MIDDLE-INCOME JOB DECLINE IN PENNSYLVANIA, Business Cycle to Great Recession and Beyond $ $ $ $ $

Transcription

1 MIDDLE-INCOME JOB DECLINE IN PENNSYLVANIA, Business Cycle to Great Recession and Beyond $ $ $ $ $ $ $ $ $ $ $ $ $ $ Prepared at the Center for Economic and Community Development by: Theodore R. Alter, Professor of Regional Economics Theodore E. Fuller, Development Economist & Research Assistants Lindsay McPhail Abigail L. Miller Brett Promisloff & Information Systems Consultant Claudio Frumento

2 Table of Contents EXECUTIVE SUMMARY... 3 On Employment... 3 On Wages... 3 Pennsylvania: What to Do?... 3 MIDDLE-INCOME JOB DECLINE: A NATIONAL PROBLEM?... 4 TRACKING MIDDLE-INCOME JOBS IN PENNSYLVANIA... 5 Defining Middle Income... 5 PENNSYLVANIA STATEWIDE: THE BIG PICTURE, Employment... 6 Unemployment... 7 Employment: Sectors and Major Industries... 9 MIDDLE INCOME JOB DECLINE IN PENNSYLVANIA Employment by Industry Wage Group, 2001 and Employment by Industry Wage Groups: Business Cycle, Great Recession, and Beyond Employment Trends by Industry Wage Groups, Total Wages: Industry Wage Groups, Annual Average Weekly Wage: Wage Groups, HIGH-MIDDLE WAGE JOB LOSS IN PENNSYLVANIA: IMPACTS Labor Force Wages Total Wages HIGH-MIDDLE WAGE JOB LOSS IN PENNSYLVANIA: WHERE TO? Pennsylvania: What to Do Promising Policy Options

3 EXECUTIVE SUMMARY From total employment in Pennsylvania declined 0.03 percent, a loss of 16,451 jobs. The employment decline was due mainly to the large job loss of the Great Recession more than offsetting job gains in the business cycle. Embedded in these macro employment trends was a major job shift from higher to lower wage industries. This report tracks job shifts from among 17 major private sector industries grouped by industry Annual Average Weekly Wage (AAWW) as percent of state AAWW for total employment statewide. The industry wage groups targeted were: Wage Industry AAWW Percent of State Number of Group AAWW Total Employment Industries _ High 150% & over 4 High-Middle % 5 Low-Middle 50-99% 7 Low 0-49% 1 On Employment: Job changes from reflected wide differences among wage groups: The overall impact was a redistribution of jobs from High-Middle to Low-Middle wage industries, notably from Manufacturing in the High-Middle group to Health & Social Services in the Low- Middle group. On Wages: Change in Average Annual Weekly Wage for wage groups also varied from Dollar and percent changes in Annual Average Weekly Wage decreased from High to Low wage groups from , indicating a widening of wage/income gap between workers in high and lower wage industries over \ the decade. Pennsylvania: What to Do? Wage Group Employment Change High 64,214 High-Middle -298,741 Low-Middle 173,896 Low 35,625 Wage AAWW Change Group Dollars Percent High High-Middle Low-Middle Low The shift of jobs from High-Middle to Low-Middle wage industries from indicates that a critical problem for the Pennsylvania economy is how to slow down or reverse this trend and strengthen the state s economy overall. Promising policy options include: 1. Expand training of worker to fill current and future openings for skilled jobs. 2. Encourage entrepreneurs to start new businesses in growth industries. 3. Upgrade roads, bridges, and other public infrastructure to improve public safety, reduce business costs, and generate well-paying construction and related jobs. 4. Encourage off-shoot industries to the mining of Marcellus Shale gas. 5. Revamp Pennsylvania s tax structure to increase taxpayer fairness and business competitiveness. 3

4 MIDDLE-INCOME JOB DECLINE: A NATIONAL PROBLEM? The U.S. economy is steadily emerging from the Great Recession of , the deepest downturn since the Depression of the 1930s. Since 2009 employment has made slow but steady gains, and unemployment is down from its Recession high. The business cycle, prior to the Great Recession, the nation experienced a period of moderate job growth and relatively low unemployment. The Pennsylvania economy was also hit hard in the Great Recession nearly 200,000 jobs were lost from , and the annual unemployment rate soared to 8.5% in From , Pennsylvania s unemployment rate was lower than that for the average unemployment rate of the U.S. Notably, job growth in Pennsylvania lagged the nation during the business cycle (i.e.1.8% versus 4.4% for the U.S.), suggesting a long-run problem with job creation for the state. The adverse impact of the Great Recession coupled with lack luster growth during the business cycle highlights the importance of rebuilding the employment base of both the nation and Pennsylvania as a critical public policy issue. Embedded in the problem of growing jobs and reducing unemployment is the long-run nation-wide concern with the decline in middle-income jobs. A major factor in this decline has been the nation-wide shift in industry-mix since the 1980s from well-paid manufacturing jobs to lower paying jobs in Health Care & Social Services, Accommodation & Food Services, and other industries. The decline in manufacturing jobs is largely the result of foreign competition due to globalization. In addition, during the Great Recession manufacturing job losses resulted from cost-cutting by substituting technology for labor. Recent employment trends strongly suggest that an important question for both state and national policy makers is: Can the long-run decline in middle-income jobs be reversed? This report looks at the problem in Pennsylvania. 4

5 TRACKING MIDDLE-INCOME JOBS IN PENNSYLVANIA Defining Middle Income This report explores middle-income job trends in Pennsylvania from 2001to 2011by tracking employment trends in private sector industries grouped by wage level.* This is accomplished by looking at employment and wage trends in 17 major private sector industries that comprise over 98% of total private sector employment in Pennsylvania, The 17 industries are divided into four wage groups based on their Annual Average Weekly Wage (AAWW) as a percent of AAWW for total employment statewide private and government. The four industry wage groups are: Wage Industry AAWW Percent of Number of Group AAWW Total Employment Industries High 150 & over 4 High-Middle Low-Middle Low Under 50 1 Industry AAWW Industry High Wage Utilities Management of Companies & Enterprises Professional, Scientific & Technical Services Finance & Insurance High-Middle Wage Information Wholesale Trade Manufacturing Construction Education Services Statewide Total Employment: Private & Government Low-Middle Wage Transportation & Warehousing Health Care & Social Assistance Management & Remedial Services Agriculture, Forestry & Fisheries Arts, Entertainment & Recreation Other Services (except Public Administration) Retail Trade Low Wage Accommodation & Food Services *Data in this report are from the following sources: Employment and wage data, Quarterly Census of Employment and Wages (QCEW) collected by the Pennsylvania Department of Labor and Industry. Unemployment data, PA Department of Labor and Industry and U.S. Bureau of Labor Statistics. 5

6 PENNSYLVANIA STATEWIDE: THE BIG PICTURE, Employment Total Employment From total employment private sector plus federal, state and local government in Pennsylvania declined by -16,541 jobs (-0.3%) with wide cyclical fluctuations (Figure 1). Figure 1. Total Employment in Pennsylvania: Annual Pennsylvania s Job Loss Pennsylvania s loss of -184,336 jobs in the Great Recession from more than offset a gain of 100,944 jobs during the business cycle (Figure 2). Figure 2. Number Change in Total Employment: Pennsylvania,

7 Rate of Change in Jobs Pennsylvania s job growth (1.8%) lagged the U.S. (4.4%) in rate of job growth during the business cycle, but experienced a lower rate of job loss (-3.3%) than the U.S. (-5.0%) during the Recession (Figure 3). Figure 3. Percent Change in Total Employment: Pennsylvania and the U.S., Unemployment Unemployment Rate From Pennsylvania s annual rate of unemployment ranged from a low of 4.4% in 2007 at the peak of the business cycle, to a high of 8.5% in 2010 at the depth of the Great Recession (Figure 4). Figure 4. Percent Unemployed: Pennsylvania,

8 Unemployment Trends Although Pennsylvania lagged the nation in rate of job growth, unemployment rates held steady at near or below the U.S. over the business cycle, and were below the nation in the Great Recession (Figure 5). Figure 5. Percent Unemployed: Pennsylvania and the U.S., Number of Unemployed However, in 2009 through 2011 the actual number of unemployed in Pennsylvania jumped dramatically during the Great Recession, hitting over 500,000 annually Peak annual unemployment during the business cycle was only 349,000, which occurred in 2003, 64% lower than the peak number of unemployment between (Figure 6). Figure 6. Number Unemployed: Pennsylvania,

9 Employment: Sectors and Major Industries Private and Government Sector Employment In 2001 the private sector provided 4,848,788 jobs in Pennsylvania, accounting for 87.3% of total employment, while the federal, state, and local sectors combined employed 703,029 workers (12.7% of total employment).government employment only increased by jobs and private employment decreased by only jobs. (Figure 7). Significant trends in the two sectors and in major industries were: Figure 7. Private and Government Sectors: Number Employed 2001 & 2011 Private and Public Sector Employment Trends The private sector added 88,188 jobs over the business cycles, lost -195,424 in the Great Recession , and regained 83,508 in the initial recovery years The government sector added jobs during the business cycle and the Recession, but lost jobs in the recovery years (Figure 8). The private sector lost -23,730 jobs (-0.5%) from , while the three government sectors combined had a gain of 7,190 jobs (1.0%) (Figure 8). Figure 8. Private and Government Sectors: Number Change in Employment,

10 Employment Growth and Decline by Industry Sector From the top job creating major industry input in Pennsylvania was Health Care & Social Assistance adding 169,787 jobs. In contrast, Manufacturing was tops in employment decline, losing - 258,077 over the decade (Figure 9). Figure 9. Top 5 Growth and Decline Industries: Number Change in Employment, MIDDLE INCOME JOB DECLINE IN PENNSYLVANIA Employment by Industry Wage Group, 2001 and 2011 Employment in 17 major industries accounting for over 98 percent of private sector employment was unevenly distributed among four industry wage groups , averaging over 2,000,000 jobs in the Low- Middle wage industry group to fewer than 500,000 in the Low-wage industry group (Figure 10). However, only the High-Middle wage group experienced a net job loss from 2001 and Figure 10. Number Employed: Industry Wage Groups, 2001 &

11 Change in Number Employed by Wage Group Between : Industries in the High-Middle wage group had a net loss of -298,741 jobs (-18.8%), while industries in the Low-Middle wage group gained 173,896 jobs (8.1%) (Figure 11). Between : Industries in the High wage group gained 64,214 jobs (10%), while the Low wage group added only 35,625 jobs (9.3%). Figure 11. Change in Number Employed: Industry Wage Groups, High-Middle Distribution of Employment by Wage Groups The large job loss in the High-Middle industry wage group coupled with the gains in the other wage groups led to a redistribution of employment among wage groups from 2001to Most notably employment in the High-Middle wage group shrank from 33 to 27% of the four group total, and jobs in the Low-Middle wage group increased from 45 to 49% of the total (Figure 12). Figure 12. Number Employed and Percent of Total Employment: Industry Wage Groups 2001 &

12 Employment by Industry Wage Groups: Business Cycle, Great Recession, and Beyond Employment in the four industry wage groups varied through Pennsylvania s slow-growth peak to peak in the business cycle , the Great Recession , and tepid initial recover Employment by Industry Wage Groups for 2001 through 2011 Jobs in the High-Middle wage group declined throughout the ten years (Figure 13). From the Low-Middle wage group provided the most jobs followed by the High-Middle wage group (Figure 13). Figure 13. Number Employed: Industry Wage Groups, Employment Change From the High-Middle wage group experienced employment declines during the business cycle of , the Recession and the first two years of the upturn (Figure 14). The High, Low-Middle and Low wage groups lost jobs only during the Recession. Figure 14. Number Change in Employment: Industry Wage Groups,

13 Employment Trends by Industry Wage Groups, From the variations in employment change among industry wage groups resulted from the industrymix among the four groups and in particular the dominance of a single industry within a group. High impact industries on job change in the four wage groups were: Employment Trends of Industries by Wage Groups The 10 percent employment increase, in the High wage group, was powered by a 67,659 job gain in Management of Companies & Enterprises and 27,026 new jobs in Professional, Scientific & Technical Services (Figure 15). The 18.8 percent employment decline, in the High-Middle wage group, was almost entirely due to the - 258,077 job loss in Manufacturing. The 8.1 percent employment increase, in the Low-Middle wage group, was mainly due to the 169,787 job gain in Pennsylvania s largest private employer Health Care & Social Assistance (Figure 15). The 9.3 percent employment increase, in the Low wage group, was due to a 35,625 job gain in its sole industry Accommodation & Food Services (Figure 15). Figure 15. Number Change in Employment: Industries in Wage Groups,

14 Total Wages: Industry Wage Groups, From the variations in employment and employment change among the four industry wage groups were matched by significant differences in total wages generated year to year, and changes in total wages among wage groups over the 10 years. As in job change the High-Middle wage group also lagged in growth in total wages from Important trends in total wages earned among the wage groups were: Wages by Wage Group The High-Middle industry wage group led in total wages in 2001 at $66.8 billion, but the Low-Middle wage group was tops in 2011 at $80.7 billion (Figure 16). Figure 16. Total Wages by Wage Group, 2001 & 2011 Change in Wages The Low-Middle wage group led in total wage gain from with $23.8 billion (41.9%). The High wage group was a close second at $22.6 billion (128.2%). The High-Middle wage group added only $7.4 billion in total wages (11%) (Figure 17). Figure 17. Dollar and Percent Change in Total Wages: Wage Groups,

15 Share of Wages From the High-Middle wage group s share of total wages for all 17 private sector industries shrank from 41% in 2001 to 34% in 2011, while the Low-Middle wage group s share increased from 34 to 37% and the High wage group s share jumped from 22 to 26% (Figures 18 & 19). Figure 18. Percent of Total Wages All Wage Figure 19. Percent of Total Wages All Groups: Wage Groups, 2001 Wage Groups: Wage Groups, 2011 Annual Average Weekly Wage: Wage Groups, From there was a considerable variation in trends in Annual Average Weekly Wage among the four industry wage groups in addition to differential changes in employment and total wages,. Annual Average Weekly Wage increased for workers in each wage group from , but workers in the High-Middle, Low-Middle, and Low wage groups lost ground to the High wage group in both dollar and percentage wage gains. Annual Average Weekly Wage by Wage Group in 2001 and 2011 From changes in Annual Average Weekly Wage ranged from $1,081 to $1,600 in the High wage group, to $237 to $298 in the Low wage group (Figure 20). Figure 20. Annual Average Weekly Wage: Wage Groups, 2001 and

16 Change in Annual Average Weekly Wage From the dollar change in Annual Average Weekly Wage ranged from a gain of $519 for industries in the High wage group to a low of only $61 for industries in the Low wage group (Figure 21). Figure 21. Dollar Change in Annual Weekly Wage: Wage Groups, Percent Change in Annual Average Weekly Wage From the percentage change in Annual Average Weekly Wage ranged from a high of 48 percent for the industries in the High wage group to a low of 26 percent in the Low wage group industries (Figure 22). Figure 22. Percent Change in Annual Average Weekly Wage: Wage Groups, 2001 and

17 HIGH-MIDDLE WAGE JOB LOSS IN PENNSYLVANIA: IMPACTS Pennsylvania had substantial job loss in High-Middle wage industries from Coupled with large job gains in Low-Middle wage industries over the decade, this job loss significantly impacted the workforce and economy of the state. Areas of impact included not only a reduction in well-paying jobs for many in the state s labor force, but also led to a widening of the wage gap between workers in High and Low wage industries, and a re-distribution of total wages earned between workers in high and lower wage industries. Broad impacts of the High-Middle wage job decline not explicitly documented in the report but likely to have occurred include: Labor Force: It is likely the shift in job-mix from High-Middle to Low-Middle wage industries caused hardship for many of those losing High-Middle wage jobs especially if they were unable to find alternative well-paying jobs or even jobs in lower wage industries. Additionally, the demand for fewer workers in the High-Middle wage industries from suggests sharply reduced opportunities in well-paying jobs for new entrants to the labor force over the decade. These adverse impacts will likely continue in the future if job loss continues in the High-Middle wage industries. Wages: Data on Annual Average Weekly Wages earned by workers in industries grouped from High to Low wage indicate the wage gap widened between High and Low wage workers from Average dollar and percent gain in Annual Average Weekly Wage decreased from High to Low wage groups over the decade. Bottom-line: the lower the wage group the more likely a worker was to fall behind in take home pay from , both in dollars and percent-wise. Presumably, this also led to some widening of the gap between High and Low individual/family incomes over the decade. Total Wages: From there was a shift of total annual wages earned between the High-Middle and Low-Middle industry wage groups. Over the decade total annual wages earned by workers in High- Middle wage industries was only increased by $7.4 billion versus $23.8 billion for workers in Low- Middle wage industries. This suggests that if High-Middle wage workers typically purchase different market baskets of goods and services than Low-Middle wage workers, then the job shift from High- 17

18 Middle to Low-Middle industries should have also changed the relative mix of consumer goods and services demanded of Pennsylvania businesses from The redistribution of total wages from High-Middle to Low-Middle wage groups also suggests a shift in state/local wage taxes paid by workers in the two groups. In 2001 workers in the High-Middle income group earned 41% of total wages for all groups and only 34% in 2011, versus 34% in 2001 and 41% in 2011 for the Low-Middle wage industry group. This suggests a regressive redistribution of tax burden from workers in the High-Middle to those in the Low-Middle group over the decade. HIGH-MIDDLE WAGE JOB LOSS IN PENNSYLVANIA: WHERE TO? It is impossible to predict with accuracy whether jobs in High-Middle wage industries will continue to decline in Pennsylvania either in the next few years or further out. Perhaps the best that can be done to assess the future is to take a broad look at major forces influencing recent trends - and see if they might be changing Since the 1990s - and even before - global competition has resulted in extensive job loss in both High-Middle and Low-Middle wage manufacturing industries in the U.S., affecting production ranging from autos to apparel. A main factor has been relatively lower labor costs in other places, notably Mexico, China and Southeast Asia. Brightening the cost picture a bit recently for U.S. manufacturers are the slowly rising labor and pollution costs in foreign countries particularly in China which may help level the playing field for U.S firms, and falling natural gas prices. The Great Recession forced also many U.S. manufacturing firms to substitute technology for labor. This change cut jobs but also reduced labor costs for some firms in a few industries making them more competitive, even to the point of returning a few jobs to the U.S. However, this is a mere glimpse of the big picture of global competition for jobs in High-Middle wage industries. The question for Pennsylvania is: What can be done to slow the job loss in High- Middle wage industries, mainly manufacturing, in a global economy and in competition with other states? 18

19 Pennsylvania: What to Do Promising Policy Options 1. Expand the training of workers in high school and 2-year colleges to fill skilled jobs as they become available in Pennsylvania businesses. 2. Encourage new entrepreneurs to start viable businesses in the state. 3. Upgrade roads, bridges, and other public infrastructure to improve public safety, reduce business costs, and generate well-paying construction and related jobs. 4. Encourage off-shoot industries to the environmentally friendly mining of Marcellus Shale gas. 5. Revamp Pennsylvania tax structure to increase the taxpayer fairness and business competitiveness. 19

20 Where trade names appear, no discrimination is intended, and no endorsement by the Penn State College of Agricultural Sciences is implied. This publication is available in alternative media on request. The Pennsylvania State University is committed to the policy that all persons shall have equal access to programs, facilities, admission, and employment without regard to personal characteristics not related to ability, performance, or qualifications as determined by University policy or by state or federal authorities. It is the policy of the University to maintain an academic and work environment free of discrimination, including harassment. The Pennsylvania State University prohibits discrimination and harassment against any person because of age, ancestry, color, disability or handicap, genetic information, national origin, race, religious creed, sex, sexual orientation, gender identity, or veteran status and retaliation due to the reporting of discrimination or harassment. Discrimination, harassment, or retaliation against faculty, staff, or students will not be tolerated at The Pennsylvania State University. Direct all inquiries regarding the nondiscrimination policy to the Affirmative Action Director, The Pennsylvania State University, 328 Boucke Building, University Park, PA ; Tel The Pennsylvania State University