Pittsburgh Metro’s December jobs report disappointing

Summary: The latest employment figures for the Pittsburgh Metropolitan Statistical Area (MSA) is once again disappointing.  The area’s total private job gains fail not only to match the national growth rate, but also the growth rates of comparable metros.

 _____________________________________________________________________

The employment figures for December 2018 recently released for the Pittsburgh MSA (Allegheny, Armstrong, Beaver, Butler, Fayette, Washington and Westmoreland counties) were not encouraging.  Private sector payroll employment (not seasonally adjusted) rose by just 8,100 (0.75 percent) between December 2017 and December 2018. This continues a trend of relatively weak growth that defined the local economy in 2018.  Seasonally adjusted data are not available for payroll data at the metro level. However, the 12-month-ago comparison eliminated most if not all seasonal effects and is a good measure of year-to-year gains.

To provide perspective, this Brief will compare employment growth in Pittsburgh to jobs gains in the metro areas of Columbus, Ohio, Indianapolis, Ind., Nashville, Tenn. and the national performance.  Data in all comparisons will be private employment changes from December 2017 to December 2018. Comparisons are presented for total private jobs, jobs in goods production and private service sector production as well as in the focused areas of manufacturing, education and health, and leisure and hospitality.

Nationwide total private jobs grew 2.02 percent from December 2017 to December 2018.  Indianapolis’ and Nashville’s MSAs job counts topped that by rising 2.31 and 2.14 percent, respectively, while Columbus’ MSA fell just short (1.72 percent).  Meanwhile, the 0.75 percent pickup in the Pittsburgh MSA was well short of not only the national growth but also the gains in the sample of comparable metros.

In the goods-producing super sector (which includes mining and logging, construction and manufacturing) employment nationally posted a solid 3.13 percent gain.  The highest jump among the metro areas belongs to Indianapolis (5.67 percent) with Pittsburgh coming in a distant second at 1.41 percent but not too far above Columbus (1.33 percent).  Nashville had a decline to its number of employees in the goods-producing super sector (-0.88 percent).  Much of Pittsburgh’s pickup, 80 percent, was in the construction sector.

At the same time, manufacturing employment rose 2.11 percent from December 2017 to December 2018.  While the Pittsburgh MSA had positive growth in manufacturing jobs (0.12 percent), it was not only well behind the national rate, it was much slower than Columbus (1.49 percent), and Indianapolis (1.41 percent) but ahead of Nashville, which was the only metro in this sample to see a decline in manufacturing jobs (-1.56 percent).

In the private service-providing super sector, employment nationally recorded a rise of 1.81 percent—a much slower pace than the goods-producing super sector.  In the group of metros, only Nashville exceeded the national pickup (2.64 percent).  Columbus’ (1.77 percent) was just below that of the nation closely followed by Indianapolis’ MSA (1.71 percent).  The Pittsburgh MSA followed well behind all areas with a mere 0.64 percent jobs gain.

A key private service-providing subsector is the education and health subsector, often known as “eds and meds.”  The Pittsburgh MSA prides itself on being strong in this area with its many hospitals and universities.  However, the employment gain in “eds and meds” from December 2017 to December 2018 was the lowest for all comparison areas at a paltry 0.47 percent. Nationally these jobs climbed 2.25 percent over the 12 months with the highest growth posted by Columbus (3.21 percent).  While the Indianapolis and Nashville MSAs came in below the national gains (1.86 and 1.72 percent respectively), the gains were far stronger than in the Pittsburgh MSA.

Leisure and hospitality job growth is the last sector examined. This sector includes the accommodation and food services subsectors (the largest subgroup) as well as the arts and entertainment subsectors.  The Pittsburgh MSA did quite well in the leisure and hospitality group posting growth of 2.33 percent from December 2017 to December 2018.  This was much better than the national growth of 1.18 percent and handily besting Columbus (1.06 percent), Nashville (-0.79 percent) and Indianapolis (-3.83 percent).

However, as has been explained in previous Policy Briefs, this is the one sector that perhaps does the least to boost economic growth because of very weak multiplier effect and low wages.  For example, statewide (timely wage data are not available by sector below the state level) the average weekly wage of all employees in the manufacturing sector was $881.50 in December 2018—a 2.17 percent increase over the weekly wages rate one year ago.  By contrast, the statewide average weekly wage for employees in the leisure and hospitality sector was just $385.79—up just 1.45 percent from its year-earlier posting. Manufacturing wages are more than twice as high as leisure and hospitality wages in Pennsylvania and contribute more to the state and MSA’s tax coffers, as well providing stronger multiplier effects.

Average weekly hours worked for each sector show workers in the manufacturing sector have much longer work weeks and far beyond those in the leisure and hospitality sector (41.6 hours vs. 25.1 hours).  It’s not hard to see why manufacturing jobs are more sought after than are those in leisure and hospitality—yet the latter sector is where the Pittsburgh MSA excels.

A primary reason that jobs growth continues to languish in the Pittsburgh MSA, and even statewide, are economic policies that make the business climate less friendly than other areas and consequently making it a less desirable place for startups and for existing businesses to grow.

The latest salvo aimed toward business is a plan announced by the governor to raise the minimum wage in Pennsylvania from the national minimum of $7.25 per hour to $12 per hour in 2019 with the ultimate goal of increasing it to $15 by 2025.

Apparently, no amount of evidence of the negative effects of large increases in mandated minimum wages will deter politicians who prefer to look concerned about incomes, as opposed to helping their states and regions grow businesses and employment with higher wages and produce strong demand for workers. Strong sales and good profits lead to higher wages in a competitive labor market. Avoiding this truism is not a good way to boost economic prosperity.

As long as Pennsylvania, and the region, continues to ignore the impact of policies on business friendliness—which seems to be the case—job growth will remain stunted and future disappointing jobs reports will be the norm.

Why are Retailers Offering Higher Pay?

Of late there have been a number of news accounts reporting the decisions of some retail chains and fast food restaurants to boost their wage rates for lower skill and entry or near entry level workers.  Nationally, Walmart, Target, McDonalds, The Gap, Starbucks and IKEA—to mention a few companies— have decided to boost their entry level and lower rung employees’ wages.  Locally, Sheetz, Aldi’s, and across the state, Wawa stores have all announced plans to raise their lower rung pay as well.

 

Walmart recently announced that “All associates hired before Jan. 1, 2016 will earn at least $10/hour and new entry-level associates will continue to start at $9/hour and move to at least $10/hour after successfully completing the company’s new retail skills and training program known as Pathways.” Just last year Walmart announced the increase of entry level pay to $9 per hour.

 

On January 13th, Altoona based Sheetz released a statement saying, “The starting hourly wage for sales associates will rise to $10 this month, with shift supervisors making $13 and assistant managers $16.” The vice president of human resources said “the company believes that paying wages at the upper end of the retail scale is necessary to attract and retain the best employees.”

 

Some groups who push for higher minimum wages place the impetus for the voluntary wage hikes on threats by states to raise their minimum wage.  Attractive as that rationale might seem to those groups, it does not explain what is happening.

 

More likely, market forces and other considerations are the cause. Companies have offered various explanations, but the prime motivation seems to be a desire to keep good employees as the labor market improves and competition for reliable employees intensifies. One cannot rule out genuine concern for employee welfare on the part of employers in a competitive environment, but at the same time, companies must earn a decent profit to stay in business and continue to create and retain jobs and therefore cannot be more altruistically generous than the bottom line allows.

 

What is driving the recent spate of announcements regarding pay increases by large retail chains and fast food restaurants?  The foremost consideration is that high turnover rates are costly both in dollar terms and customer satisfaction when quality of service suffers because of poor performance by unmotivated, disgruntled or ill-equipped employees. When jobs are being created faster than the expansion of the pool of qualified applicants, turnover will rise as well; unhappy but skilled and motivated employees will be tempted to seek, and are likely to find, opportunities elsewhere. This is implicitly recognized by the statement of the Sheetz spokesperson quoted above.  No doubt Walmart, Target, and the other chains have recognized the turnover problem as a threat to long term profitability and are taking the steps they think necessary to stabilize and strengthen their workforces.  And pay is certainly a prime consideration for most employees.

 

And those concerns at these companies are well justified by recent labor market data.  Retail job openings, after falling dramatically by more than 30 percent between 2006 and 2010, have climbed sharply in the last three years and are now above levels reached before the late 2008 to early 2010 recession.  At the same time the “quit” rate of retail employees has also rebounded to near pre-recession levels after a 40 percent decline between 2006 and 2009.

 

The hefty rise in job openings and employee quit rates have no doubt been an impetus to the faster hourly earnings gains in overall retail, in the restaurant sector, and in general merchandise stores. In short, an increase in job openings reflects stronger demand and, in the face of a dwindling surplus of suitable workers, puts inevitable pressure on employers to offer more compensation, either in wages or benefits to attract and retain employees.  Failure to respond to the changing supply-demand situation could mean a more rapid loss of good workers than the affected companies can sustain and still maintain production levels and quality, especially as the need to increase output is strengthening.

 

In retail, hourly earnings climbed 5.7 percent from 2013 to 2015 after a more tepid gain of just 3.7 percent from 2011 to 2013 and the same in 2009 to 2011. Restaurant employees enjoyed an even larger 6.7 percent boost in earnings from 2013 to 2015 after a weaker 3.9 percent gain over the two years 2011 to 2013. And, general merchandise store workers did even better with earnings up 7.3 percent from 2013 to 2015 following a slight dip in the previous two years.  Given the share of the general merchandise market held by Walmart and Target, their decision to raise wages significantly no doubt played an important role in the recent sector wide jump in employee earnings.

 

The big questions at this point are whether the small non-chain companies will be able to match the compensation increases being offered by the big chains and what the localized economic effects will be.  Another key issue will be the extent of a labor supply response from people who have dropped out of the labor force or who have maintained little connection to the work force because of a paucity of good opportunities.  Indeed, the decrease in labor force participation following the great economic downturn of 2008 to 2010, along with negative effects of regulatory requirements on hiring of full time workers, combined to greatly impede labor supply growth. A sustained rise in compensation will likely induce some of these folks to return to the labor force, look for jobs and begin to limit the need for further hikes to attract workers.

 

Nonetheless, for the time being, the increase in compensation is good for workers and reflects stronger demand for products and services—a very desirable situation.  One thing is sure, notwithstanding the incessant calls and demands by some for minimum wage increases; there is no need for minimum wage hikes.  As economists have pointed out for years, not only are minimum wages not necessary, they are harmful interferences with competitive market forces and inevitably lead to less than optimal outcomes for the economy. They should be avoided.

The Minimum Wage Sideshow

Much like the magician whose stock in trade is misdirection so the audience does not see what he is really up to, the current political push for higher minimum wages is largely aimed at taking the public’s attention away from the abysmal failure of the economic policies currently in place.

 

In April, the unemployment rate for 16 to 19 year olds was 19 percent; the unemployment rate for 20 to 24 year olds was 12.8 percent. Certainly these figures are bad for these young people.   But that is not the whole story. The great untold story of the last several years has been the precipitous decline in labor force participation for these age groups.

 

If the participation rates of a decade ago were still in place, the 16 to 19 year old age group would have two million more labor force participants than it does now and, assuming the same number would be working as are employed today, the unemployment rate for teenagers would be 40 percent instead of 19. And using the same calculation for the 20 to 24 year olds, i.e., using the decade earlier participation rate, their unemployment rate would be 19 percent instead of 12.8 percent. And while data are not available to perform these types of calculations for the state or regional employment and labor force, it is very likely that similar dynamic changes have been occurring in the Pittsburgh metro area, although perhaps not as dramatically as the nation as whole.

 

There can be many reasons for the declining participation rate of young people over the last six years, but the most likely has been the discouragement in finding work. After all, the total number of people working in the U.S. has yet to return to the pre-recession level reached in 2008. Moreover, private sector payroll jobs did not reach the 2008 level until March of 2014. Indeed, in 2010, the job count was lower than the count from six years earlier, the first time since WWII that has happened. And what’s worse, employment remained below the six year prior reading in 2011, 2012 and 2013. In a country with a growing population of working age people that is a disaster for those seeking work.

 

This analysis does not address the large mismatch between skills needed for jobs and those possessed by many unsuccessful jobs seekers, nor does it address the difficulty employers have in finding suitable employees where the jobs require employees to be free of substances that can hamper the ability of an employee to function in a safe or careful manner.  Nor does it try to assess the impact of extended unemployment benefits, easier access to food stamps and other welfare benefits on the willingness or need to work. Is it merely a coincidence that private employment has picked up in the first quarter of this year following the end of the extended unemployment benefits program in December of 2013, or that over a million more people reported themselves as being employed in April compared to the December 2013 figure?

 

And while these considerations are almost certainly factors affecting labor force dropouts, there are others that are clearly just as, or even more important; namely, policies that inhibit economic growth. But rather than having policies put in place that would actually encourage entrepreneurism, business startups and market driven output and employment gains, the country has been subjected to an unprecedented enlargement of regulations affecting businesses including the Affordable Care Act, the EPA and the National Labor Relations Board, among the panoply of alphabet agencies.

 

Meanwhile, the Brookings Institution just reported that in the last few years the number of firms going out of business have moved above the number of new entrants.  There can be little doubt that the decades’ long increases in regulations and the costs they impose reached a crescendo in the last few years.  How else to explain the stubborn persistence of economic weakness that is beyond anything experienced since the Great Depression? Not even the stagnation of the 1970s or the painful early 1980s that resulted from draconian efforts to stop the galloping inflation of the late 1970s comes close to the last six years of economic sluggishness. Thus, despite (or perhaps because of) the most prolonged period of extreme monetary stimulus along with massive deficit spending, the economy has simply been unable to gather enough steam to get close to eliminating the gap between GDP and its decades long term trend level.

 

But instead of introducing policies that would boost employment growth and productivity gains that lead to higher worker incomes, we see ever more intense efforts to redistribute incomes. And that is precisely what the minimum wage hike argument is about. Forcing companies to pay wages above the value produced by the workers is, in effect, a tax that must be absorbed as lost income for the firm or passed on in higher prices. If prices cannot be raised and the firm’s profitably falls, the owner can make any number of adjustments including cutting hours and trying to get more work out of those employees who remain or reduce non-wage compensation.  And if that isn’t enough, the business might have to close its doors. And what does the business tell workers who now make a few dollars more than the current minimum wage when the proposed minimum of $10 per hour, if enacted,  makes them minimum wage earners?

 

Raising the mandatory wage rate at a time of such extraordinary labor market weakness, especially for the young and inexperienced who account for a large share of the minimum wage earners, is the worst possible policy idea currently on the table—and there are many bad ones.

 

And consider how ironic it is that the desire to improve the middle class’s income by mandating higher minimum wages would take money away from many middle class business owners who may well be struggling financially themselves.

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.

Business Owners for a Higher Minimum Wage? Say It Isn’t So

In a July 23rd  press release, a group calling itself “Business for a Fair Minimum Wage” calls for a three step increase in the Federal minimum wage from the current $7.25 per hour to $9.80 per hour by 2014 and then to index the rate to inflation beyond 2014.  Before laying out the case against a minimum wage and specifically a Federal minimum wage, it is instructive to look at the businesses who are ” signatories” to the call for “fair” (which means ever higher) minimum wages.

Continue reading