So, it is a huge stretch to claim that Allegheny County has outperformed the state and the nation, especially over the period since the current Executive took the reins. If the reference is to the recent unemployment rate, that is a very misleading statistic because of different rates of labor force growth in the state, county and nation. Slow or non-existent labor force growth can hold unemployment rates down even when the number of jobholders is not growing.

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.

Real Tragedy of Pirates Losing Season Record

Here’s where we rather impolitely say "told you so." Back during the debate over funding for new stadiums, we pointed out that Pittsburgh was a small market team with little television revenue and did not have a history of being a "baseball" town in the manner of St. Louis with its strong attendance record in the old Busch Stadium or, to a lesser extent, Cincinnati. Thus, we argued that a new ballpark in Pittsburgh would not end the Pirates’ weak attendance or generate significant gains in TV money. So, unless the team owners showed a willingness to roll the dice and spend a lot of money beyond the team’s near term earning potential, mediocrity or futility on the field would continue.

And as it turns out, that has been the result.

But what is worse, during the debate over spending hundreds of million in tax dollars for the new ballpark, we were told that great economic benefits would accrue to the region with stronger job and income gains. That claim turned out to be as fatuous as the assurance that the team would be pennant contenders in the new ballpark. Indeed, private sector jobs in the region are now 30,000 below their 2001 level. Jobs remained below the 2001 level until 2008 when they barely managed to struggle back to the seven year earlier reading.

So much for engendering economic dynamism in the region.

The City of Pittsburgh has been placed in distressed status by the state and remains a financial basket case because of legacy costs and overspending.

The real tragedy of the Pirates arises from the bill of goods taxpayers were sold and had rammed down their throats despite strong opposition by politicians and civic leaders who were certain the corporate welfare involved in keeping the Pirates would pay dividends for the City and region. The greatest irony is the Pirates had nowhere to go. There was no place other than Washington, D.C. big enough to support a major league franchise. And the Orioles were successfully blocking any team moving there. Only years later after Montreal collapsed did Major League Baseball overcome that resistance.

In sum, taxpayers ended up paying for a new ballpark under false pretenses and have received none of the promised returns on their investment. Can public policy be any worse?