State’s lackluster job performance needs help, not hindrances

Summary: As the pandemic loosens its grip and lockdowns begin to ease in Pennsylvania, the economy appears to be strengthening.  However, job growth remains a concern despite a small pickup in employment from February to March. Indeed, the latest statewide employment report for March shows there is still a long way to go and that it is incumbent upon commonwealth lawmakers not to throw more growth-stifling regulations at beleaguered business owners that will stymie a return to solid gains.

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Employment levels

According to the U.S. Department of Labor data for establishment payrolls, there were 5.625 million nonfarm jobs across Pennsylvania in March 2021, the lowest March reading since 2010 and 375,000 (6.3 percent) fewer than the 6.0 million posted 12 months earlier. Keep in mind that March 2020 was the start of the lockdowns that caused many businesses to either close or severely restrict operations and production in many industries.  Thus, the posted March 2020 tally is not the most useful measure to evaluate the current year jobs count.

Note that both January and February of 2020 showed moderate job gains compared to year-earlier totals (0.80 percent and 0.78 percent respectively).  It is very likely that, absent the pandemic and lockdowns, March 2020 job gains would have continued that trend and nonfarm employment would have reached 6.057 million.   That would have been the largest March jobs total ever recorded and would have represented a decade gain of 516,000 jobs.

Using this no-pandemic estimate for March 2020 puts the year-over-year decline in March 2021 at 432,000 or 7.1 percent, which is a better measurement of the pandemic effect.  Looking at a longer-term comparison, the jobs total in March 2021 was only 84,000 ahead of the March 2010 level compared to a 468,000 rise between March 2010 and March 2019. Thus, the state had 384,000 fewer jobs last month than it had two years earlier.

Overall, jobs can be divided into two super sectors—goods-producing and service-providing.  There are three goods-producing sectors, mining and logging, construction and manufacturing. They account for about 14 percent of the total nonfarm jobs in Pennsylvania.  From 2016 to 2019 there was monthly year-over-year growth in the goods producing super sector for nearly every month (except January 2017) until September 2019 after which the monthly year-over-year job numbers began to decline and continue to do so. 

In March 2021 there were 797,200 goods-producing jobs, a decline of 5.1 percent from the previous March (839,700).  But when compared to the last pandemic-free March (2019), the drop was greater at 6.0 percent (848,300).  The March 2021 reading is the lowest number since the great recession year of 2010. 

Within the goods-producing super sector all three sectors had year-over-year losses in March 2021, the mining and logging sector lost the largest percentage at 16.6 percent.  When compared to March 2019 the losses are even greater at 28.5 percent. 

The service-providing super sector had 4.8 million jobs in March 2021, about 85.6 percent of jobs in the commonwealth.  The sectors in this category include trade, transportation and utilities; information; financial activities; professional and business services; education and health services; leisure and hospitality; government and other services. 

While all service-providing sectors experienced job losses on a year-over-year basis, the hardest hit continues to be the leisure and hospitality sector.  For March 2021 there were 420,800 leisure and hospitality jobs across the commonwealth—a drop of 21.5 percent over last March.  But compared to the pre-pandemic March 2019 count of 554,700, which was the highest job total for any March this century, the job count in March 2021 was 24 percent lower. The March 2021 figure is the lowest March amount since at least 2000 when there were just 442,400 jobs.  This sector had been steadily growing for at least two decades until the lockdowns were ordered at the start of the pandemic.  This sector is still under capacity restrictions, more than a year later. 

Given that the number of total nonfarm jobs in Pennsylvania has declined every month (on a year-over-year basis) for 13 straight months, how long will it be before the jobs count climbs to levels reached in the pre-pandemic months? Obviously, as the number of vaccinations continues to increase and consumer demand rises, because of enormous federal stimulus checks, unemployment subsidies and propping up of state and local government spending there should be a significant pickup in job totals.  Although as has been discovered, the unemployment supplements are suppressing the return of workers to the job market. Some sectors, such as leisure and hospitality, will take longer than others to rebound fully. 

In that regard, the recent spring business climate survey from the Lincoln Institute shows that optimism for the immediate future among business executives is muted.

Business climate survey

The Lincoln Institute’s Spring 2021 Business Climate Survey recorded the responses of 199 owners/executives/managers of businesses from across the commonwealth to various questions about the state of Pennsylvania’s economy.  The responses reflect the employment data—sluggish growth that is unlikely to rebound quickly as businesses across the state try to recover from the pandemic lockdowns. 

The most general question asked was if they thought “Pennsylvania’s economy is on the right track or wrong track?”  While 31 percent of the respondents replied that the state is on the right track, the majority (61 percent) indicated that the economy is on the wrong track (8 percent offered no opinion).  

Another question asked if their business has recovered from the pandemic lockdowns. Of those responding to the survey, 47 percent indicated they had partially recovered while 21 percent claim to not have recovered at all.  Only 10 percent said they had fully recovered.   

Regarding future employment levels at their company, 58 percent of respondents say employee counts are expected to remain the same six months in the future while 25 percent plan to increase those levels.  About 9 percent foresee reducing employment levels.  

The next question asked about the optimism of these decision makers over the next six months.  Optimism is muted with just 35 percent of respondents believing that business conditions will be better than this spring while 43 percent indicated it will remain the same.  Seventeen percent think business conditions will be worse. 

There were some concerns regarding some of the governor’s plans that include; raising the personal income tax, joining the Regional Greenhouse Gas Initiative (RGGI) and raising the minimum wage to $15 per hour.  On each of these three gubernatorial initiatives, high percentages of respondents expressed somewhat or strong opposition—78 percent for the increase to the personal income tax, 67 percent for the RGGI and 70 percent for the increase to the minimum wage. 

There was a follow-up question regarding the minimum wage.  The respondents were asked if they had taken steps to reduce reliance on minimum-wage employees.  Of the 196 respondents to this question, 105 noted that they didn’t have minimum-wage workers.  Of the remaining 91 survey takers, 49, or 53.8 percent, indicated that they had taken steps to reduce reliance on minimum-wage workers.

That’s an important point.  Low-skilled and entry level workers rely on that first step of the career ladder to gain the skills and experience necessary to be successful and move up in the workforce.  Proponents of increasing the minimum wage don’t see the unexpected consequences of a forced hike—such as businesses substituting away from minimum-wage labor most likely with technological advances such as self-serve kiosks or even a reduction in hours worked. 

An increase in the personal income tax could have two consequences.  First, it would reduce the disposable income of customers and, secondly, these business executives would also pay the increase, thus reducing their own disposable income.  Joining the RGGI and increasing the minimum wage will increase the cost of doing business and increase costs at a time when most businesses are still struggling with the pandemic and the continued business restrictions. 

Earnings growth in Pennsylvania

The U.S. Bureau of Labor Statistics provides data on average hourly earnings for total private employees, employees in both the goods-producing and private service-providing super sectors as well as a few other sub-sectors beginning in 2007. 

Statewide, the annual average hourly wage for total private employees in 2010 was $21.21.  By 2020 that had risen by 28.7 percent to $27.30.  For employees in the goods-producing super sector that wage was $22.90 in 2010 and rose by 26.7 percent to reach $29.02 in 2020.  For employees in the private service-providing sectors, the wage was a somewhat lower ($20.81) but increased at a faster rate (29.3 percent) to reach $26.90 in 2020. 

Minimum-wage earners are most likely to be found in the private service-providing sectors such as retail and in the leisure and hospitality sectors.  For the trade, transportation and utilities sector, which includes the sub-sector retail, the average annual hourly wage came in at $18.89 in 2010 and climbed to $24.14 in 2020—an increase of nearly 28 percent over the decade.  For the leisure and hospitality sector, which includes hotels, restaurants and those that work at entertainment venues, the average annual wage was $12.41 in 2010 and rose 25 percent to $15.53 in 2020. 

And, of course, a statewide mandate ignores the different cost of living in each metro area.  Furthermore, rates will differ by county and municipality in the metro area as well.  For example, in Philadelphia (Pennsylvania metro division) where the cost of living is highest in the state, the 2020 average annual hourly wage for total private jobs is $30.79.  But in Pittsburgh it’s a bit lower at $27.01.  In the northwest corner of the state, the Erie metro’s rate is $21.68 while the Altoona metro area has an average annual hourly rate of $20.34. 

Wage mandates that require higher-than-market rates interfere in the labor market by artificially increasing the cost of labor to business and thereby lowering the demand for labor unless costs can be fully passed on to the customers. Indeed, minimum-wage supporters argue business will pass the cost onto the consumer in the form of higher prices or take smaller profits.  But what if the business is constrained by competition?  They may seek to substitute capital (machines and technology) for low-skilled labor or begin to reduce the hours, thereby making low-skilled labor possibly worse off.

And in a workplace with a several wage tiers based on experience and job responsibilities and which have some workers at or near the current minimum, raising the minimum wage will create enormous pressure to raise the wages of other employees in order to maintain an appropriate differential for skill and responsibility. Businesses offering non-wage benefits could be forced to cut them back.

Entry level, low skill jobs are not family supporting jobs. Trying artificially to make them family supporting is never going to work as long as there is any freedom left in the competitive marketplace.  Businesses will not thrive and eventually tax bases get eroded.

Pennsylvania’s job losses in 2020

Summary: The coronavirus pandemic hammered Pennsylvania’s economy in 2020.  With recently released state employer payroll data for December, the extent of the damage can clearly be seen.  Thousands of Pennsylvanians lost jobs in nearly every sector, pushing employment to decade-ago levels.

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Total non-farm jobs

For quite some time Institute Policy Briefs have documented the sub-par growth in Pennsylvania’s non-farm jobs. For example, during the previous couple of years (2018 and 2019) the strongest monthly gain from the year-earlier reading occurred in January 2019, when non-farm jobs were 1.30 percent above January 2018.  March 2018 posted a similar gain (1.29 percent) over March 2017.  The changes in jobs as measured from the same month a year earlier during the two years ranged from a high of 1.30 percent to a low of 0.58 percent (December 2019). 

By comparison, the national monthly year-over-year increases during these two years ranged from a high of 1.70 percent (January 2019) to a low of 1.21 percent (June 2019).  Pennsylvania’s job gains from 12 months earlier lagged national performance every month from January 2018 to December 2019.  National growth ran ahead of Pennsylvania because of much stronger gains in several states such as Texas with an average monthly growth rate of over 2.25 percent during those two years.  Other states exceeding the national growth rate include Florida, Georgia and North Carolina.   

In 2020, the relatively sluggish monthly year-over-year gains in Pennsylvania continued in the two months prior to the massive coronavirus impact with January posting a rise of 0.71 percent and February at 1.02 percent. Note that national gains were far stronger at 1.54 percent in January and 1.61 percent in February.  After massive job losses in April and May, there was some recovery as the lockdown eased somewhat. Nonetheless, for 2020 as a whole, the average monthly non-farm jobs count in the state was 5.617 million, a huge decline of 7.36 percent from 2019’s average of 6.064 million and the lowest count since 2009 when the monthly average was 5.616 million. 

Nationally, the slide, while quite large, was not as dramatic.  The average monthly number of jobs nationwide in 2020 was 142.22 million, down 5.75 percent from 2019 (150.94 million) and the lowest annual number since 2015 (141.83 million). 

Total private jobs, which exclude public-sector jobs, recorded a bigger drop than non-farm jobs.  The monthly average number of private jobs in Pennsylvania in 2020 came in at 4.93 million—8.0 percent lower than 2019’s average monthly count of 5.36 million.  The 2020 count was the lowest since the 4.85 million jobs in the Great Recession year of 2010.

Goods-producing

Goods-producing sectors include mining and logging, construction and manufacturing. Typical of most sectors, the goods-producing sectors posted slight employment gains in January (0.30 percent) and February (0.73 percent) before the steep decline began in March (-0.72 percent).  April had the largest year-over-year decline (-21.47 percent), which lessened as the year progressed.  The average monthly goods-producing jobs in 2020 was 810,600, 6.30 percent lower than in 2019 (865,100).   

The mining and logging sector took the hardest hit in percentage terms with double-digit year-over-year losses each month from April through December ranging from -18.92 percent (June) to -13.07 percent (September).  However, this sector had been shedding jobs on a monthly, year-over-year basis going back to August 2019. 

The job losses in this sector could continue or possibly worsen if the governor follows through on the threat to impose an additional extraction tax on the natural gas industry or forces Pennsylvania into the Regional Greenhouse Gas Initiative. 

Service-providing industries

Service-providing industries suffered even greater losses than the goods sector during the   lockdown.  However, the public-service sector (government) employment declines were far smaller than private-service sector losses.

Government

Note that the government sector, including federal, state and local levels, added jobs on a year-over-year basis, in the first quarter of 2020—January (0.66 percent), February (0.68 percent) and March (0.36 percent).  The job losses began in April but were not very severe compared to the private sector.  The annual monthly average of government employment in 2020 was just 2.25 percent lower than in 2019, reflecting an increase in federal jobs of 3.3 percent.

For the commonwealth, state level losses were minimal in 2020.  After adding jobs over the first four months, the losses followed each month for the remainder of the year.  Overall, the average monthly number of state jobs dropped only 2.28 percent from the monthly average in 2019. 

Losses at the local level were more severe.  After adding jobs during the first two months, the losses set in.  They began in March (-0.17 percent) and lasted for each remaining month of 2020.  Local government jobs in 2020 were 6.11 percent lower than in 2019.  Much of the decline occurred in public k-12 education which accounted for over 70 percent of the total loss of local government jobs by year’s end. While public schools did not lay off any teachers as they moved to remote learning, it is more likely that support staff were laid off as buildings were closed. 

Without a doubt leisure and hospitality employment suffered the biggest losses in 2020. After being one of the most reliable job growing sectors, the lockdown specifically targeted this sector and the resulting job losses were horrendous.  In April 2020, the employment level in this sector dropped by 59 percent.  May’s year-over-year loss was 50.50 percent.  While the losses improved slightly as the lockdown was lifted, they remained the largest of any sector.  In the second lockdown, which was aimed predominantly at bars and restaurants during the normally busy holiday season, losses reached nearly 30 percent in December compared to December 2019.   

Every major component of the leisure and hospitality industry (eating places, hotels, recreational facilities, etc.) recorded lower job counts in December 2020 than in December 2019. 

Education and health services has historically also been a strong job growth sector and added jobs from January 2018 through December 2019. Relatively strong gains continued into January and February 2020.  However, losses began in March as the gubernatorial lockdown was put in place. Still, the loss of jobs from 2019 to 2020 was less than 5 percent. 

It is interesting to note that the health care sector was not immune to job losses as the Covid-19 crisis took hold. Hospital employment was a relatively weak performer posting monthly year-over-year growth under 1 percent from March 2018 until the pandemic began in March 2020. It started shedding jobs in April and through the end of the year recorded an annual loss of 2.63 percent from 2019. 

Educational services, which are comprised of colleges, universities, private k-12 and training centers, also suffered a large drop in the monthly year-over-year employment count once the pandemic began.  For the year, which includes the growth months of January and February, the 2020 average monthly number of jobs fell 9.75 percent below the average monthly reading in 2019.

Another sector sharing the same fate is the trade, transportation and utilities sector which had a fall in the average monthly level of employment of 6.55 percent from 2019 to 2020.  In this sector, retail was hit particularly hard.  For the year, the average monthly jobs in the retail sector came in 8.5 percent lower in 2020 than in 2019.  This large decline occurred even though grocery stores and general-purpose stores were permitted to operate during the lockdowns. 

What to do?

What does Pennsylvania need to do going forward to begin repairing the damage?  The one thing that should not be done is to raise the minimum wage at a time when many businesses are foundering and in danger of closing.  But that’s exactly what the governor has proposed in his budget for fiscal 2022.  The proposed personal income tax hike is also a very bad idea.

The leisure and hospitality industry, along with retail, provides many new labor force entrants   their first job and would be hardest hit by a higher minimum wage. A higher wage floor would increase the cost of doing business at a time when revenues are still well below normal as restaurants in the commonwealth are still restricted to 50 percent capacity and many arts and recreational facilities are still closed or are limiting patrons to comply with social distancing requirements. 

Raising the minimum wage is a tone-deaf measure that will only exacerbate the job losses for this and other sectors that offer low-skilled labor the all-important entry into the workplace.

The best way to reverse these job losses would be to help these industries, not place more impediments in their way.  As more vaccinations are carried out customer occupancy levels should be increased.  As we have been advocating for many years, the state must facilitate a business climate that is conducive to growth, such as by reducing regulations and lowering tax levels on these companies, which will encourage them to grow and prosper.

PA’s employment situation improved in June but has far to go

Summary: On July 17, the state Department of Labor and Industry released the June report on the state’s labor market conditions.  Overall, the June results show that significant progress was made since April’s unprecedented collapse of the economy.

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Household employment and unemployment

The household survey data that measure the size of the labor force, the number of people working and the unemployment rate found that both seasonally-adjusted labor force and number of people working had fallen from the May readings. However, the drop in labor force was larger by 50,000 than the slide in people working causing the unemployment rate to fall slightly from 13.4 to 13 percent. The state’s decline in both labor force and number of people working was very different from the national report for June that saw the unemployment rate drop from 13.4 to 11.1 percent with the number of people working climbing 4.9 million and labor force climbing 1.7 million.

Although June’s 13 percent unemployment rate was down from the horrendous 16.1 percent posting in April, the latest Pennsylvania rate still exceeds any seasonally-adjusted unemployment rate experienced in several decades including the 12.7 percent rate of January 1983 when the national economy was in a deep recession and far surpasses the 8.8 percent high set in March 2010 during the severe 2009-2010 recession. 

Payroll Employment

Meanwhile, in the June report for Pennsylvania, the survey of employers found a fairly sizable 231,000 seasonally-adjusted increase in employees from May to June that contrasts sharply with the decline in number of people working as reported in the household survey. The rise in payroll jobs was accounted for entirely by the private sector where employment was devastated by the virus related mandates and declines in demand in many sectors that shoved jobs down by a million in April compared to the April 2019 figure.

Note that comparisons to the year-ago month provides an indication from month-to-month in the recovery of how far employment has to go to get back to pre-virus levels.

Bear in mind too, that the loss in jobs in April’s report reflects the sharp downturn that began and accelerated in the second half of March as the lockdown was put in place. Much of the March survey of employers had already occurred so the devastated labor market was not revealed in official numbers until the April survey was completed. However, the gigantic and unprecedented increase in unemployment claims in late March pointed to the awful job counts that would be shown in the April employment report.

In May and June, private payroll employment increased a combined 440,000, reducing June’s year-over-year loss compared to April’s massive decline, although it remained a staggering 595,000 below the reading posted for June 2019. Meanwhile, all-government employment (federal, state and local) in June 2020 was down 25,500 compared to a year earlier with local government and school districts accounting for almost 90 percent of the all-government decline. Federal jobs were up slightly.

In short, the state’s private-sector jobs in April fell almost 20 percent below the 12-month earlier level; in May the reading was 15.6 percent below the previous May and in June it was still down 11 percent compared to June last year.  It is important to keep in mind that over the previous three years (2017-2019), annual private employment growth measured by month-over-year-ago-month averaged 59,000 despite slowing to 50,500 in 2019.  Conservatively, the expected monthly year-over-year gains in the April, May and June period, absent the coronavirus, would have averaged around 40,000 jobs or about 3,500 net new additional jobs each month. Thus, not only did the virus lockdown and shrinkage of demand wipe out hundreds of thousands of existing jobs it also prevented the private sector employment gains that could have occurred in a moderately expanding economy.

Employment by Sector

Private employment is divided into goods-producing and service-producing. In 2019, service-producing employment accounted for 83 percent of private-sector jobs.

April employment sustained the biggest loss compared to the 12-month earlier reading since the virus hit. Goods-producing jobs fell an enormous 21.4 percent from 865,000 to 679,000 (-186,000) while service-producing employment plunged 19.2 percent from 4.49 million to 3.63 million (-0.86 million). After posting solid rebounding gains in May and June, goods-producing jobs remained 56,000 (6.4 percent) lower than June 2019 while service-producing jobs were still down 535,000 (11.8 percent).

It is important to note that the April and May 2020 losses in private employment compared to 12-month earlier readings dwarf the largest such declines in modern history.  Prior to 2020, the biggest month-over-the-same-month a year earlier decline going back in recent decades occurred in August of 2009 in the deep recession of 2009-2010 when private employment fell 235,000 (12.2 percent) below the level of August 2008, which is far short of the April 2020 percent decline. And bear in mind that the August 2009 level was the combined result of falling employment over several months preceding.

Goods Employment  

Inthegoods-producing sector, the huge 21.4 percent decline in April was created by a 104,000 (40 percent) decline in construction jobs from the April 2019 posting. Manufacturing in April saw a drop year-over-year of 76,700 jobs (13.3 percent). Mining lost 4,400 jobs (17 percent) from the previous April reading. Thanks to sizable job gains in both manufacturing and construction in May and June, the huge goods sector losses in April were trimmed significantly.  Combined construction gains of 88,000 in the two months along with an added 45,000 manufacturing increase and a small loss in mining lowered the goods sector 12-month loss to 56,000 (6.4 percent).

Despite the sizable rebound in May and June, the employment level in the goods-producing sectors remains in a recession level zone.

Service Employment by Category

As noted above, private-services employment was hammered in April losing 859,000 jobs (19.2 percent) compared to April 2019. And despite regaining about 300,000 jobs in May and June, the sector was still down 535,000 jobs from the previous June (11.8 percent). For comparison, the biggest year-to-year loss in the recession of 2009-2010 occurred in August 2009 when services employment fell 116,700 (2.8 percent) from the August 2008 count. In short, the recent services employment decline is unprecedented in the available, official data going back to 1939.

To be sure, there are enormous differences in losses both in counts and percentages among the large number of service groups and subgroups. 

Among the broad groupings, the leisure and hospitality sector has suffered the biggest decline in jobs, in number and percentage. In April, the group’s employment plummeted by 338,000 (59 percent) from the April 2019 level. Gains in jobs in May and June reduced the percentage loss to 37 percent from June 2019 with losses still well over 200,000, still a depression level shortfall.

Within the leisure and hospitality group, every major category (arts, recreation and entertainment, accommodations and food services) was brutally slammed with unparalleled job losses in April and remains very depressed despite the return of some jobs in most subgroups. 

Retail sales employment fell by 127,000 jobs (21 percent) in April from the year before reading of just over 600,000.  By June the sector had added back over 50,000 jobs but still remained 74,000 (12 percent) below the previous June. Furniture, clothing, sporting goods and auto dealers took large percentage loss hits in April while grocery stores, general merchandise and building materials also fared much better than retail as a whole.

Professional and business services employment suffered a loss of 81,000 jobs (10 percent) in April from the 815,000 level a year earlier. A combined gain of 24,000 in May and June has lowered the year-over-year shortfall to 7 percent. Almost every category in this broad sector lost some jobs on the order of 10 percent or less including architecture, engineering, computer systems and management of companies. However, the administrative support and waste management group was hit hard, accounting for 60 percent of the losses in the professional and business services sector.

Education and health services employment is the largest in the service sector group averaging nearly 1.3 million employees per month in 2019. In April 2020, employment fell 161,000 (12.3 percent) below the previous April level. By June, the return of jobs in most subgroupings reduced the year-over-year shortfall to 76,000 (6.0 percent). April’s loss in this large sector was led by sharp declines in ambulatory health care, childcare and social assistance.  Physicians’ offices and colleges saw 10 percent drops in April. Fortunately, most of these groups had job gains through May and June, but none had recovered to their June 2019 readings.

Financial services did not lose many jobs compared to a year-over-year basis (less than one percent) in the April to June period although the year-over-year gains of the January through March period did not continue. 

The information sector, in a departure from the rest of the economic groupings, saw job losses increase between April and June. In June, losses stood 14,300 (16 percent) below the previous June following April’s 8,700 (10 percent) decline from a year earlier.    

Finally, a look at “other services”. This sector is comprised of three subgroupings; repair and maintenance, personal services and religious, civic, grant making and professional organizations. In April other services suffered a loss of 85,500 jobs (33 percent of its April 2019 count). The year-over-year loss was reduced to 54,900 (21 percent below a year earlier) in June by a two-month gain in excess of 30,000 jobs.

Conclusion Overall, the June employment situation showed that significant strides toward improvement have been made since the unprecedented collapse of jobs in April. But, the situation in many sectors is still in deep recession and some in serious depression levels. Notwithstanding a significant upturn in jobs since April’s calamitous drop, employment in full-service restaurants, hotels and the arts, recreation and entertainment groups along with personal services remain mired at depression levels, and further improvement will be difficult with all the restrictions in place.

10-year jobs changes in Pennsylvania and the Philadelphia and Pittsburgh regions

Summary: Many Institute Policy Briefs over the years have analyzed the employment situation in Pittsburgh and Pennsylvania.  This Brief expands coverage to examine the state and its two largest metro areas including Philadelphia.  Because the five-county Southeastern Pennsylvania area accounts for about a third of Pennsylvania’s private-sector jobs, changes in that region will bear heavily in the state’s overall performance. This analysis evaluates the region’s role over the last 10 years in comparison to the state and the Pittsburgh seven-county metro area. A final comparison with the national performance is also provided.

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The jobs data used for comparison purposes are the Bureau of Labor Statistics (BLS) establishment payroll employment estimates rather than the household survey count that measures the number of persons reporting themselves as working. Performance is measured by the 2008 to 2018 changes in four categories—total private jobs, private services, goods-producing and manufacturing.

Data are readily available for the Pittsburgh metro area and Pennsylvania. However, Philadelphia’s combined five-county data are not provided by the BLS.  Philadelphia-area figures are reported for the three-county Pennsylvania metropolitan division made up of Chester, Bucks and Montgomery counties and for the two-county Pennsylvania metropolitan division comprised of Philadelphia and Delaware counties.  Philadelphia County and Philadelphia City are identical geographically.

The five-county area data are derived by adding the two-county and three-county divisional data together.  This procedure might produce different numbers compared to a process that sampled the five counties as a whole but the differences should be too small to affect the important findings regarding trends in the five-county region. For completeness this analysis looks at the two divisions separately as well.

All jobs figures are presented as annual averages of monthly data.

Total private employment

In the three-county division (Montgomery, Chester, Bucks) private employment rose from 947,000 in 2008 to 992,600 in 2018, a gain of 45,600 or 4.8 percent and a 0.47 percent annual average over the period.  Note that employment fell to 902,000 in 2009 and did not recover fully to the 2008 level until 2015.

In the two-county division (Philadelphia and Delaware) private jobs climbed from 753,500 in 2008 to 834,200 in 2018, a rise of 80,700 and a 10.7 percent increase or a 1.02 percent annual average over the ten years. Private employment fell to 735,000 in 2009 but had fully recovered to the 2008 level by 2012.

Combined the five-county region saw private employment move upward from 1,700,500 to 1,826,800, a gain of 126,300 or 7.4 percent, with 64 percent of the growth accounted for by Philadelphia and Delaware counties.  These two counties fared better during the recession and grew faster after the recovery began.

Meanwhile, during the 10-year period, Pennsylvania’s private-sector jobs rose by 285,000 or 5.7 percent. And during the period the Pittsburgh metro area’s private sector job count moved up by 50,000 or 4.9 percent. Thus, the five Southeastern counties posted stronger than state growth thanks to the 10.7 percent rise in the Philadelphia and Delaware county division. Indeed, the two counties had a jobs increase of 30,000 more than the seven-county Pittsburgh region.  On the other hand the Pittsburgh region kept pace with the Montgomery, Bucks and Chester division.

Private-service jobs

In the three-county Pennsylvania metropolitan division private services added 62,800 employees over the 10 years rising from 787,100 to 849,900, a boost of 8 percent. In the two-county group the service employee count climbed by 89,500 above its 2008 level of 686,000 to reach 775,500, a 13 percent gain for a 1.2 percent annual average growth. Combined, the five counties saw service employment rise from 1,473,100 to 1,625,400, a pickup of 152,300 or 10.3 percent.

Over the same 10 years, Pennsylvania private service employees climbed 355,600 or 8.6 percent, well short of the 10.3 percent gain in the five Southeastern counties. In the Pittsburgh metro area, private service jobs were up 52,800 from 2008 to 2018, a 6.1 percent rise that was slower than the state and well below the five Southeastern county growth pace.

Goods-producing employment

Over the 2008 to 2018 period, goods-producing jobs did not fare well in the Southeastern, Pittsburgh area or in the state. In the three-county group, goods employment slid from 159,900 to 142,700, a drop of 17,200 or 10.8 percent.  For the two-county division, goods jobs were down from 67,500 in 2008 to 58,700 in 2018, a decline of 8,800 or 13 percent. Combined, the five Southeastern counties lost 26,000 goods-producing jobs and were down by 11.4 percent of the 2008 total.

During the 2008 to 2018 period Pennsylvania’s goods-producing jobs tumbled by 70,500, a 7.7 percent drop from the 2008 level. Pennsylvania’s goods-producing jobs decline was smaller in percentage terms than in the Philadelphia region. Pittsburgh-area goods jobs fared better than the state and much better than the Southeastern counties, declining by only 2,800 or 1.7 percent.

Manufacturing jobs     

Over the 10 years, the three-county Pennsylvania metropolitan division’s manufacturing jobs fell from 104,600 to 90,200, a decline of 14,400 or 13.8 percent. The two-county division saw factory employment plunge from 44,200 to 34,100 or 22.8 percent. Combined, the five Southeastern counties lost 24,300 factory jobs, 16.4 percent of the 2008 total.  Note that in the two-county division factory jobs represented only 5.8 percent of total private employment in 2008 and an even smaller 4.1 percent in 2018. For the five Southeastern counties, manufacturing accounted for 8.7 percent of jobs in 2008 and only 6.8 percent in 2018.

Meanwhile, manufacturing employment in Pennsylvania fell by a net 77,800 jobs or 12.1 percent over the 2008 to 2018 period to stand at 565,900 and account for 10.6 percent of the state’s total private employment. This represents a significant drop from the 12.8 percent figure in 2008. Factory jobs in the Pittsburgh region fell a net 11,600 or 11.8 percent to stand at 86,800. In 2008, manufacturing employment made up 9.6 percent of private jobs but accounted for only 8.1 percent in 2018.

The loss of high productivity manufacturing jobs and their replacement by lower paying service-producing sectors jobs in Pennsylvania is not a recipe for sustaining strong gains in real gross state product. Two of the biggest job gains over the ten years were registered by education and health (190,000 jobs) and leisure and hospitality (90,000 jobs). These sectors had statewide average weekly incomes in 2018 of $812 and $386 respectively. During 2018 manufacturing jobs paid $1071 per week. Almost any job growth is better than no growth but some jobs have much greater economic impact than others.

It is important to note also that mining jobs related to shale drilling pushed up mining jobs in Pennsylvania sharply by over 15,300 from 21,700 in 2009 to 37,000 in 2014. Much of that big jobs gain was lost through 2016. And despite a rebound in mining employment since 2016, jobs remain well below the 2014 level.

Comparison to U.S. employment

In comparison, U.S. private employment was up by 10.4 percent from 2008 to 2018, almost 3 percentage points or 40 percent faster than the five-county Philadelphia area and about double the state (5.7 percent) and Pittsburgh (4.9 percent) growth rates. Meanwhile, U.S. private service employment posted a 13 percent increase over the 10 years which was significantly faster than the five Southeastern counties’ 10.3 percent.  Likewise, the U.S. service employment gain easily outpaced the statewide growth of 8.6 percent and was more than double Pittsburgh’s 6.1 percent.

U.S. manufacturing jobs were down 5.4 percent over the 10 years although significant gains in the last two years have helped hold the 10-year decline to the 5.4 percent drop after the sector started to lose jobs in the second half of 2016. The factory employment percentage decline was much smaller than Pennsylvania’s 12 percent, Pittsburgh’s 11.8 percent and dramatically lower than the five-county Philadelphia area’s 16.4 percent loss.

In short, the state and its two largest metropolitan regions have lost ground relative to the country over the 2008 to 2018 period despite weathering the recession of 2008-2010 better than the national economy largely because the housing crisis was not as bad in the state.  Philadelphia and Delaware counties performed about on par with the country in private jobs and service jobs but were hit much harder in the manufacturing sector.

Pennsylvania Jobs Growth in Perspective

Summary: By almost every measure, 2017 was a good year for the national economy as evidenced by a big rise in the stock market and a sizable gain in employment, especially in manufacturing.  In fact, across the country, private jobs increased by nearly 2 percent over the 2016 level.  But how did Pennsylvania’s economy fare, especially in comparison to other states?

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This Brief compares Pennsylvania’s jobs performance in key sectors of the economy to national gains as well as to the performance of neighboring states Ohio and Maryland and two right-to-work states—North Carolina and Texas.  All data are from the Bureau of Labor Statistics’ current employment statistics survey.

Nationally private jobs total rose 1.8 percent from 2016 to 2017.  Pennsylvania’s 1.2 percent increase was well below the national gain and slower than Texas and North Carolina (1.9 percent each).  It did however, best neighboring Ohio (0.8 percent) and Maryland (1.05 percent).

Moreover, during the five years from 2012 to 2017, the commonwealth’s private jobs growth has been quite weak compared to the nation and the other states.  Over the period, annual average private jobs in the country climbed by 10.7 percent. North Carolina posted a 12.5 percent gain while Texas’ private jobs jumped by 13.2 percent.  Maryland’s increase was 6.8 percent and Ohio’s job count was up 7.1 percent.  Pennsylvania’s rise of 5 percent trails the nation badly and is far less robust than the stronger performing states.

As has been noted in earlier Briefs, manufacturing jobs in Pennsylvania were on a downward trend for quite some time. However, in a bit of a turnaround, 2017’s monthly average manufacturing job count registered a near one-half of a percent increase over the 2016 level.  This was smaller than the national increase of 0.73 percent, but not by much.  All of the other states in this comparison group also had gains of less than one percent with Maryland leading the pack at 0.85 percent and Ohio at 0.25 percent was the slowest and the only state in this group with growth slower than Pennsylvania’s.

Over the last five years, national manufacturing jobs were up 4.3 percent thanks largely to a muted recovery from the plunge that occurred during the severe 2008-2010 recession.  Most of the growth occurred in the 2011 to 2015 rebound period. After stumbling in the second half of 2016 manufacturing employment regained significant momentum and moved up briskly in the last three quarters of 2017. Nonetheless, despite recent strong gains employment remains below its 2007 level.

Two of the states reviewed beat the five-year national gain (North Carolina, 6.2 percent and Ohio, 4.6 percent) while the others posted losses (Pennsylvania, -1.0 percent, Maryland, -4.3 percent and Texas, -2.2 percent).  Manufacturing, a goods-producing sector, is prized for its higher wages and multiplier effect it has on the economy. Pennsylvania has been struggling with manufacturing job losses going back to the collapse of the steel industry.

Meanwhile, several service sectors in Pennsylvania have fared better than manufacturing in terms of jobs. This Brief reviews the sectors of trade, transportation and utilities; education and health; professional and business services; and leisure and hospitality.

Trade, transportation and utilities employment includes wholesale trade, retail trade, transportation and warehousing along with utilities. From 2016 to 2017 the annual average jobs count in this sector nationally rose 0.9 percent.  Both Pennsylvania and Maryland registered small declines in this sector (-0.07 percent and -0.17 percent respectively).  The other states in the sample posted gains with North Carolina highest at 1.5 percent and Ohio lowest with jobs up by only 0.2 percent.

Over the five years 2012 to 2017, jobs in this sector rose 7.9 percent nationally.   Pennsylvania’s modest uptick of 2.6 percent was the lowest of the states in the five-state group. The fastest growth was recorded in Texas at 13.2 percent. North Carolina was close behind (11.2 percent) followed by Ohio (5.3 percent) and Maryland (3.6 percent).

Pennsylvania has done fairly well over the last five years in the education and health sector.  From 2012 through 2017, this sector posted a 7.8 percent rise in average annual jobs. Even with this gain however, the commonwealth failed to keep pace with the national growth of 11.6 percent.  It did slightly outpace Ohio (7.5 percent) but trailed North Carolina (9.1 percent), Texas (15.2 percent) and Maryland (10.2 percent).  Interestingly, health and education job growth from 2016 to 2017 was in a tight range of 2.2 percent to 2.7 percent for all states in the group except Ohio where the gain was a much slower 1.2 percent. The national pickup was 2.4 percent.

Much is made of the state’s strength in “eds and meds” but the reality is that over the long term it has lagged the national rate and other states that are also strong in growing this sector.

The professional and business services sector is another area in which Pennsylvania typically does well.  Over the last five years jobs in this sector climbed 9.2 percent in the state.  This was faster than neighboring Ohio (6.9 percent) and Maryland (8.1 percent) but lags well behind North Carolina (16.4 percent) and Texas (17.8 percent).  National growth over the last five years was 14.1 percent.  Thus while Pennsylvania posted respectable growth, it still lagged well behind the national increase and even further behind the faster growing states in the comparison group.

Looking at the 2017-over-2016 results, Pennsylvania grew 0.9 percent besting Maryland (0.7 percent) and Ohio (-0.4 percent).  The national gain was 2.1 percent (same for North Carolina) with Texas leading at 2.2 percent.

Leisure and hospitality concludes the sector employment comparisons. Overall, this sector has grown the fastest of all the major sectors. During the 2012 to 2017 period, national growth was 16.6 percent (an average compound growth of 3.1 percent per year). Five-year growth for the comparison group ranges from a high of 21.9 percent in Texas to a low of 8.1 percent in Pennsylvania. North Carolina’s 18.4 percent also exceeded the national gain while Ohio (11.8 percent) and Maryland (13.7 percent) trailed.

On a year-over-year basis, Ohio had the smallest rise (1.5 percent) with Pennsylvania slightly ahead of that pace (1.7 percent).  National growth in this sector was 2.5 percent with both North Carolina and Texas (2.7 percent apiece) exceeding that gain.  To be sure, this sector represents something of a mixed bag. While the increase in jobs is welcome, most are not high-paying jobs and are unlikely to have a spin-off effect on other sectors of the economy.

Pennsylvania’s comparative jobs record over the last five years leaves a lot to be desired.  The state was neither able to keep up with growth in total private jobs nationally nor in the economic sectors examined.  In the group of states reviewed, Maryland and Ohio along with typically higher growth states North Carolina and Texas, it had the lowest growth in total private jobs.  It also finished last in this group of states in job expansion for the trade, transportation and utilities and the leisure and hospitality sectors and next to last in the education and health sector.

The reasons for this relatively poor performance are not difficult to find.  As we have written in previous Policy Briefs, Pennsylvania has an overall poor business climate, high business taxes and a business stifling regulatory climate. Its fealty to unions is evident in the absence of a right-to-work law, high rates of unionization of public sector employees and allowing teachers and transit workers to strike.  If Pennsylvania wants stronger economic growth, it needs to remove the glaring constraints it places on free market economics and it needs to address its shortsighted governance practices.

State Jobs and Revenue Gains Very Weak in Recent Months

Summary:  The State’s fiscal situation is closely tied to its economic growth.  As the economy grows jobs, tax receipts from firms and individuals grow.  This Policy Brief looks at the recent dramatic slowing in job gains in the Commonwealth and the accompanying weakness in state tax revenue.

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The Pennsylvania economy has been plodding slowly along as evidenced by the weakening jobs numbers since March of this year.  Job growth is not only a measure of the economic wellbeing of the Commonwealth; it also affects the amount of tax revenue the State can expect to collect.  When job gains weaken, so will tax collections. For the first quarter of the current fiscal year (2016-17), Pennsylvania’s revenues have borne out this relationship as total general fund revenues, and many of the subcategories such as corporate net income, and personal income, are running behind the year earlier pace. And, more importantly they are coming in below the State’s official estimates for the current fiscal year.

 

Recently released labor data for September put the seasonally adjusted unemployment rate at 5.7 percent, up almost a percentage point from the March rate of 4.9 percent and a full point since January’s 4.6 percent rate. Over the same six month period, the household survey data show the number of people reporting they were working had fallen by 34,000.

 

The establishment survey payroll data show a similar pattern.  Over the last six months, nonfarm employment was essentially flat rising very slightly from March (5,894.6 thousand) to September (5,895.2 thousand).  Meanwhile, private sector jobs fell by 3,000 during that time. In contrast, in the preceding six months from September 2015 to March 2016, private employment rose by 51,000.  It is important to note that Pennsylvania’s private employment in September was only a tiny 2.8 percent higher than the pre-recession level of September 2007. It took seven years for employment to recover to pre-recession levels.

 

It is virtually axiomatic that a slowing in job gains will translate to weaker revenue growth for taxing bodies.  Indeed, in the first quarter of the State’s current fiscal year (July through September) total general fund revenues fell slightly compared to the same quarter of the previous fiscal year (-0.21 percent).  Of the three most important revenue streams (corporate net income, personal income, and sales and use taxes) only the sales and use tax amount is ahead of last year’s pace (0.19 percent).  The personal income tax, the largest of the three, is trailing last year’s collections by 2.4 percent while the corporate net income tax is down 7.6 percent.  The corporate tax is problematic because it is a tax on corporate profits and if profits are down, hiring new employees is less likely, and the firm may be in danger of having to do layoffs. Note that a sizable jump in the cigarette tax (owing to the dollar per pack tax hike) has kept the general fund revenue decline from being even greater.

 

Even more problematic for the Commonwealth is that actual revenue collections are significantly below estimated figures prepared for the budget. Through the first quarter of the current fiscal year total general fund revenues were $6.614 billion.  The State’s estimate was for collections of $6.833 billion resulting in a $219 million shortfall relative to forecast.  Corporate net income taxes are off by more than $67 million ($529.2 million actual vs. $596.9 million estimated).  The estimates were a little closer for the personal income tax with $2.731 billion actual vs. $2.786 billion estimated, and for the sales and use tax, revenue was overestimated by $72.4 million ($2.495 billion actual vs. $2.567 billion estimated).  Obviously, unless the first quarter performance is dramatically improved in the months ahead there will be a major budget problem early in 2017.

 

The cigarette tax had the largest revenue increase compared to the first quarter of the previous fiscal year owing to the $1 per pack boost from $1.60 to $2.60.  For the first quarter of the current fiscal year, the State has collected $279.7 million, up by $32 million from a year earlier. However, the collections are below the State’s estimate of $289.4 million, a shortfall of about $10 million.

 

The July to September quarter slowing compared to a year ago is not a recent problem either.  Looking at these revenues over the last six months shows a similar pattern.  Total general fund revenues for April 2016 through September 2016 are $15.28 billion. Last year during that six month span they were $15.51 billion. In our Policy Brief from early July (Volume 16, Number 29) we noted that “The slowdown has been underway for some time but has become pronounced in the last several months. Fiscal Year to date total revenue gains for each month of 2016 have fallen well short of the increases posted for January through May in 2015. For January to May 2016, the average Fiscal Year to date rise was 1.4 percent with the May cumulative fiscal year to date a meager 0.6 percent. For the same period in 2015, the average increase was 7 percent and for May of 2015 it was 7.3 percent.”

 

The caution lights are flashing.  Pennsylvania’s job growth is flagging and that is translating into weaker collections of tax revenues. This has the potential to become a sizable problem as the fiscal year progresses if the economy and jobs do not return to significantly faster growth—and soon. In light of the decade of anemic employment gains, it would seem apparent that Pennsylvania must adopt policies that promote strong economic growth and move away from its tradition of fealty to public sector unions and its regulatory environment that hamstring businesses.

Pennsylvania’s Jobs Data Reports: Caution Advised

A few weeks ago the Department of Labor and Industry released July employment data for the state. According to the report, Pennsylvania had added 66,500 non-farm jobs between July 2014 and July 2015—a fairly good showing of just over one percent growth.  On September 1st, the Department released jobs data for the state’s 18 metro areas that are made up of 35 counties, 16 micropolitan areas (16 counties) and the 16 other counties not included in the metro or micro categories.

 

Non-farm job growth over the twelve months from July 2014 to July 2015 was very robust in several metro areas including Pittsburgh (2.5 percent), Harrisburg-Carlisle (2.9 percent), Scranton-Wilkes Barre (3.6 percent), Lancaster (2.1 percent), and Reading (1.6 percent).  Most other metro areas registered twelve month gains generally in the one percent range with Johnstown, Williamsport, and Lebanon posting small declines.

 

Interestingly, the 18 metro areas posted a total twelve month increase of 92,800 non-farm jobs. That is 26,300, or 40 percent, more than the state’s reported total gain. Does that mean the other 32 counties not in the 18 metro areas suffered declines sufficient enough to make up the 26,300 higher number than the state total?  As it turns out, the answer is no.  In fact, the other 32 counties posted a twelve month combined rise of 7,700 jobs. That brings the total for all counties and metro areas to 100,500, 51 percent above the reported state total—far too large to be discounted as an anomaly. While the jobs data from the micropolitan areas and sixteen other counties are not seasonally adjusted, that should not affect the analysis since we are comparing July to July.

 

Is the state non-farm job increase too low, or is the combined labor market total too high—or is it some combination of both?  Either way the size of the gap indicates some serious issues with job counting estimates.

 

What are possible explanations for the gap?  It could be a number of things but likely it is in sampling design and collection issues and assumptions made about the arithmetical adjustments.  For instance, we know from previous recent experience that large twelve month jumps such as the ones reported for Pittsburgh and Scranton-Wilkes Barre often get revised downward to show much smaller gains.

 

Consider the growth by industry category in the metro areas posting the largest twelve month increase in non-farm jobs. The large 3.6 percent jump in jobs in Scranton-Wilkes Barre was led by an eight percent surge in Health and Education sector employment over the July 2014 to July 2015 period.  Possible, but realistically this is not an accurate measurement. Then too, Professional and Business services employment spiked by ten percent.  It could happen but there should be some plausible explanation of gains of that magnitude.  Finally, Retail employment was up seven percent during the twelve months.  It is a virtual certainty that gain will be revised downward.

 

In Pittsburgh, where non-farm jobs climbed a very robust 2.5 percent over the twelve months ending in July of this year, Leisure and Hospitality employment surged by eight percent, led by limited seating eating places which jumped ten percent. This sector has been notorious in recent years for posting out-sized gains in initial reporting that have to be revised downward. The Professional and Technical services sector reported a six percent increase.  Again possible, but we simply do not know from the available data which industry subsectors account for the gains, thus confirmation of the growth will not come until after the revisions are completed next spring.

 

Finally, it is noteworthy that the Harrisburg-Carlisle metro area, with its 2.9 percent rise in non-farm jobs, was led by a stunning 20 percent jump in Education services employment and a seven percent pickup in eating and drinking establishment jobs.  Neither of these are credible numbers and downward revisions are a virtual certainty. Gains across many sectors in the two percent or better range were also in play.

 

This excursion into the details of the job gains in these three metro areas is done to point out the volatility in small area sampling where variety in sizes of firms by industry is less than in the state as a whole. Errors are bound to work their way into the final estimates where “blow up factors” are used to go from sample levels to aggregate industry levels. And of course the data are self-reported by the employers so that small errors in their reports can lead to mistaken estimates for the industry.

 

By way of contrast, the statewide growth in the sectors showing outsized gains in these three metro areas is far more subdued. For example, Professional and Business services statewide posted a moderate 1.1 percent rise—well below the numbers posted in Scranton-Wilkes Barre and Pittsburgh; food and drinking services was up three percent but well below the Harrisburg gain of 7.8 percent.  Likewise, the state’s 1.9 percent increase in Leisure and Hospitality employment was far behind Pittsburgh’s reported rise of eight percent. Nor was the statewide growth of 1.4 percent in Health and Education jobs in the same ballpark with Scranton-Wilkes Barre’s eight percent or Harrisburg’s 20 percent.

 

These few examples illustrate an important cause of the big difference in state non-farm job growth and the metro area gains over the twelve months between July 2014 and July 2015. The temptation is to blame inaccurate estimates of local jobs. Normally, the bigger state sample will produce a more accurate picture than the smaller metro and county samples.  In that case, it is reasonable to expect major downward revisions in some metro and micropolitan employment growth when the new figures are released early next year. But that having been said, one wonders if there is not a systematic bias toward over-estimating metro area employment.

 

In any event, all this points out, once again, the need to treat the initial releases of monthly jobs data with some skepticism. Indeed, sometimes more than one year of rebenchmarking of data is necessary before the Department of Labor settles on what it believes to be accurate employment figures.