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.

Philly School District Lays Off 3,783 Employees

Facing a budget deficit in excess of $300 million, the School District of Philadelphia has announced the layoff of nearly 3,800 people. The layoffs amount to about 20 percent of the roughly 19,000 total personnel on the district’s payroll.

Why the big deficit? Based on the district’s proposed budget, the two largest causes of the shortfall are a sharp drop in Federal grants and the deficit from last year that required borrowing to fill the gap-borrowing that cannot be repeated. Another problem that is developing to exacerbate the funding shortfall going forward is the hike in the amount the school district will have to contribute to pensions. Unless there is agreement on pension reform legislation, Philadelphia, as well as most school districts in Pennsylvania, face ruinous increases in pension funding. And that means higher city taxes, more layoffs or both. Philadelphia, like many other communities across the state, is not in any position to absorb higher taxes.

Serious pension reform is needed and teachers’ unions must consider the pain they themselves will suffer in the short run as evidenced by the layoffs already occurring across the state. Layoffs that will grow as the pension burden gets larger in the years ahead. Fighting common sense reforms that preserve benefits earned to date and ward off major tax hikes is a train wreck in the making for the unions.

Philadelphia, Too

Our Brief this week covered the efforts of consultants working with the Pittsburgh Public Schools who laid out per-pupil spending comparisons for Pittsburgh and a peer group of similar districts in Pennsylvania. We noted Allentown, Reading, Scranton, Erie, Hazelton, and Lancaster as being in that comparison group but failed to note that the state’s largest district, Philadelphia, was also in that group.

Based on the consultants’ data, Philadelphia spent about $6,000 less per-pupil than Pittsburgh before ($20,477 to $14,132) and after ($18,371 to $12,988) after they came up with an adjusted amount.

Imagine that: if Pittsburgh was to spend at the per-pupil level of Philadelphia, its budget would be more than $100 million less than at present. If Philadelphia-which is facing a $300 million shortfall and has plans for new taxes, higher taxes, and requests for state money-its budget would be more than $4 billion rather than the $2 billion it is today.

Philly Tax Problems

Hard on the heels of a report that half of Detroit property owners are not paying property taxes comes the story out of Philadelphia that delinquencies in that city are depressing home values and costing the government hundreds of millions in lost revenue. A Philadelphia Inquirer investigation found that home values are being depressed by over 20 percent because of the failure of 15 percent of properties to pay real estate taxes. Overall, this has lowered the total assessed value by nearly $10 billion in the City.

What’s worse, 59 percent of the unpaid tax bills are accounted for by landlords, speculators and investors who do not live on site. In Detroit the motivation not to pay taxes is driven in part by the failure of the City to provide adequate, if any, services to property owners. Of course, Philadelphia is generally in somewhat better shape financially than Detroit but unchecked, the rising trend of unpaid taxes will lead to chaos as those who pay higher and higher taxes on declining property values join the ranks of those who refuse to pay taxes.

Philadelphia needs to get a tight rein on its spending. The school system which is funded in part by City taxes already has to borrow money to pay its bills-never a good sign. Philadelphia benefits from being able to tax commuters, something it alone in Pennsylvania is allowed to do. But that is a two edged sword in that it has undoubtedly driven many jobs out of the City.

Philadelphia has a ring of protection in the form of wealthy surrounding counties that help support its economy. However, profligacy and poor financial management and a desire to make suburbanites pay for its inabilities to manage its affairs prudently will inevitably lead to a severe crisis. Look at Detroit, Oakland and other cities for proof of what happens when lack of discipline and political correctness take over the government.

Big Decision Day for Philly Schools

While the closing and reuse of Schenley High School has grabbed attention, the school district across the state is going to vote tonight on closing 27 public schools, an action that, if taken, is being described as one of the largest school closing plans in recent history.

Proponents of the action, including the District’s Superintendent, say that if it does not happen there might be issues with payroll or opening the District as a whole after the summer. We noted last fall how the Philadelphia School District borrowed $300 million to keep things afloat.

The District’s CAFR shows that it had 249 elementary, junior/middle, and senior public schools in FY 2003. There were 228 in FY 2011, a decline of 8% (the rate of closure in Pittsburgh has been much greater, with 88 schools in 2003 and 56 in 2011, a decrease of 36%). Twenty seven more would be a 12% decline from where the District stands now. Interestingly in both Philadelphia and Pittsburgh senior schools have stayed relatively constant; the biggest percentage drops in both districts occurred in the junior/middle school level.

On the Whole, Would We Rather Be Philadelphia?

School closings, teacher contract concessions, and "difficult choices", many of them related to the loss of students to charter schools and a failure to rightsize operations. Oh, and a $300 million borrowing just to keep the schools operating. And that is with a School Reform Commission running the show for the Philadelphia School District. This year the District will spend $2.5 billion on educating 146,000 K-12 students, and just under half of that budget comes from the state.

The fiscal situation in Philly is pointed out, not only for the implications it has on statewide taxpayers, but because one member of the state’s second largest district, Pittsburgh, recently opined that "bigger must be better" and suggested that there be a merger of the 43 districts in Allegheny County since "We’re working on an agrarian model that’s so out of date it’s not funny." A consolidated Allegheny County district would have roughly the same enrollment as Philadelphia’s school district, based on calculations of PA Department of Education data.

Unless the state were to just consolidate the districts in Allegheny County, which is doubtful since school districts are not governed according to county borders, or the board member goes back to the Nordenberg report that suggested consolidating only the County and the City and leaving the other municipalities and the school districts in the County alone and amends it to gain some interest nearly five years later, the cast a wider net approach so we can spread financial problems over a larger area is a non-starter.

There has been one merged district, Central Valley, in the last five years and that came as a voluntary arrangement. It was upheld as a model when the previous gubernatorial administration pushed the idea of cutting the number of districts from 500 to 100 in order to reduce "back office" costs and improve educational offerings. But our work found that the largest district in Allegheny County, Pittsburgh, had more "non-teachers" per 1000 students than a sample of other districts in the County, the exact opposite situation one would expect to see.

Pennsylvania has largely trended the way the U.S. has with the number of school districts: much of the consolidation came in the 1950s and 1960s; by 1972, according to the Census of Local Governments, the significant drops in numbers of districts had stopped and this year the totals in PA and the country are slightly smaller than where they were nearly four decades ago.

But PA Scarce on Local Sales Taxes

Yesterday’s Brief pointed out how widespread the wage tax is in Pennsylvania and how, among the U.S. states, the local governments in the state account for 60% of all the localities levying a tax on earned income/personal income. The Tax Foundation has released a follow-up on local sales taxes in the U.S. and it is clear PA is not one of the top utilizers of this type of tax.

Only four states-Delaware, Montana, New Hampshire, and Oregon-have neither state nor local taxes on retail sales. Nine other states have only a statewide sales tax. The total combined rate, which adds the state rate and the average local tax rate, does not exceed 10% with Tennessee reporting the highest combined rate at 9.43%.

Pennsylvania has a statewide sales tax, but locally it is utilized in only two places: Philadelphia, where the rate is a combined 8% (6 points for the state and 2 local add-on points which are used for general city purposes and pension funding) and Allegheny County, where the rate is a combined 7% (6 points for the state and 1 local add-on point for the Regional Asset District). There were calls for a countywide sales tax as part of Harrisburg’s Act 47 plan, but that was quickly dismissed. And though the County Commissioners Association has advocated for an add-on sales tax for quite some time that has not come to pass.

And the Healthiest Pension Fund is…

Pennsylvania has three pension systems, though only two of them can really be considered as unified systems which cover all employees by type. There is the state employees’ system (SERS), the school employees’ system (PSERS), and then there is the local employees’ system-a collection of over 3,000 plans housed at the local level for police, fire, blue- and white-collar workers at counties, municipalities, authorities, and associations. Some are administered through the PA Municipal Retirement System by local governments that voluntary place them there. When considered in aggregate, the local system has 136k employees, placing it in between PSERS (282k) and SERS (100k).

Recent actuarial data shows how healthy these three systems are in terms of funded ratio-that’s the actuarial value of the assets divided by the actuarial value of the liabilities to produce a percentage. A funded ratio of 100% means the plan has sufficient assets set aside to pay for the promised liabilities. A funded ratio between 80-100% would be considered healthy, a funded ratio of 50% or below like that of the cities of Pittsburgh and Philadelphia mean drastic measures are needed, as evidenced here by the events of 2010 and the debates over a parking lease as a way to avoid a state takeover of Pittsburgh’s pensions.

The funded ratios for the plans are as follows: SERS, 84% funded; PSERS, 75% funded, and aggregate local, 72% funded. Again, there is significant influence on the funded ratio of the local system because of the poor condition of the state’s two biggest cities. Removing the six plans hosted in each city (1 each for police, fire, and non-uniformed employees) radically changes the actuarial picture of the remaining local plans and increases the aggregate funding ratio from 72% to 90%.

Pension Reform Blooms in the Garden State

Just over the border from Philadelphia-the city that accounts for 80% of the aggregate shortfall of all local pension plans in the Commonwealth-reform of public sector pensions is taking shape.

According to an article in the Philadelphia Inquirer, the reforms would include a roll back of a 9 percent pension increase approved in 2001, a requirement that new part-time workers to receive 401(k)-like plans rather than defined benefit plans, and a minimum threshold of weekly hours worked for employees to qualify for a pension. A constitutional amendment would force the state to fully fund its pension obligations over a seven year period.

These changes follow several attempts earlier in the decade to obtain long-term change in the state’s pension system. With long range pension and health care obligations estimated to be around $112 billion (that’s for the state only, not the locals), some lawmakers have decided to take the issue on. There will be tremendous pushback from the state’s public sector unions. Consider it a prelude to life in Harrisburg in 2011.