the state of working pennsylvania · the state of working pennsylvania 2012 is the keystone...

The State of Working Pennsylvania

The Keystone Research Center

Harrisburg, Pennsylvania

Mark Price and Stephen Herzenberg

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TheKeystoneResearchCenter(KRC)wasfoundedin1996tobroadenpublicdiscussiononstrategiestoachieveamoreprosperousandequitablePennsylvaniaeconomy.Sinceitscreation,KRChasbecomealeadingsourceofindependentanalysisofPennsylvania’seconomyandpublicpolicy.TheKeystoneResearchCenterislocatedat412NorthThirdStreet,Harrisburg,Pennsylvania17101‐1346.MostofKRC’soriginalresearchisavailablefromtheKRCwebsiteatwww.keystoneresearch.org.KRCwelcomesquestionsorotherinquiriesaboutitsworkat717‐2557181,ortollfreeat888‐618‐2055.

AbouttheAuthorsMarkPrice,KRC’sLaborEconomist,holdsaPhDineconomicsfromtheUniversityofUtah.Hisdissertation,StatePrevailingWageLawsandConstructionLaborMarkets,wasrecognizedwithanHonorableMentioninthe2006ThomasA.KochanandStephenR.SleighBestDissertationAwardsCompetitionsponsoredbytheLaborandEmploymentRelationsAssociation.StephenHerzenberg,KRC’sExecutiveDirector,holdsaPhDineconomicsfromMIT.HeisacoauthorofLosingGroundinEarlyChildhoodEducation,publishedin2005bytheEconomicPolicyInstitute,andNewRulesforaNewEconomy:EmploymentandOpportunityinPostindustrialAmerica,publishedin1998byCornell/ILRPress.

Acknowledgments

TheauthorsthankLauraDresser,JoelRogersandEdoNavotoftheCenteronWisconsinStrategy(COWS)forprovidingtheinspirationforthisyear’sTheStateofWorkingPennsylvania,whichispatternedinpartafterTheStateofWorkingWisconsin2011.ThanksforinvaluabletechnicalassistancetotheteamattheEconomicPolicyInstitute(EPI),whichprovidessupporttoKeystoneResearchCenterandtheotherstatethinktankswithintheEconomicAnalysisResearchNetwork(EARN);thisteamincludesDougHall,DavidCooperandNatalieSabadish.ThankstoKRCsummerinternsAlanBowie,asenioratHowardUniversity,andPakManLam,asenioratPennsylvaniaStateUniversity,fortheirresearchassistanceinpreparingthisyear’sreport.ThankstoChristopherLilienthal,CommunicationsDirectorforKRCanditsPennsylvaniaBudgetandPolicyCenter(PBPC),andtoJamarThrasher,KRCCommunicationsAssociate,foreditorialassistanceandguidance,andtoStephanieFrank,KRCOfficeManager,forproducingthechartsandfiguresinthisreport.

SupportKRC

TheworkoftheKeystoneResearchCenterissupportedbygrantsfromcharitablefoundations,researchcontractswithvariousorganizations(includinglocal,state,andfederalgovernments),andcontributionsfromorganizationsandindividualswhoshareKRC’svisionofbroadlysharedprosperityinPennsylvania.TolearnhowyouoryourorganizationcansupportTheKeystoneResearchCenter,pleasevisitTheKeystoneResearchCenterwebsiteathttp://keystoneresearch.org,orcall717‐255‐7181.TheIRShasdesignatedKRCasafederaltax‐exempt,nonprofit,501(c)(3)corporation.KRCisalsoregisteredasacharitableorganizationwiththePennsylvaniaDepartmentofState’sBureauofCharitableOrganizations.TheofficialregistrationandfinancialinformationofKeystoneResearchCentermaybeobtainedfromthePennsylvaniaDepartmentofStatebycallingtollfree,withinPennsylvania,1‐800‐732‐0999.Registrationdoesnotimplyendorsement.

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Contents ExecutiveSummary................................................................................................................................................................5

Chapter1:TheGreatRecession&aLostDecade.....................................................................................................10

Pennsylvania’sEconomy,TheGreatRecessionandtheRecovery...............................................................11

DramaticDeclineinJobs................................................................................................................................................12

Pennsylvania’sManufacturingBaseinDecline....................................................................................................15

IncreasingUnemploymentandUnderemployment...........................................................................................21

ASlowRecoveryThatCouldHaveBeenWorse...................................................................................................24

ALostDecade.....................................................................................................................................................................31

SomeBasicFactsonthePennsylvaniaEconomy................................................................................................32

Pennsylvania’sPopulationandWorkforceGrowing.........................................................................................32

LaborForceParticipationRatesRevealaStrongandWidelySharedWorkEthic................................33

KeySectorsinPennsylvania........................................................................................................................................34

TheMiddleClassChallengePresentedbyHealthCareandSocialAssistance........................................34

Chapter2:Wages&WageDisparity..............................................................................................................................37

TheLong‐TermPerspective:SlowWageGrowth...............................................................................................38

FallingHealthInsuranceandOtherBenefitsatWork.......................................................................................39

TrendsinWagesforDemographicGroups............................................................................................................40

TheGenderGapinWages.............................................................................................................................................41

TheBlack/WhiteGapinWages..................................................................................................................................43

TheEducationalGapinWages....................................................................................................................................44

ThePowerofAssociateDegrees................................................................................................................................45

WagesbyIndustryandOccupation..........................................................................................................................47

UnionsandWagesinPennsylvania...........................................................................................................................48

Chapter3:Poverty‐WageJobs.........................................................................................................................................50

TrendsinPoverty‐WageJobs......................................................................................................................................51

WhereAreAllThoseBadJobs?...................................................................................................................................52

Chapter4:IncomeandPoverty.......................................................................................................................................54

MedianFamilyIncomeBelowIts2000Level.......................................................................................................54

WheretheMoneyGoes...................................................................................................................................................55

PovertyinPennsylvania................................................................................................................................................56

Chapter5:ThreeDecadesofIncomeInequality.......................................................................................................58

UnequalIncomeGrowth:It’sLonelyontheTop.................................................................................................59

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TheRaceResumestoSurpassthe1920sAgeInequality.................................................................................60

Chapter6:Conclusion..........................................................................................................................................................61

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Executive Summary

TheStateofWorkingPennsylvania2012isTheKeystoneResearchCenter’sdeepestandmostcomprehensiverecentlookatthePennsylvaniaeconomyandhowithasperformedforworkingandmiddle‐classfamilies.Thecentralfindingsarestraightforward:ThePennsylvaniaeconomyisperformingpoorlyfromtheperspectiveofmiddleandlow‐incomefamilies—overthelastyear,thelastdecade,andthelastthirdofacentury.Althoughgrowthinproductivityandthesizeoftheoveralleconomicpiehavebeensufficienttosupportrisinglivingstandards,wagesandincomesformostfamilieshavestagnated—forthosewithfull‐timejobsaswellasthosewhocan’tfindasmuchpaidemploymentastheywant.1PolicyintheShortRun:WhyAreWeHittingtheEconomicBrakes?TheperformanceofthePennsylvaniaeconomyreflectspolicychoices—poorpolicychoices—inboththeshortrunandthelongrun.Intheshortrun,Pennsylvanianeedsmorejobsandlessunemployment.Thecurrentunemploymentrateequalsabout8%,andhasrisenrecently,moreinPennsylvaniathannationally.Predictably,sustainedhighunemploymentledtofallingwagesformostPennsylvaniaworkersin2011.Whyisthispredictable?Becauseoureconomylackspoliciesandinstitutionsthatbakeinbroadsharingofincreasesintheeconomicpiewhenunemploymentisnotlow—policiessuchasaminimumwageindexedtoinflationandproductivitygrowth,andinstitutionssuchascollectivebargainingagreementsthatcovermostworkersinanindustryorregion.TheonlytimethebenefitsofeconomicgrowthwerebroadlysharedinthelastthirdofacenturywasalsotheonlytimethattheUnitedStatesandPennsylvaniahadsustainedunemploymentbelow5%—thesecondhalfofthe1990s.WhilePennsylvanianeedsmorejobsandlessunemploymenttoachievebroadlysharedprosperity,inthepastyeareconomicausteritypoliciesatthefederalandstatelevelhaveincreasedPennsylvania’sshortageofjobsbyanestimated74,000.(Thisshortage,or“jobdeficit,”equalsjoblosssincetheGreatRecessionbeganinDecember2007combinedwiththeadditionaljobsneededtokeeppacewiththegrowthoftheworking‐agepopulation.)PolicyintheLongerRun:ALostDecade…andMore.Inthelongerrun,therehasalsobeenadisconnectbetweenrisingproductivityandstagnatingwagesandincomes.Overthelast—or“lost”—decade,from2000to2010,forexample,medianfour‐personfamilyincomeinPennsylvaniadeclinedby$6,100fromits2000peak(of$82,818).Duringtheshorteconomicexpansionfrom2002totheendof2007,thetop1%ofPennsylvaniataxpayerscaptured54%ofallincomegrowthinPennsylvania.Goingbackfurther,tothelate1970s,growthhasalsofailedtotranslateintorisinglivingstandardsacrosstheboard.Againthiswasthepredictableresultofpolicychoices—policychoicesunfriendlytoworkingfamiliesbutveryfriendlytothewealthiestAmericans.Pickapolicyarearelatedtotheeconomy—wageandtaxlaws,tradeagreementsthatestablishrulesgoverningtradeandinvestmentflowsacrossnationalborders,lawsgoverningunionsandworkers’powerin

1Adjustedforinflation,U.S.productivity—outputperhour—inthenonfarmbusinesssectorincreasedby84.8%between1979and2011.

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bargainingwithemployers,lawsregulating(orderegulating)specificindustries,thesocialsafetynet—andalmostwithoutexceptionnationalandstatepolicieshavetiltedagainstmiddle‐andlow‐incomefamilies.Insomecases,policieshavebeentailoredveryexplicitlytosuitmulti‐nationalcorporationsthatwanttoproducefortheU.S.marketfromlow‐wageoffshoreplatforms,ortoallowbillionairehedgefundmanagerstopaylowerincometaxratesthanmiddle‐classfamilies.WillPolicyLookingForwardLeadtoAnotherLostDecade?Whilethefirstyearofthecurrentdecade(2010)startedwellforPennsylvania,withthestaterankednearthetopbasedonjobgrowth,in2011thelossofjobsformorethan25,000teachers,firstrespondersandotherpublicservantscontributedtoPennsylvania’sfalltowardsthebottomofthestatejobrankings.Pennsylvania’sjobgrowthin2012hasbeennegative,sofar.ConsensuseconomicforecastspredictcontinuedhighunemploymentinthenationandinPennsylvaniaforthenextseveralyears.Indeed,theEconomicPolicyInstitute’sforthcomingStateofWorkingAmericaprojectsthattheincomesofthemiddlefifthoffamilieswillbelowerin2018thanin2007and2000.Similartothelastdecade,robustincomegrowthislikelytoreturnforonlyatinysliverattheverytop.In2010,thefirstfullyearofeconomicrecovery,Pennsylvania’stop1%sawitsaverageincomesgrowby11%.This1%ofPennsylvaniataxpayerscaptured76%ofallincomegrowthinthestatein2010.Thetop1%ofthistop1%(anestimated620taxpayers)enjoyedanaverageincomeincrease,adjustedforinflation,of$1.75millionin2010.(Thisisaconservativeestimateofthe2010increaseforPennsylvania’s1%.)Insum,polarizedgrowthandanotherlostdecadeformostfamiliesisapredictableresultofacontinuedfailuretoaddresstheshort‐termproblemsofinsufficienteconomicdemandandjobcreation,andthelong‐termproblemofstagnantwagesandincomes.TheproblemswithanotherlostdecadegobeyondthethreattothelivingstandardsofPennsylvania’sbroadmiddleclass.Moreyearsofpolarizinggrowthwillresultinlevelsofinequalitythatexceedthoseofthelate1920s.Suchinequalityisbadnewsnotjustforthemiddleclassbutforthenationasawhole,andforthreereasonscoretotheidentityofAmerica.First,veryhighinequalityisincompatiblewiththeAmericanDreamofwidespreadopportunity—andAmericansarealreadymorelockedintotheeconomicstatusoftheirbirththanpeopleofmostotheradvancednations(forreferences,seeChapter6).Second,countrieswithveryhighinequalityalsotendtoexperiencelowereconomicgrowth.(Amongotherexplanationsforthis,polarizedsocietiesstruggletopersuadetheeconomicelitetoinvestintheeducationofthepopulationasawhole.)Third,veryhighlevelsofeconomicinequalityreinforcethepoliticalproblemthatcontributedtopoorpolicychoicesinthefirstplace:theexcessiveresponsivenessofourdemocracytotheverywealthyandourpoliticalsystem’slackofresponsivenesstoordinaryfamiliesandthepublicgood.Insum,anotherlostdecadethreatensthreetreasuredAmericanandPennsylvanianvalues:widespreadmobility,arobusteconomy,anddemocracy.ANewDirection:Whilethereisnopastyearquitelikethecurrentone,oneparallelis1936.In1936,whiletheU.S.economyhadbeguntorecoverfromtheGreatDepression,itwasfarfromhealthy.Theunemploymentratewasstill17%,roughlytwicetoday’slevel.Moreover,thepolicychoicesthatwouldgovernAmericancitizensmovingforwardremaineduncertain.EvenPresidentRooseveltacquiescedtoausterityeconomicsin1937,triggeringafive‐percentage‐pointincreasein

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unemploymentby1939.RatherthanconsolidatingtheNewDealastheUnitedStatesdidstartingin1938,thegovernmentcouldhavemadeadifferentsetofpoliticalandpolicychoicesthatwouldhaveprolongedhighunemploymentandbroughtareturnto1920slevelsofinequality.InsteadtheUnitedStatesmadepolicychoicesthatliftedlivingstandardsforAmerica’sworkingfamiliesoverfourdecadesandcreatedthemostpowerfuleconomytheworldhadeverknown.IfAmericaandPennsylvaniamakethewrongpolicychoicesinthenextfewyears,theywillmissagoldenopportunityforanothergenerationofbroadlysharedprosperity.Butthewrongchoicesoverthenextfewyearsarenomoreinevitablethanweretherightchoicesfrom1938onward.Theendofthisreportoutlinesthreesimplestepstochartapositivenewdirection,allofthemaimedatrestoringthethreecoreAmericanvaluesthreatenedbypolarizinggrowth.1. Thefirstandmostessentialstepisthatourstateandournationcommitthemselvestobroadly

sharedprosperity.Candidatesforofficeshouldbeaskedtoendorsethreebasicvalues:theAmericanDream,theideathatpeoplewhoworkhardandplaybytherulesshouldbeabletoshareinournation’sexpandingeconomicpie,andacommitmenttoademocracythatisresponsivetopeopleratherthanwealthandmoney.InPennsylvania,wecouldcallthisthe“ContractwiththeKeystoneState.”

2. Thesecondstepisimplementationofan“InvestmentintheFuture”planthatbolstersourinfrastructure,manufacturingsector,education,skills,andscientificresearchinawaythatgrowsjobsintheshortrunandlaysthefoundationforlong‐rungrowth.

3. ThethirdstepshouldbewageandincomespoliciesthatrestorealevelofequityinAmerica

thatiscompatible,inthelongrun,withwidespreadmobility,astrongeconomy,andaresponsivedemocracy.

Thenextseveralpages,“TheStateofWorkingPennsylvaniaataGlance:JusttheFacts,”containafullersummaryofthekeyfindingsinthebodyofthisreport.Thereportitselfprovidesanexplanationofthenumbers,alongwithmanyeasy‐to‐readchartsandcompletesources.OurintentinreleasingamorecomprehensivereportthisyearistoprovideanauthoritativereferencemanualformembersofthePennsylvaniamedia,policymakers,andthepublicastheyevaluatepolicyandelectoralchoicesoverthenextyear.

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Box1.TheStateofWorkingPennsylvaniaAtaGlance:JusttheFacts

Chapter1:TheGreatRecessionandtheLostDecadePennsylvaniafamiliesmadelittleprogresseconomicallyinthelastdecade.

Totalnon‐farmemploymentinPennsylvaniaandtheUnitedStateswerevirtuallyunchangedin2011comparedto2000(Figure1.10).

Inflation‐adjustedmedianfour‐personfamilyincomefellinboththeUnitedStatesandPennsylvaniainthe2000sbyslightlymorethan$6,000(Figure1.11).

Thestatelost300,000manufacturingjobssince2000(Figure1.4).Pennsylvaniaworkersfaredsomewhatbetterfrom2007‐11thankstotheAmericanRecoveryandReinvestmentAct,federalautosectorintervention,andalowerunemploymentratethannationally.

From2007to2011,thePennsylvaniaunemploymentratehoveredapercentagepointormorebelowtheU.S.unemploymentrate.(Table1.8andFigure1.6).

In2009‐11,federalincomesupports(e.g.,unemploymentinsuranceandfoodstamps)forthoseonthefrontlineoftherecession,andtargetedfederaltaxcuts,helpedpreventamuchsharperfallindisposableincomethatcouldhaveprolongedanddeepenedthedownwardspiraloftheeconomythatbeganin2008(Figure1.7).

InPennsylvaniamanufacturing,jobgrowthfrom2009to2011centeredinfivesubsectorsthatbenefittedfromtherescueofGeneralMotorsandChryslerfrombankruptcyin2009.

Since2011,however,Pennsylvania’seconomyislosinggroundcomparedtootherstates.

Thestate’sjobshortfallincreasedbyover74,000fromJuly2011toJuly2012tojustover301,000.(Thisshortfall—or“jobsdeficit”—equalsjoblosssinceDecember2007plusthenumberofjobsneededtokeeppacewiththegrowthoftheworking‐agepopulation.)

Thestateranked8thmeasuredbypercentjobgrowthin2010but38thinthe12‐monthperiodendinginJuly2012(Tables1.2and1.3).Afterbeingwellbelowthenationalrateforseveralyears,thestate’sunemploymentrateisnowapproachingthenationalrate.

Thestatelostjustover25,000publicsectorjobsin2011alone,mostofthemjobsinelementaryandsecondaryschools(Table1.10).Cutsinpublicsectorjobsfurtherundercutdemandatprivatesectorbusinesseswherelaidoffteachersandfirstrespondersshop.

WhilemanufacturingemploymentinPennsylvaniagrewby11,700sinceJanuary2010,this2.1%increasewaslessthanhalfthe4.6%increasenationally(Figure1.5).

Chapter2:Wage&WageDisparityWagetrendsalsotellthestoryofthelostdecadeandthelostthirdofacentury,exceptforthesharedprosperityofthesecondhalfofthe1990s.

Pennsylvaniaworkersearnedthesameorlessin2011thanafullbusinesscycleearlier,in2002.Bycontrast,workersenjoyedwageincreasesinthepreviouseconomiccycle(1993to2002)(Figure2.1andTable2.1).Eventhe95thpercentileworkersawa0.6%fallinwagesfrom2002to2011,afterariseof24%from1993to2001.

Despitebeingbettereducatedandmoreproductive,thetypicalPennsylvaniaworkerin2011earnedonly63centsmoreperhourthanin1979—$1,310moreperyearforafull‐time,full‐yearworker(Figure2.2).

Employer‐basedhealthcarecoverageforprivate‐sectorPennsylvaniaworkersdeclinedfrom76.1%to60.8%between1979‐81and2008‐10.

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SomePennsylvaniagroupsexperiencedparticularlylargefallsinhourlywagesduringthelastthreedecades.In1979‐81,thetypicalPennsylvaniablackmale’shourlywagesliftedthem$3,500abovetheirU.S.counterpart(ifbothworkedfull‐time,fullyear)(Figure2.5).By2011typicalPennsylvaniablackmenearned$700lessinayearthanU.S.blackmales.

Pennsylvaniawomendidexperiencelargeincreasesinwagesfrom1979to2011(Figure2.6).Women’smedianwageinPennsylvaniaremains83%ofthetypicalman’swage.

Chapter3:Poverty‐WageJobsLower‐wageworkersinPennsylvaniahavemadelittleprogressinathirdofacentury.Low‐wagejobsareheldmostoftenbycertaindemographicgroupsandalsoconcentrateinserviceindustries.

In2011,aquarterofPennsylvaniajobspaida“povertywage”—anhourlywagetoolowtoliftafamilyoffouroutofpovertyifthepersonworkedfull‐time,full‐year(Figure3.1).

PercapitaincomeinPennsylvaniagrew61%between1979and2011—ameasureofthesizeofthetotaleconomicpiethatreflectsbigincomeincreasesatthetop.Despitegrowthintheoverallpie,theshareofworkerswithpovertywagejobshardlychanged(Table3.1).

In2011,30%ofblackwomen,27%ofwhitewomen,andmorethanathirdofallblackmaleswereemployedinpovertywagejobs(Table3.1).

WorkersinServiceandSalesOccupationsaccountfor57%ofallpovertywagejobs.Sevenin10povertywagejobsareinjustthreeindustries;LeisureandHospitality;WholesaleandRetailTrade;andEducationandHealthServices(Table3.2).

Chapter4:IncomeandPovertyWhiletheoveralleconomicpieexpands,highunemploymentandunderemploymentcombinedwithflatorslightlydecliningwagesamongmostworkershaveledtostagnantmiddle‐classincomesandpersistentpovertyduringtheLostDecade.

Adjustedforinflation,medianincomeoffour‐personPennsylvaniafamiliesislowertodaythan10yearsago,fallingby$6,100since2000,from$82,800(Table4.1andFigure4.1).

ThepovertyrateinPennsylvaniaandnationallyishigherthanin2000andhardlychangedfromtheearly1980s)(Figure4.3).

AsmallershareofthePennsylvaniapopulationandofPennsylvaniachildrenliveinpovertyorarelow‐income(incomesbelowtwicethepovertyrate)thannationally(Figures4.3‐4.5).

Chapter5:ThreeDecadesofIncomeInequalityWhilemostfamiliessawlittleimprovementintheirlivingstandardssince1980,thehighest‐income1%ofU.S.andPennsylvaniataxpayershaveenjoyeddramaticincomegrowth.

Thetop1%inPennsylvaniaandtheUnitedStatesnowtakeshome20%ofallincome,upfrom9.2%in1973intheU.S.(Pennsylvaniaestimatesonlygobacktothemid‐1990s.)

Duringtheeconomicexpansionfrom2002to2007,theincomesofthetop1%inPennsylvaniagrewby50%andthetop1%captured54%ofallincomegrowth(Table5.1).

Thefirstfullyearofthecurrenteconomicrecovery(2010)markedastartlingreturntothepre‐recessionpatternofunevenincomegrowth.In2010,theincomeofthetop1%inPennsylvaniagrewby11%andthisgroupcaptured76%ofallincomegrowthinthestate.

In2010,theincomesoftheveryrichestPennsylvanians—the620taxpayerswhomakeupthetop1%ofthetop1%—weresurging.Ourpreliminaryestimateisthattheaverageincomesofthisgroupgrewby$1.7million(to$18,480,207)in2010.Nationally,thetop1%ofthetop1%experiencedanincomeshikein2010of21.5%,morethan$4.2million.

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Chapter 1: The Great Recession & a Lost Decade

WhilemanyotherstatessufferedmorejoblossesandhigherunemploymentthanPennsylvania,theGreatRecessionstillhitPennsylvaniaworkershard.InJuly,afullthreeyearsaftertheofficialendoftherecession,theunemploymentrateinPennsylvaniaremainedhighat7.9%.Thestate’seconomicforecasterGlobalInsightdoesnotexpecttheunemploymentratetoreachitspre‐recessionlowof4.5%anytimeinthenext10years.2Worsestill,Pennsylvania’sjobmarketforthesecondsummerinarowhasstalled,withunemploymentrisingbyahalfapercentagepointandnonfarmpayrollsfallingby3,600jobssinceDecember2011.

RecenttrendsinPennsylvaniapartlyreflecttroublesintheglobaleconomy,asmuchofEuropehasdippedbackintoarecession,weighingdownjobgrowthhereathome.Beyondthoseglobalheadwinds,theU.S.economyremainsmiredinitsownnegativefeedbackloop:highunemploymentdepressesincomegrowth,whichholdsbackspendingonconsumergoods;this,inturn,leadsemployerstolimitnewhiring,startingthecyclealloveragain.Asaresult,employmentgrowthislikelytoremaintooslowtobringdowntheunemploymentrateinthenearfuture.

Compoundingweakprivate‐sectorjobgrowth,Pennsylvaniapolicymakerscontinuetopracticeausterityeconomics—theideathatreducingpublicspendingwhiletheeconomyisweakwillresultinasurgeinprivate‐sectorjobgrowth.Thisapproachcomesattheexpenseofbadlyneededlong‐terminvestmentsthatstrengthenthePennsylvaniaeconomy,suchascapitalbuildingprojects,roadsandbridges,andeducation.PennsylvaniaGovernorTomCorbetthas,intwoconsecutivebudgets,collectedbutnotspentmorethanahalfbilliondollarsintaxrevenue,ineffectsettingasideasizableamountofrevenueforarainydayevenwhileitisrainingheavilyrightnow.Withconstructionpriceslowerthantheywillbefordecades,neitherGovernorCorbettnortheGeneralAssemblyhavetakenstepstoincreaseinvestmentsinPennsylvania’saginginfrastructure.Beyondunspenttaxrevenues,thecommonwealthcouldhavemadekeyinvestmentsinPennsylvania’seconomybyenactingareasonabletaxonMarcellusgasdrilling.TwogovernorsandtwogeneralassemblieshavefailedtoenactadrillingtaxonMarcellusshalegasextractionsimilartotheWestVirginiatax,givingupahalfabillioninrevenuebetweenmid‐2009andmid‐2012.3

AusterityeconomicswithinPennsylvaniaandnationally—inpartbecauseoftheendofRecoveryActfederalassistanceforstateandlocalgovernments—hitPennsylvania’seconomyhardin2011.ThepublicsectorinPennsylvaniashed25,000jobsin2011,with20,000ofthoselossesoccurringinschooldistricts.Sofarin2012thestoryissimilar,withthepublicsectorsheddinganother5,700jobsandtheunemploymentraterisingto7.9%inJuly.

2PennsylvaniaFastFactsJuly2012Edition,PennsylvaniaDepartmentofLaborandIndustry,availableonlineathttp://www.paworkstats.state.pa.us/admin/gsipub/htmlarea/uploads/PA_Fast_Facts.pdf3MichaelWood,“Pennsylvania'sNaturalGasTaxGiveawayExceeds$500MillionMark,”ThirdandState,http://thirdandstate.org/2012/august/pennsylvanias‐natural‐gas‐tax‐giveaway‐exceeds‐500‐million‐mark

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Pennsylvania'sjobsdeficit,orthedifferencebetweenthenumberofjobsPennsylvaniahasandthenumberitneedstoregainitspre‐recessionemploymentrate,stoodat301,300inJuly.Thatnumberincludesthe103,400jobsPennsylvanialostfollowingtherecessionplusthe197,900jobsitneedstokeepupwiththe3.4%growthinpopulationthatPennsylvaniahasexperiencedinthe55monthssincetherecessionbegan.

Westartthischapterwithareviewoftrendsineconomicgrowthfollowedbyamoredetailedreviewofthejobsandunemploymentpictureinthecommonwealth.

Pennsylvania’s Economy, The Great Recession and the Recovery

PercapitaincomepresentedinFigure1.1representsonemeasureofthesizeandgrowthofPennsylvania’seconomysince1979.(Alldatainthisreportareadjustedforinflationandexpressedin2011dollarsunlessotherwisenoted).Between2008and2009,percapitapersonalincomedeclinedby2.7%inPennsylvania,alargerdeclinethaninpreviousrecessions,eventhedeeprecessionoftheearly1980s.TheGreatRecessionwaslesssevereinPennsylvaniathaninthenationasawhole,whichexperienceda4.8%declineinpercapitaincomefrom2008to2009.

PercapitaincomeinPennsylvaniahasbeengrowingsince2009and,asof2011,washigherthanbeforetherecessionbegan.Despitetworecessions,percapitaincomehasgrownby8%since2000.

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Table1.1comparesgrowthsince2000inpercapitaincomeinPennsylvania,thenation,andPennsylvania’ssixborderingstates.OfPennsylvania’sneighbors,onlyWestVirginiahasexperiencedmoregrowthsince2007.Since2000,Maryland,NewYorkandWestVirginiahaveenjoyedmorepercapitaincomegrowththanPennsylvania.

WhilethePennsylvaniaeconomyhasgrownsince2000,aswewillseeinChapter2,littleofthatgrowthhasshownupinthepaychecksofthetypicalworker.Instead,thisgrowthhasaccruedtothetop1%ofPennsylvaniahouseholds,aswedetailinChapter5.Toexplainthesetrends,wewillnowlooktothekeyfactorsthatdrivethegrowthanddistributionofincomesintheeconomy:jobsandunemployment.

Table1.1PerCapitaPersonalIncomeandPerCapitaIncomeGrowth,Pennsylvania,U.S.,andBorderingStates(2011dollars)

State 2000 2007 2011 PercentChange2007‐2011

PercentChange2000‐

2011Pennsylvania $39,313 $42,208 $42,478 0.6% 8.1%UnitedStates $39,582 $42,836 $41,663 ‐2.7% 5.3%Delaware $40,483 $43,163 $41,635 ‐3.5% 2.8%Maryland $45,273 $50,787 $51,038 0.5% 12.7%NewJersey $50,480 $54,492 $53,181 ‐2.4% 5.4%NewYork $45,201 $51,885 $50,545 ‐2.6% 11.8%Ohio $37,462 $38,148 $37,791 ‐0.9% 0.9%WestVirginia $28,947 $31,983 $33,513 4.8% 15.8%Source.KeystoneResearchCenterbasedonBureauofEconomicAnalysisdata

Dramatic Decline in Jobs

TheGreatRecessionofficiallybeganinDecember2007.Modestjoblossesofabout600jobspermonthoccurredinPennsylvaniathroughAugust2008,butbetweenAugust2008andMarch2009,thestate’sjoblossesmushroomedtomorethan21,000jobsamonth.FromMarchtoFebruary2010(thelowpointor“trough”ofemployment),thepaceofjoblossdecelerated,asprovisionsoftheAmericanRecoveryandReinvestmentAct(ARRA)andpoliciesthatstabilizedfinancialmarketsbegantotakeeffect.TheU.S.economyexitedtherecessioninJune2009.FromthebeginningoftherecessionthroughFebruary2010,thePennsylvaniaeconomyshedatotalof242,600jobs(adeclineof4.2%).Evennow,asFigure1.2shows,Pennsylvaniaemploymentisonlyatthesamelevelasitwasatthepeakofthe1990seconomicexpansion.

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ConsistentwithPennsylvania’ssomewhatlesssevererecession,thestateenjoyedrobustjobgrowthintheremainderof2010adding9,000jobspermonth.PercentjobgrowthinPennsylvaniaputthecommonwealthamongthetop10statesin2010(seeTable1.2).

Table1.2RankofEmploymentGrowthinPennsylvaniaandNeighboringStates2009to2010

StateDecember2009

(thousands)

December2010

(thousands)Change Rank

PercentChange Rank

Pennsylvania 5,578 5,660 82,500 4 1.5% 8UnitedStates 129,319 130,346 1,027,000 0.8% Delaware 411 417 6,500 35 1.6% 7Maryland 2,504 2,532 27,900 17 1.1% 19NewJersey 3,862 3,844 ‐18,700 50 ‐0.5% 49NewYork 8,495 8,592 97,700 3 1.2% 16Ohio 5,002 5,057 54,900 8 1.1% 20WestVirginia 742 748 6,300 37 0.8% 31Source.KeystoneResearchCenterbasedonCESdata

Thepaceofjobgrowthinthecommonwealthslowedmarkedlyin2011withthePennsylvaniaeconomyaddingjust3,500jobseachmonth.Thepaceofjobgrowthhascontinuedtobeweakin2012,withemployerssheddingjustover500jobspermonththroughJuly.Table1.3marksasharp

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reversalinfortuneforPennsylvaniacomparedtoTable1.2.WhileinthefirstfullyearoftherecoveryPennsylvania’sjobgrowthoutpacedmostotherstatesandtheUnitedStatesasawhole,Pennsylvaniahaslaggedthenationinjobgrowthoverthepast12months.Duringthepast12months,Pennsylvaniaaddedjust20,000jobs,ranking38thoutof50statesasmeasuredbypercentjobgrowth.

Table1.3RankofEmploymentGrowthinPennsylvaniaandNeighboringStatesJuly2011toJuly2012

StateJuly2011(thousands)

July2012(thousands) Change Rank

PercentChange Rank

Pennsylvania 5,689 5,709 20,000 25 0.4% 38UnitedStates 131,407 133,245 1,838,000 1.4% Delaware 417 417 ‐200 42 0.0% 42Maryland 2,548 2,571 22,600 24 0.9% 31NewJersey 3,859 3,900 40,200 15 1.0% 27NewYork 8,695 8,809 113,300 3 1.3% 22Ohio 5,087 5,187 100,300 4 2.0% 12WestVirginia 755 756 500 41 0.1% 41Source.KeystoneResearchCenterbasedonCESdata

Asmentionedearlier,Pennsylvania'sjobsdeficit—thedifferencebetweenthenumberofjobsPennsylvaniahasandthenumberitneedstoregainitspre‐recessionemploymentrate—nowstandsat301,300.Bycomparison,lastyear’sjobsdeficitstoodat227,100jobs.ThisincreaseisoneillustrationofthesubparrecentperformanceofPennsylvania’slabormarket.4Thejobsdeficithas

4MarkPrice&StephenHerzenberg,TheStateofWorkingPennsylvania2011,September2011,availableonlineathttp://keystoneresearch.org/sites/keystoneresearch.org/files/KRC_SWP_2011.pdf

Table1.4TotalNon‐FarmEmployment,Pennsylvania,U.S.,andBorderingStates(thousands)

State 1980 1990 2000 2007 2009 2011

PercentChange2000‐2011

Pennsylvania 4,753 5,173 5,694 5,801 5,618 5,687 ‐0.1%UnitedStates 90,528 109,487 131,785 137,598 130,807 131,359 ‐0.3%Delaware 259 348 421 439 417 417 ‐0.8%Maryland 1,712 2,173 2,455 2,608 2,524 2,548 3.8%NewJersey 3,060 3,635 3,995 4,079 3,895 3,856 ‐3.5%NewYork 7,207 8,214 8,638 8,734 8,556 8,683 0.5%Ohio 4,367 4,882 5,625 5,428 5,073 5,083 ‐9.6%WestVirginia 646 630 736 758 746 754 2.5%Source.KeystoneResearchCenterbasedonCESdata

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grownsubstantiallybecausejobgrowthinPennsylvaniaisnotkeepingpacewithgrowthintheworking‐agepopulation.

InordertodepletethecurrentjobsdeficitbyJuly2015,Pennsylvaniamustadd11,000jobspermonth.Inthelast12months,Pennsylvaniahasaddedfewerthan1,700jobsamonth.

Despitepoorrecentperformance,Pennsylvania’srelativejobperformanceoverthepast11yearshasbeenclosetothenation’sandinthemiddleoftherankingsamongthestatesinourregion.Maryland,WestVirginiaandNewYorkhadmorejobgrowththanPennsylvaniasince2000,whileDelaware,NewJersey,andespeciallyOhiohadmuchbiggerjoblossesthanPennsylvania(Table1.4).

WenowturnourattentiontoakeypartofthePennsylvanianeconomy,themanufacturingsector.

Pennsylvania’s Manufacturing Base in Decline

ManufacturingremainsanintegralpartofthePennsylvaniaeconomy,representingonein10ofallnon‐farmpayrolljobsin2011.5TheGreatRecessionreducedmanufacturingemploymentby15%(alossof98,200jobs),strikingthesecondbodyblowofthedecadetothissector(Figure1.4).SinceitstroughinJanuary2010,manufacturinghasregained11,700jobs(2.1%),butthisgrowthlagsthe4.6%nationalrecoveryinmanufacturingemploymentsinceJanuary2010(Figure1.5).

5UsingadifferentemploymentserieswhichincorporatesfarmandotheremploymentsourcesavailablefromtheBureauofEconomicAnalysismanufacturingaccountsfor8%oftotalemployment

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WhyDoesManufacturingMatterToTheMiddleClass?

Oneofthekeyadvantagesofamanufacturingjobisthatitpaysbetter,comparedtoothersectorsandcontrollingforworkerandjobcharacteristics.UsingananalysisofU.S.dataincludedinapaperbytheMetropolitanPolicyProgramattheBrookingsInstitution,theKeystoneResearchCenterestimatedthat,aftercontrollingforcharacteristicsthatinfluenceearnings,likeeducationandoccupation,theaverageweeklywageinmanufacturing($605.18)was8.4%higherthaninnon‐manufacturingindustries($558.29).AsillustratedinFigure1.3,thiswagepremiumwaslargerforlow‐wageworkers(11.1%)thanforhigh‐wageworkers(3.8%).Thesedatademonstratethateventodayamanufacturingjobremainsanimportantpathwayforworkerstoenterthemiddleclass.

ToreadmoreonManufacturingandEconomicPolicyseeWhyDoesManufacturingMatter?WhichManufacturingMatters?APolicyFrameworkbySusanHelper,TimothyKrueger,and

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Table1.5presentsemploymentdatainthemanufacturingsectorusingtheQuarterlyCensusofEmploymentandWages(QCEW),adifferentdatasourcethanwetypicallyusetosummarizeemploymenttrends.6TheQCEWprovidesmoredetaileddataonemploymentchangeovertherecessionandrecovery.BecauseQCEWdataarenotseasonallyadjusted,wereportdatainthesamemonthindifferentyearsandcannotmatchexactlytheperiodoftherecession,December2007toJune2009,orthepreciseperiodofthemanufacturingrecoverythatstartedinJanuary2010.

Table1.5

ManufacturingEmploymentChangebyManufacturingSubsector

ManufacturingSubsector(ThreedigitNAICS)

December2007toDecember2009

Change PercentChange

TotalCoveredEmploymentinthePrivateSector (252,664) ‐5.1% 148,088 3.1%

Manufacturing (94,528) ‐14.4% 4,527 0.8%

Foodmanufacturing (1,645) ‐2.4% 261 0.4%

Beverageandtobaccoproductmanufacturing (348) ‐5.1% (101) ‐1.6%

Textilemills (1,290) ‐25.5% (183) ‐4.9%

Textileproductmills (1,038) ‐20.1% (117) ‐2.8%

Apparelmanufacturing (2,712) ‐27.8% (958) ‐13.6%

Leatherandalliedproductmanufacturing (215) ‐20.5% 93 11.1%

Woodproductmanufacturing (7,638) ‐27.7% (1,694) ‐8.5%

Papermanufacturing (1,949) ‐7.3% (675) ‐2.7%

Printingandrelatedsupportactivities (5,852) ‐16.7% (2,649) ‐9.1%

Petroleumandcoalproductsmanufacturing (476) ‐7.3% 106 1.7%

Chemicalmanufacturing (3,063) ‐6.6% (1,142) ‐2.6%

Plasticsandrubberproductsmanufacturing (3,955) ‐10.3% 318 0.9%

Nonmetallicmineralproductmanufacturing (4,371) ‐16.4% (1,893) ‐8.5%

Primarymetalmanufacturing (7,637) ‐17.8% 4,078 11.6%

Fabricatedmetalproductmanufacturing (15,203) ‐16.6% 4,723 6.2%

Machinerymanufacturing (11,725) ‐20.5% 2,629 5.8%

Computerandelectronicproductmanufacturing (7,083) ‐18.0% (194) ‐0.6%

Electricalequipmentandappliancemfg. (2,612) ‐9.7% 2,274 9.4%

Transportationequipmentmanufacturing (5,084) ‐11.9% 467 1.2%

Miscellaneousmanufacturing (3,689) ‐12.2% (623) ‐2.3%Source.KeystoneResearchCenterbasedonQuarterlyCensusofEmploymentandWages

6TheQCEWisasurveyofemploymentandwagesintheeconomybasedonadministrativefilingscompletedbyalmostallemployers—i.e.,thosethatparticipateintheunemploymentinsurancesysteminPennsylvania.ThemostrecentemploymentdatacurrentlyavailablefromtheQCEWisforDecember2011.ComparethistoCurrentEmploymentStatistics(CES),thenormaldatasourceforjobnumbers,forwhichdataareavailablethroughJuly2012.Onanannualbasis,employmentcountsintheCESarebenchmarkedtoQCEWdata,becauseoftheaccuracyoftheQCEW.

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Table1.6ManufacturingEmploymentChangebySelectedManufacturingSubsectors

ManufacturingSubsector(fourdigitNAICS)

Primarymetalmanufacturing (7,637) ‐17.8% 4,078 11.6%Ironandsteelmillsandferroalloymfg. (1,691) ‐11.9% 1,127 9.0%Steelproductmfg.frompurchasedsteel (1,364) ‐17.7% 302 4.8%Aluminaandaluminumproduction (1,486) ‐34.4% 240 8.5%Othernonferrousmetalproduction (349) ‐5.6% 703 11.9%Foundries (2,747) ‐26.5% 1,706 22.4%

Fabricatedmetalproductmanufacturing (15,203) ‐16.6% 4,723 6.2%Forgingandstamping (1,975) ‐17.6% 878 9.5%Cutleryandhandtoolmanufacturing (701) ‐20.6% (79) ‐2.9%Architecturalandstructuralmetalsmfg. (3,649) ‐15.0% 290 1.4%Boiler,tank,andshippingcontainermfg. (514) ‐9.0% (437) ‐8.4%Hardwaremanufacturing (363) ‐29.3% (79) ‐9.0%Springandwireproductmanufacturing (1,164) ‐31.0% 171 6.6%Machineshopsandthreadedproductmfg. (3,539) ‐15.6% 3,322 17.3%Coating,engraving,andheattreatingmetals (1,022) ‐16.3% 390 7.4%Otherfabricatedmetalproductmanufacturing (2,276) ‐17.3% 267 2.5%

Machinerymanufacturing (11,725) ‐20.5% 2,629 5.8%Ag.,construction,andminingmachinerymfg. (3,022) ‐26.6% 1,169 14.0%Industrialmachinerymanufacturing (1,870) ‐29.6% 156 3.5%Commercialandserviceindustrymachinery (990) ‐19.6% (337) ‐8.3%HVACandcommercialrefrigerationequipment (661) ‐11.1% (386) ‐7.3%Metalworkingmachinerymanufacturing (3,212) ‐24.2% 823 8.2%Turbineandpowertransmissionequipmentmfg. (535) ‐15.0% 431 14.2%Othergeneralpurposemachinerymanufacturing (1,435) ‐12.2% 773 7.5%

Electricalequipmentandappliancemfg. (2,612) ‐9.7% 2,274 9.4%Electriclightingequipmentmanufacturing (547) ‐20.0% (4) ‐0.2%Householdappliancemanufacturing 48 10.8% 60 12.2%Electricalequipmentmanufacturing (105) ‐1.4% 100 1.4%Otherelectricalequipmentandcomponentmfg. (2,008) ‐12.4% 2,118 14.9%

Transportationequipmentmanufacturing (5,084) ‐11.9% 467 1.2%Motorvehiclemanufacturing n.a. n.a. n.a. n.a.Motorvehiclebodyandtrailermanufacturing (2,940) ‐29.9% (1,787) ‐25.9%Motorvehiclepartsmanufacturing (1,231) ‐15.6% 1,528 23.0%Aerospaceproductandpartsmanufacturing 2,026 22.5% 572 5.2%Railroadrollingstockmanufacturing (1,570) ‐21.1% 1,685 28.7%Shipandboatbuilding n.a. n.a. n.a. n.a.Othertransportationequipmentmanufacturing (1,009) ‐17.2% (1,834) ‐37.7%

Note.Shadedrowsaremanufacturingsubsectorsthatpostedgainsintherecovery(December2009toDecember2011)nearlyequivalenttoorexceedingtheirlossesduringtherecession(December2007toDecember2009).Source.KeystoneResearchCenterbasedonQuarterlyCensusofEmploymentandWages

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ThedatainTable1.5revealsthatnomanufacturingsubsectorinPennsylvaniaescapedsubstantialjoblossesduringtherecession.Theyalsorevealthatgrowthinmanufacturingemploymentduringtherecoveryhasbeenlargelyinfivemanufacturingsubsectors:primarymetals;electricalequipmentandappliances;fabricatedmetalproducts;machinery;andtransportationequipmentmanufacturing(allshadedinGreyinTable1.5).InTable1.6(previouspage),webreakdownthesefivemanufacturingindustriesintotheirmoredetailedsubsectors;shadedingreyarethosesectorsthathaveseenjobgrowthduringtherecoverynearlyequivalenttoorexceedingtheirlossesduringtherecession.7Thosefivesectorsare:othernonferrousmetalproduction,machineshopsandthreadedproductmanufacturing,otherelectricalequipmentandcomponentmanufacturing,motorvehiclepartsmanufacturing,andrailroadrollingstockmanufacturing.

Duringtherecovery,thosesectorsthathavepostedstrongemploymentgrowthlargelyreflectPennsylvania’shistoricalstrengthsinmanufacturingaswellastherobustrecoveryinautomanufacturingfollowingtherescueofGeneralMotorsandChryslerfrombankruptcy.(MotorvehiclepartsmanufacturinghasaddedbackmorejobsthanitlostduringtherecessioninPennsylvania.)

Table1.7comparesjoblosssince2000inthemanufacturingsectorintheUnitedStatesasawhole,inPennsylvania,andamongitsborderingstates.

Table1.7ManufacturingEmployment,Pennsylvania,U.S.,andBorderingStates(1000s)

State 1990 2000 2007 2009 2011PercentChange2000‐2011

Pennsylvania 950 864 659 574 564 ‐34.7%UnitedStates 17,695 17,263 13,879 11,847 11,733 ‐32.0%Delaware 46 42 33 28 26 ‐38.1%Maryland 199 172 132 119 113 ‐34.3%NewJersey 530 422 311 266 254 ‐39.7%NewYork 982 749 552 476 458 ‐38.9%Ohio 1,060 1,021 771 629 638 ‐37.5%WestVirginia 82 76 59 51 50 ‐34.8%Source.KeystoneResearchCenterbasedonCESdata

7Table1.4presentsemploymentdatabythree‐digitNAICScodeandTable1.5presentsdatabyfour‐digitNAICScode.

TheChinaToll

RobertScottoftheEconomicPolicyInstituteestimatesthattheU.S.TradeDeficitwithChinahasdisplaced101,200Pennsylvaniajobsbetween2001and2011.Mostofthosejobslosseswereinmanufacturing.

http://www.epi.org/publication/bp345‐china‐growing‐trade‐deficit‐cost/

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MarylandandPennsylvaniasufferedthesmallestlossofmanufacturingemploymentsince2000,sheddingjustoverathirdoftheirmanufacturingworkforces,59,100and300,100,respectively.Withthenationandourneighboringstateslosingnotlessthan30%ofmanufacturingemploymentovertheperiod,thelast11yearshavebeenagrimoneformanufacturinganditscapacitytocreatemiddle‐classjobs.

Increasing Unemployment and Underemployment

Afterreaching4.2%inearly2007,thePennsylvaniaunemploymentrateclimbedtoapeakof8.7%inFebruary2010,surpassingthepeakunemploymentratefollowingboththe1990and2001recessions.ThreeyearsaftertheendoftheGreatRecession,stateunemploymentremainsabove7%and,inrecentmonths,hasbeenheadingbacktoward8%(Figure1.6).

Withmenconcentratedinmanufacturingandconstruction,thetwosectorshardesthitbytherecession,Pennsylvania’sunemploymentrateamongmenremainsabove8%.Asintherestofthecountry,thestate’sunemploymentrateamongwomenhasbeenlowerthanformen(Table1.8).

UnemploymentratesforAfricanAmericansandHispanicsinthecommonwealthremaininthedoubledigitsandsubstantiallyhigherthanforwhites.Theunemploymentrateforyoungworkersages16‐24ismorethandoubletheunemploymentrateforotheragegroups.Workerswhodidnotcompletehighschoolfacesubstantiallyhigherunemploymentratesthanmostworkers.

Table1.8UnemploymentRates,PennsylvaniaandU.S.,2011

Demographic Pennsylvania UnitedStatesAll 7.8% 8.9%GenderMale 8.3% 9.4%Female 7.2% 8.5%

Age16‐24yrs 14.2% 17.3%25‐54yrs 6.9% 7.9%55yrsandolder 6.0% 6.6%

Race/ethnicityWhite 6.7% 7.2%Black 12.9% 15.9%Hispanic 14.4% 11.5%Asian/Pacificislander 10.7% 7.2%

EducationLessthanhighschool 16.6% 17.8%Highschool 9.2% 11.1%Somecollege 8.2% 9.4%Bachelor'sorhigher 4.6% 4.5%

Source.EconomicPolicyInstituteanalysisofCPSdata

Definition

Unemploymentratescounttheshareofthelaborforcethatisnotcurrentlyworkingbutisactivelyseekingemployment.Moreprecisely,theunemployedmustmeetallofthefollowingcriteria:theyhadnoemploymentduringagivenweek,theywereavailableforworkatthattime,andtheymadespecificeffortstofindemploymentsometimeduringthepreviousfour‐weekperiod.Personslaidofffromajobandexpectingrecallneednotbelookingforworktobecountedasunemployed.

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WorkerswithaCollegeEducationDoNotEscapetheHardships ofRecessions

AsTable1.8makesclear,workerswithonlyahighschooldiplomain2011hadunemploymentratesthatweretwicethoseofcollegegraduates.Thus,workerscansignificantlyreducetheirchancesofbeingunemployedbygoingtocollege.ButasTable1.9illustrates,acollegeeducationdoesnotpreventgraduatesfromexperiencingtheincreasedhardshipthatcomeswitharecession.TodayacollegegraduateinPennsylvaniaistwiceaslikelytobeunemployedasacollegegraduatebeforetherecessionstarted.

Table1.9UnemploymentRatesbyEducationinPennsylvania2007and2011

Education 2007 2011PercentChange

Lessthanhighschool 11.1% 16.6% 50%Highschool 4.9% 9.2% 88%Somecollege 3.8% 8.2% 116%Bachelor'sorhigher 1.8% 4.6% 156%Source.EconomicPolicyInstituteanalysisofCPSdata

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Keepinmindthattheunemploymentrateisaconservativemeasureofwhatlabormarketstatisticianscalltheunderutilizationoflabor.Itfailstocapturepeoplewhoworkpart‐time

becausetheycan’tfindafull‐timejoborpeoplewhohavestoppedlookingforajobbecausetheydon’tbelievetheycanfindone.Thebroadestmeasureofthelabor‐marketslackthattakesintoaccountthesefactorsiscalledtheunderemploymentrate(seeboxabovewiththefulldefinition).

In2011oneinsevenworkersinPennsylvaniawereunderemployedcomparedtooneinsixU.S.workers(Table1.10).Oneinfourworkers16‐24yearsofage,oneinfiveAfrican‐AmericansandnearlyoneinfourHispanicswereunderemployedin2011.Astartlingoneineveryfourhighschooldropoutsandoneinsixhighschoolgraduatescouldn’tfindenoughworkin2011.

Table1.10UnderemploymentRates,PennsylvaniaandU.S.,2011

Demographic Pennsylvania UnitedStatesAll 13.9% 15.9%GenderMale 14.3% 16.1%Female 13.5% 15.7%

Race/ethnicityWhite 12.3% 13.1%African‐American 20.6% 24.8%Hispanic 23.8% 22.1%Asian/Pacificislander 16.2% 13.4%

Source.EconomicPolicyInstituteanalysisofCPSdata

Definition

Underemploymentratesincludefourgroups:(1)theunemployed,(2)discouragedworkers(thosewhohavegivenuplookingforworkinthelastyear),(3)part‐timeworkerswhowouldpreferfull‐timework,and(4)thosewhofaceasubstantialbarriertowork,suchaslackoftransportationorchildcare(thislastgrouptendstobeverysmall).

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A Slow Recovery That Could Have Been Worse

AlthoughofficiallytheGreatRecessionbeganinDecember2007,thefullextentoftheimpactofthecollapsinghousingbubbledidn’tbecomeapparentuntilSeptember15,2008whenthefinancialservicesfirmLehmanBrothersfiledforbankruptcyafterfailingtosecurecriticalaidfromtheBushadministration.Withinaday,thefalloutfromasimilarpotentialbankruptcyatAmericanInternationalGroup(AIG)rockedfinancialmarketsandpromptedaseriesofinterventionsbytheFederalReserveandtheBushadministrationinthebankingandautosectors.ThesepolicieswereaimedatavoidingpolicymisstepsthatdeepenedandlengthenedtheGreatDepressionofthe1930s.

Inpartbecausetheseeventsunfoldedoverthecourseofthe2008presidentialelectionandtransition,aneconomicstimuluspackagewasdelayeduntiltheAmericanRecoveryandReinvestmentAct(ARRA)passedCongressinmid‐February2009.BetweenSeptember2008andMarch2009,thePennsylvanialabormarketlostastunning144,500jobs.

Wereitnotforthefullrangeoffederalinterventions,includingARRA,Pennsylvaniacouldhavelostasmanyas400,000jobs,sendingtheunemploymentrateto15%.Instead,thestate’sunemploymentratepeakedat8.7%,andPennsylvaniaemploymentlossoverthewholeoftheGreatRecessionwas243,000jobs.8

Asjoblossesandcutsinworkhoursacceleratedin2008andearly2009,incomesgeneratedinthemarket‐basedeconomyinPennsylvaniacratered.Betweenthe3rdquarterof2008andthe3rdquarterof2009,incomesderivedfromprovidingservicestothemarketeconomydeclinedby7%.However,overthissameperiod,disposablepersonalincomepercapita—theincomeavailabletoPennsylvaniahouseholdstopurchasegoodsandservices—declinedbyjust1%.Governmenttransfers,suchasforSocialSecurity,unemploymentinsuranceorpublichealthcareandtaxcuts,madethedifference.

Figure1.7illustratestheimpactoftherecessionandthefederalinterventionsincludedinARRAonpersonalincomeinPennsylvania.Thebluelinerepresentspersonalincomeminustransferspercapitaaproxyfortheincomesearnedinthemarket.Thesolidblacklinerepresentsdisposablepersonalincomepercapitaortheincomehouseholdshaveavailabletospendongoodsandservices.Thedashedblacklineinbetweenprovidesaroughsenseofhowimportantfederaltax

8243,000isthenumberofjobslostbetweenDecember2007andthetroughofemploymentinPennsylvaniawhichwasFebruary2010.TheofficialendoftherecessionwasJune2009asdefinedbytheBusinessCycleDatingCommitteeattheNationalBureauofEconomicResearch(NBER).TheNBERconsidersmorethanjustemploymentinidentifyingbusinesscyclepeaksandtroughs.

TheRecoveryActWorked

EconomicRecoveryPartTwo:WeNeedMoreActiononJobsandWages:ReviewstheimpactthroughDecember2010onemploymentandunemploymentatthestateandlocallevelinPennsylvania.

http://keystoneresearch.org/sites/keystoneresearch.org/files/Economic‐Recovery‐Part‐2.pdf

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cuts,taxcreditsandARRAbenefits—suchasextendedunemploymentinsuranceandfoodstamps—weretopreventinglargerdeclinesinconsumerspending.9

Iffederalpolicymakershadsatontheirhandsinthewakeoftherecession,disposableincomepercapitalikelywouldhavedeclinedby$2,500betweenthe3rdquarterof2008andthe3rdquarterof2009.Instead,disposablepersonalincomepercapitaoverthisperioddeclinedbyjustunder$400percapita.Deficit‐financedfederaltaxcutsandcredits,andenhancedunemployment,socialsecurityandfoodstampbenefitsbluntedthedeclineinconsumerspendingintheprivateeconomy.Withoutthisfederalaction,PennsylvaniaincomewouldhavedeclinedmuchmorethanitdidandthePennsylvaniaeconomywouldhaveexperiencedsignificantlygreaterjoblossthanitdid.

Althoughmarket‐basedincomesbegantorecoverinthelastquarterof2009,theyhaveyettomatchtheirpre‐recessionpeak—areflectionofthecontinuedhighlevelofunemploymentstillboggingdowntheeconomy.

9ItdoessobyassumingthatthehistoricrelationshipbetweenpercapitadisposablepersonalincomeandpersonalincomeminustransfersinPennsylvaniawasmaintainedfrom2008totheendof2011.

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Figure1.8tracksemploymentgrowthfromthestartoftherecoveryineachofthelastthreerecessions.InPennsylvania,employmentgrowthsincethebeginningoftherecoveryinJune2009hasbeenstrongerthanineitherthe1990orthe2001recession.However,becausethejoblossesassociatedwiththisrecessionweremoresubstantialthanineitherofthelasttworecessions,Pennsylvaniaremainswellbelowfullemployment.Inaddition,jobgrowthhasbeendecliningrecently,asnotedearlier.

Complicatingmattersfurther,thecurrentCongress,electedin2010,hasfailedtoextendaidtostateandlocalgovernmentsbeyondwhatwascontainedintheARRA.Atthestatelevel,GovernorCorbettandthePennsylvaniaLegislaturehavechosentorelyexclusivelyonbudgetcutstoaddresstheexpirationoffederalARRAaidratherthantakeabalancedapproachthatincludesbudgetsavingsandnewrevenue.Inaddition,surplusesofmorethanhalfabilliondollarshavebeencarriedforwardineachofthelasttwostatebudgets.

Adirectresultofexpiringfederalaidandstatebudgetcutswasthelossoftensofthousandsofpublic‐sectorjobsin2011.Figure1.9presentsthechangeinemploymentsincethestartoftherecoveryinthethreemostrecentrecessions,revealingthatthelossofpublic‐sectorjobsisuniquetothecurrentrecovery.

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Thirty‐sevenmonthsaftertheofficialendofthe1990recession,employmentinPennsylvania’spublicsectorhadclimbedby5,900jobs.Inthesameperiodfollowingtheendofthe2001recession,Pennsylvania’spublicsectorhadadded9,900jobs.The2007recessionofficiallyendedinJune2009,andsincethenthePennsylvaniapublicsectorhasshed31,000jobs.10

10Notethatmostoftheincreaseintemporarypublic‐sectoremploymentassociatedwith2010censusoccurredinthefirstsixmonthsof2010.

AusterityEconomicsInAction

AnalysisbyBryceCovertandMikeKonczalfindsthat70percentofpublicsectorjoblossesatthestateandlocallevelin2011wereinjust12states.Thesewereallstates,suchasPennsylvania,thatembracedausterityeconomics:theyundertookdeepcutstoaddressfiscalchallengesratherthanabalancedapproach:Alabama,Indiana,Maine,Michigan,Minnesota,Montana,NewHampshire,NorthCarolina,Ohio,Pennsylvania,WisconsinandTexas.TheCovertandKonczalanalysissuggeststhatthedeteriorationinPennsylvania’srecentjob‐growthrankingisnotarandomeventbutapredictableresultofpolicychangessince2010.

http://www.rooseveltinstitute.org/sites/all/files/GOPProjectSlashingPublicWorkforce.pdf

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TheQuarterlyCensusofEmploymentandWages(QCEW),asnotedearlier(inthediscussionofmanufacturingemploymenttrends),provideslesstimelybutmoredetaileddataonchangesinemploymentbyindustry.

ThemostcurrentdataavailablefromtheQCEWareforDecember2011.Table1.11breaksdownPennsylvania’semploymentgrowthbysectorfromtheQCEWin2011,showingthattherewasalossof25,000public‐sectorjobsthatyear,withthebulkofthemconcentratedinlocalgovernment.Table1.12breaksdownlocalgovernmentemploymentoverthissameperiod,revealingthat19,000localjoblosseswereinElementaryandSecondaryschools,whichfacedsignificantfundingcutsinthe2011‐12statebudget.Table1.13providesdetaileddataonpublic‐sectorjoblossesatthestatelevel.

Table1.11

EmploymentchangeDecember2010toDecember2011bySectorinPennsylvania

SectorDecember2010

December2011 Change

PercentChange

TotalCovered 5,555,783 5,595,135 39,352 0.7%

Private 4,813,921 4,878,519 64,598 1.3%

Public 741,862 716,616 (25,246) ‐3.4%

Federal 104,525 101,951 (2,574) ‐2.5%

State 140,146 137,526 (2,620) ‐1.9%

Local 497,191 477,139 (20,052) ‐4.0%Source.KeystoneResearchCenterbasedonQCEWdata

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Table1.12

EmploymentchangeDecember2010toDecember2011bySectorinPennsylvania

SubsectorofLocalGovernmentinPennsylvania December2010

December2011

LocalGovernmentTotal 497,191 477,139 (20,052) ‐4.0%

Utilities 10,113 10,179 66 0.7%

Heavyandcivilengineeringconstruction 2,855 2,835 (20) ‐0.7%

Transitandgroundpassengertransportation 7,712 7,996 284 3.7%

Supportactivitiesfortransportation 1,485 1,416 (69) ‐4.6%

Otherinformationservices 2,204 2,122 (82) ‐3.7%

Professionalandtechnicalservices 21 42 21 100.0%

Administrativeandsupportservices 1,648 2,394 746 45.3%

Wastemanagementandremediationservices 435 467 32 7.4%

Educationalservices 314,248 294,526 (19,722) ‐6.3%

Elementaryandsecondaryschools 296,966 277,591 (19,375) ‐6.5%

Juniorcolleges 17,111 16,630 (481) ‐2.8%

Nursingandresidentialcarefacilities 10,763 10,406 (357) ‐3.3%

Socialassistance 2,209 2,961 752 34.0%

Performingartsandspectatorsports 436 379 (57) ‐13.1%

Museums,historicalsites,zoos,andparks 112 112 0 0.0%

Amusements,gambling,andrecreation 557 538 (19) ‐3.4%

Foodservicesanddrinkingplaces 932 940 8 0.9%

Personalandlaundryservices 1,358 1,307 (51) ‐3.8%

Executive,legislativeandgeneralgovernment 102,694 101,362 (1,332) ‐1.3%

Justice,publicorder,andsafetyactivities 25,132 25,092 (40) ‐0.2%

Courts 3,987 3,991 4 0.1%

Policeprotection 9,766 9,662 (104) ‐1.1%

Legalcounselandprosecution 1,043 992 (51) ‐4.9%

Correctionalinstitutions 6,046 6,097 51 0.8%

Paroleofficesandprobationoffices 597 582 (15) ‐2.5%

Fireprotection 3,583 3,650 67 1.9%

Administrationofenvironmentalprograms 1,442 1,382 (60) ‐4.2%

Community&housingprog.administration 5,132 5,109 (23) ‐0.4%

Administrationofeconomicprograms 1,103 1,092 (11) ‐1.0%Note.Asaresultofnon‐disclosureofdatabytheBureauofLaborStatisticsthesumofdatabysubsectorwillnotsumtoequalthelocaltotal.

Source.KeystoneResearchCenterbasedonQCEWdata

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Table1.13

EmploymentchangeDecember2010toDecember2011ForStateGovernment

SubsectorofStateGovernmentDecember2010

December2011 Change

PercentChange

StateGovernmentTotal 140,146 137,526 (2,620) ‐1.9%

Animalproductionandaquaculture 131 116 (15) ‐11.5%

Heavyandcivilengineeringconstruction 6,441 6,401 (40) ‐0.6%

Foodandbeveragestores 4,780 4,554 (226) ‐4.7%

Professionalandtechnicalservices 4,392 4,380 (12) ‐0.3%

Administrativeandsupportservices 1,728 1,543 (185) ‐10.7%

Educationalservices 37,854 37,594 (260) ‐0.7%

Collegesanduniversities 37,550 37,305 (245) ‐0.7%

Ambulatoryhealthcareservices 704 695 (9) ‐1.3%

Hospitals 4,557 3,999 (558) ‐12.2%

Nursingandresidentialcarefacilities 6,887 6,654 (233) ‐3.4%

Socialassistance 7,811 7,490 (321) ‐4.1%

Museums,historicalsites,zoos,andparks 216 211 (5) ‐2.3%

Amusements,gambling,andrecreation 238 240 2 0.8%

Executive,legislative&gen.government 9,624 9,242 (382) ‐4.0%

Justice,publicorder,andsafetyactivities 24,734 24,159 (575) ‐2.3%

Courts 1,022 1,011 (11) ‐1.1%

Policeprotection 6,051 5,970 (81) ‐1.3%

Legalcounselandprosecution 733 676 (57) ‐7.8%

Correctionalinstitutions 15,649 15,178 (471) ‐3.0%

Paroleofficesandprobationoffices 1,063 1,071 8 0.8%

Administrationofhumanresourceprog. 6,233 6,152 (81) ‐1.3%

Administrationofenvironmentalprog. 5,511 5,666 155 2.8%

Administrationofeconomicprograms 4,897 4,892 (5) ‐0.1%Note.Asaresultofnon‐disclosureofdatabytheBureauofLaborStatisticsthesumofdatabysubsectorwillnotsumtoequalthestatetotal.

Source.KeystoneResearchCenterbasedonQCEWdata

WenowturnourattentiontotrendsinemploymentoverthelastsevendecadesandbrieflytoincomesoverthelastthreedecadestorevealtheconsequencesofweakemploymentgrowthonincomegrowthinthePennsylvaniaeconomy.

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A Lost Decade

Tworecessionsinadecademaketheperiodfrom2000‐2010theworstintermsofjobcreationinPennsylvaniasince1940(Figure1.10).

Weakjobgrowthinthelastdecadetranslatedintofallingincomes.Ourdataonincomesatthestatelevelonlyextendbacktothe1980s,butthepatternofincomegrowthfollowsthatofjobgrowth.Medianfour‐personfamilyincomegrewalmosttwiceasfastinthe1990sasitdidinthe1980s,butinthelastdecade,itactuallydeclined.Medianfour‐personfamilyincomeinPennsylvaniadeclinedby$6,136in2010from$82,818in2000(Figure1.11).11

Thesedatamakeclearthatstrongjobgrowthisnotjustimportantfortheunemployedoryounggraduates;itisalsoanecessaryingredientfor

11Thedatasourceformedianfour‐personfamilyincomeseriesforPennsylvaniaswitchesin2004‐05fromtheMarchCurrentPopulationSurveytotheAmericanCommunitySurvey.Otherincometimeserieswhicharemeasuredusingthesameinstrumentacrossthewholeperiodalsodemonstrateadeclineinincomesoverthepastdecade.Medianhouseholdincome,availableforPennsylvaniafrom2000to2010fromtheMarchCurrentPopulationSurvey,declinedfromits2000levelby$4,940to$48,144in2010.MedianhouseholdincomeasmeasuredintheAmericanCommunitySurveydeclinedoverthesameperiodby$927to$49,288in2010.AveragetaxableincomeinPennsylvaniaestimatedfromPennsylvaniaDepartmentofRevenue(DOR)andInternalRevenueService(IRS)datadeclinedfromits2000levelby3,641to$51,289in2010(SeeChapter5formethodologicaldetailsontheconstructionofthetaxableincometimeseries).

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broad‐basedgrowthinincomes.

Inthenextsection,webrieflyreviewPennsylvania’spopulationgrowthandlaborforcecharacteristicsbeforereturning,inChapter2,totheimpactofweakjobgrowthonthewages.

Some Basic Facts on the Pennsylvania Economy

Pennsylvania’s Population and Workforce Growing

AsshowninTable1.14,Pennsylvania’spopulationgrewby3.4%from2000to2010,asthecommonwealthaddedjustover420,000people.Ofsixneighboringstates,half—Delaware,MarylandandNewJersey—grewfaster.

Pennsylvania’slaborforcein2011stoodat6.3million.ThePennsylvanialaborforceissubstantiallymorewhite(83%)thanthelaborforceofthenation(67%)(Table1.15).

Table1.14PopulationandPopulationGrowth,Pennsylvania,U.S.,andBorderingStates,2000‐2010

State 2000 2010 PercentChange

Pennsylvania 12,281,054 12,702,379 3.4%UnitedStates 281,421,906 308,745,538 9.7%Delaware 783,600 897,934 14.6%Maryland 5,296,486 5,773,552 9.0%NewJersey 8,414,350 8,791,894 4.5%NewYork 18,976,457 19,378,102 2.1%Ohio 11,353,140 11,536,504 1.6%WestVirginia 1,808,344 1,852,994 2.5%Source.U.S.CensusBureau

Table1.15LaborForceDemographics,PennsylvaniaandU.S.,2011Demographic Pennsylvania UnitedStatesGenderMale 53.1% 53.4%Female 46.9% 46.6%

Race/ethnicityWhite 82.9% 67.3%African‐American 8.9% 11.1%Hispanic 4.7% 14.9%Other 3.5% 6.7%

Source.EPIanalysisofCPSdata

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Labor Force Participation Rates Reveal a Strong and Widely Shared Work Ethic

In2011,63.2%ofadultsparticipatedinthePennsylvanialaborforce,aboutapercentagepointlowerthanthenationalaverageof64.1%(Table1.16).Laborforceparticipationratesbyagegrouprevealthat60.6%ofpeopleages16to24participateinthelabormarketcomparedto55%ofworkersinthisagegroupnationally.AmongPennsylvaniaadultsages25to54,81.8%participateinthelabormarket,two‐tenthsofapercentagepointhigherthanthenationalaverage.Itisamongadults55andolderthatPennsylvanialaborforceparticipationratesfalloffcomparedtothenationalaverage:38.2%ofPennsylvaniaadults55andolderparticipateinthelabormarketcomparedto40.3%nationally.

Figure1.12examinesthechangesinlaborforceparticipationratesformenandwomeninPennsylvaniaandtheUnitedStatesbetween1979and2011.Theyrevealthefamiliarpatternofrisingparticipationofwomenoverthisperiodandalongrungradualdeclineinmen’slaborforceparticipation.In1979,just

Table1.16LaborForceParticipationRatesbyDemographic,PennsylvaniaandU.S.,2011Demographic Pennsylvania UnitedStatesAll 63.2% 64.1%GenderMale 69.7% 70.5%Female 57.1% 58.1%

Race/ethnicityWhite 63.7% 64.1%African‐American 58.9% 61.3%Hispanic 61.7% 66.5%Asian/Pacificislander 61.5% 64.7%

Source.EPIanalysisofCPSdata

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shyofthreeoutoffourmeninPennsylvaniawereworkingorlookingforwork.Thatsharehasdeclinedbyroughlyfivepercentagespoints,to69.7%in2011.ForwomeninPennsylvaniaandthenation,participationinthelaborforcehasbeenontheupswingoverthissameperiod.In1979,46.1%ofwomeninPennsylvaniaparticipatedinthelabormarket,afigurethathasincreasedby11percentagepointsto57.1%in2011.

Key Sectors in Pennsylvania

GrossDomesticProduct(GDP),presentedinTable1.15,showsthetotalvalueofallgoodsandservicesproducedinPennsylvania.In2011,PennsylvaniaGDPwas$578billion.ThelasttwocolumnsofthetablepresenttotalemploymentasmeasuredbytheBureauofEconomicAnalysis(BEA)in2010.Unliketheemploymentfigureswehavepresentedthusfar,theemploymentdatamaintainedbytheBEAalsoincludecountsoffarmingandsoleproprietorshipemployment.ThemostcurrentemploymentcountsavailablefromtheBEAarefor2010,whichwepresentalongside2011GDP.

OfallthemajorindustrialsectorsinthePennsylvaniaeconomy,thethreelargestsectorsasashareofeitherGDPoremploymentareManufacturing,HealthCareandSocialAssistance(discussedinmoredetailinthenextsection)andGovernment

Intheprivatesector,Manufacturingaccountsfor12%ofGDPand8%oftotalemployment,andHealthCareandSocialAssistanceaccountsfor10%ofGDPand13.9%oftotalemployment.ContrastthesetwosectorswithMining,whichcapturescoalmining,oilextractionandmostoftheeconomicactivityassociatedwithMarcellusShalenaturalgasextraction.MininginPennsylvaniain2011accountedfor1.3%ofGDPand0.2%ofemployment.

ThepublicsectorinPennsylvaniaaccountedforjustshyof$59billionineconomicactivity(10.2%ofallGDP)andemploys11.6%oftheworkforce.

The Middle Class Challenge Presented by Health Care and Social Assistance

HealthCareandSocialAssistanceincludestheofficesofphysicians,hospitals,nursinghomesandchildCareproviders.Whileoverallprivate‐sectoremploymentplungedduringtheGreatRecession,HealthCareandSocialAssistanceadded29,000jobs(Table1.16).Jobgrowthhascontinuedinthissectorastheoveralleconomybegantorecover,addinganother28,700jobsbetweenDecember2009andDecember2011.NoothersectorinthePennsylvaniaeconomytodaybettercapturesthechallengeswefaceinstrengtheningthemiddleclass.

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Table1.17

PennsylvaniaGrossDomesticProductandEmploymentByIndustry

Sector

GrossDomesticProduct

(millionsof2011dollars)

PercentofTotalGDP

Employment2010

PercentofTotal

Employment

Total $578,839 7,137,155

Privateindustries $519,654 89.8% 6,237,184 87.4%

Agriculture,forestry,fishing,&hunting $3,551 0.6% 17,620 0.2%

Mining $7,413 1.3% 41,541 0.6%

Utilities $11,273 1.9% 22,526 0.3%

Construction $19,732 3.4% 354,776 5.0%

Manufacturing $70,958 12.3% 589,431 8.3%

Durablegoods $37,606 6.5% 353,357 5.0%

Nondurablegoods $33,352 5.8% 236,074 3.3%

Wholesaletrade $34,026 5.9% 243,980 3.4%

Retailtrade $33,321 5.8% 765,013 10.7%

Transportationandwarehousing $16,571 2.9% 254,648 3.6%

Information $22,561 3.9% 108,890 1.5%

Financeandinsurance $47,920 8.3% 397,113 5.6%

Realestateandrentalandleasing $64,572 11.2% 248,692 3.5%

Professional,scientific,andtechnicalservices $46,258 8.0% 458,446 6.4%

Managementofcompaniesandenterprises $19,140 3.3% 123,069 1.7%

Administrative&wastemgmt.services $14,832 2.6% 356,721 5.0%

Educationalservices $12,857 2.2% 272,950 3.8%

Healthcareandsocialassistance $59,916 10.4% 994,847 13.9%

Arts,entertainment,andrecreation $6,513 1.1% 153,001 2.1%

Accommodationandfoodservices $13,481 2.3% 445,407 6.2%

Otherservices,exceptgovernment $14,758 2.5% 388,513 5.4%

Government $59,185 10.2% 825,358 11.6%

Source.KeystoneResearchCenterbasedonBEAdata

HealthCareandSocialAssistancepowerfullyillustratestheriseinearningsinequalitysince1979betweenworkersbasedoneducationalcredentials(SeeChapter2formorediscussiononthistopic).ThehighestpayingPennsylvaniaoccupationsinthissectorincludesurgeons($92.15perhour);thelowestpayingoccupationsincludechildcareworkers($9.98perhour)andhomehealthaides(10.36perhour).12AccordingtotheOccupationalHandbookoftheBureauofLaborStatistics(BLS),theentrylevelcredentialforhomehealthaidesislessthanahighschooleducationandforchildcareworkersitisahighschooldiploma.AswedetailinChapter2,thewagesofworkerswithlessthanahighschooldiplomaarelowertodaythantheywerein1979andhavestagnatedforbothmenandwomenwithhighschooldiplomas.ThePennsylvaniaDepartmentofLaborandIndustryprojectsemploymentgrowthinPennsylvaniainbothoftheselow‐paidoccupationswillbeabove

12Meanhourlywages,May2011OccupationalEmploymentandWageEstimates,OccupationalEmploymentStatistics(OES)availableonlineathttp://www.bls.gov/oes/oes_dl.htm

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average(6.4%)through2020,withjobsincreasingamonghomehealthaidesby32%andamongchildcareworkersby9.8%.13

Whiletheselow‐payingcaringjobscanoffergreatnon‐financialrewardstotheworkerswhocarefortheyoung,theelderly,andthedisabled,theyarealsochronicallyamongtheworstinpayandbenefits.AsManufacturingemploymenthasdeclinedandemploymentinHealthCareandSocialAssistancehasincreasedoverthelastseveraldecades,inequalityhasincreasedandjobqualityerodedforworkerswithoutpost‐secondarycredentials.Inthefuture,amajorchallengeistoimproveoutcomesforconsumersinthesesectors,jobqualityforworkers,andaffordableaccesstothesecriticalservices.Thischallengewillbeeasiertoachievebecausethecostoflower‐paidworkersisrelativelylow(especiallyinacutehealthcare)asashareoftotalcosts.Inaddition,improvingjobscansavemoneybyreducingworkerturnoverandalsoimprovinghealthcarequality.

Table1.18ChangeinEmploymentinHealthCareandSocialAssistancebySubsector2007to2011

HealthCareandSocialAssistance(ThreedigitNAICS)

TotalCoveredEmploymentinthePrivateSector (252,664) ‐5.1% 148,088 3.1%Healthcareandsocialassistance 29,297 3.4% 28,741 3.3%Ambulatoryhealthcareservices 12,722 4.8% 11,616 4.2%

Officesofphysicians 4,136 3.9% 1,625 1.5%Officesofdentists 540 1.7% 303 0.9%Officesofotherhealthpractitioners 3,493 10.4% 3,320 9.0%Outpatientcarecenters 1,095 3.6% 2,523 8.1%Medicalanddiagnosticlaboratories 75 0.7% 101 0.9%Homehealthcareservices 2,408 7.2% 2,879 8.0%Otherambulatoryhealthcareservices 975 5.3% 865 4.5%

Hospitals (3,227) ‐1.2% 1,744 0.7%Generalmedicalandsurgicalhospitals (5,358) ‐2.2% (97) 0.0%Psychiatricandsubstanceabusehospitals 368 4.5% 656 7.6%Otherhospitals 1,763 9.1% 1,185 5.6%

Nursingandresidentialcarefacilities 5,843 3.1% 4,700 2.4%Nursingcarefacilities (1,165) ‐1.5% 1,352 1.8%Residentialmentalhealthfacilities 2,984 6.5% 2,338 4.8%Communitycarefacilitiesfortheelderly 4,994 8.9% 2,059 3.4%Otherresidentialcarefacilities (970) ‐9.4% (1,049) ‐11.2%

Socialassistance 13,959 10.8% 10,681 7.5%Individualandfamilyservices 13,732 19.1% 11,016 12.9%Emergencyandotherreliefservices (16) ‐0.3% 202 3.2%Vocationalrehabilitationservices (449) ‐3.5% (1,671) ‐13.5%Childdaycareservices 692 1.8% 1,134 2.9%

Source.KeystoneResearchCenterbasedonQuarterlyCensusofEmploymentandWages

13PennsylvaniadataisavailablefromthePennsylvaniaDepartmentofLaborandIndustryavailableonlineathttp://www.paworkstats.state.pa.us/gsipub/index.asp?docid=412.ForthenationaldataseetheOccupationalOutlookHandbookathttp://www.bls.gov/ooh/home.htm

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Chapter 2: Wages & Wage Disparity

AsChapter1madeclear,thePennsylvanialabormarketmorethanthreeyearsaftertheendoftheGreatRecessionhasnotbeenaddingenoughjobstokeepupwiththegrowthintheworking‐agepopulation.Worsestill,therewerefewerjobsinPennsylvaniainJuly2012thanthereweremorethanadecadeearlier,inJuly2000.Thelackofemploymentisparticularlychallengingforthosewhohavelosttheirjobsorthosegraduatingfromhighschoolandcollegeinthelastthreeyears.Lesscommonlyunderstoodistheimpactofhighunemploymentandweakjobgrowthonwagegrowthforthemajorityofpeoplewhohavepaidemployment.

AsFigure2.1andTable2.1illustrate,therewasbroad‐basedalthoughsomewhatunequalgrowthinhourlyearningsamongPennsylvaniaworkersbetween1993and2002,aperiodinwhichthestate’seconomyaddedmorethan4,500jobsamonth.Allworkersgainedsomegroundduringthatperiod.Low‐wageworkersatthe10thpercentilesawtheirearningsrise14%,orbyjustover$1perhour,to$8.66by2002.Thetypicalworker(whoearnsatthemedian)sawearningsrise10%,to$14.58perhour.Still,inequalityroseduringthisperiodasthehighest‐wageworkersexperiencedthemost

Table2.1Hourlyearningsbypercentile1993,2002and2011inPennsylvania

Percentile 1993 2002 2011Percentchange

1993‐2002 2002‐201110th $7.60 $8.66 $8.19 13.9% ‐5.4%20th $9.39 $10.45 $10.02 11.2% ‐4.0%30th $11.30 $12.38 $12.05 9.5% ‐2.7%40th $13.26 $14.58 $14.26 10.0% ‐2.2%

50th(Median) $15.34 $16.65 $16.43 8.5% ‐1.4%60th $17.72 $19.24 $19.00 8.5% ‐1.2%70th $20.42 $23.12 $22.87 13.2% ‐1.1%80th $24.67 $27.61 $27.95 11.9% 1.2%90th $30.81 $37.38 $37.04 21.3% ‐0.9%95th $38.00 $47.15 $46.87 24.1% ‐0.6%

Source.KeystoneResearchCenterbasedonCPSdata

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growthinhourlyearnings;thoseatthe90thand95thpercentilesawtheirearningsrisebymorethan20%between1993and2002.

Contrastthosetrendswiththeperiodbetween2002and2011whentheeconomyaddedfewerthan600jobsamonth.AlmosteverygroupofPennsylvaniaworkerslostground,althoughmuchlikeinthe1990s,thehighest‐wageworkersheldontomorethanthoseatthebottom,wholostthemost.

Withunemploymentprojectedtoremainstubbornlyhighintheyearsahead,themosttroublingquestionishowmuchmoreofthegainsinhourlyearningsmadeinthe1990swillworkersinPennsylvaniahavetogiveup?

Inthenextsection,weexploretrendsinwagesforthetypicalPennsylvaniaworkersince1979.Intherestofthischapter,weexaminetrendsinhealthandpensioncoverageaswellaswagetrendsbygender,raceandeducation,showinghowwageinequalitybasedonthesecharacteristicshasrisenover‐time.

The Long‐Term Perspective: Slow Wage Growth

Figure2.2illustratesmedianhourlywagesinPennsylvaniaandtheUnitedStatesfrom1979to2011.(Allfiguresarein2011dollars).WagesforthetypicalworkerinPennsylvaniadeclinedsharplyintheearly1980sandby1990remained2.3%belowtheir1979high.The1991recessionreducedwagesagaininPennsylvania,erodingmostofthegainsaccruedduringtherecoveryofthelate1980s.Thestrongerrecoveryinthe1990sresultedinmuchstrongerwagegrowthinthelatterhalfofthatdecade.WagesforPennsylvaniaworkersrose8%between1990and

2001.Withthe2000sincludingperiodsofhighunemploymentatthestartandendofthedecade,wagegrowthfrom2001to2011wasonceagainnegative,falling1.4%.

Despitebeingbettereducatedandmoreproductive,thetypicalPennsylvaniaworkerearnedonly$16.43perhourin2011,or63centsmorethanin1979;forafull‐timeworkeremployedall52weeksoftheyear,thatamountedtojust$1,310moreperyear.Whilethetypicalworkerenjoyedanincreaseinwagesof4%overthelast33years,percapitapersonalincomeinPennsylvania

TheBrokenLink

LawrenceMishelinTheWedgesBetweenProductivityandMedianCompensationGrowthfindsthegapbetweenproductivityandcompensationgrowthwaslargerinthe“lostdecade”thanatanypointinthepost‐WorldWarIIperiod.

http://www.epi.org/publication/ib330‐productivity‐vs‐compensation/

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increasedby$33,168,or61%.Partofthediscrepancybetweenwageandpersonalincomegrowthisattributabletotherisingshareofhealthcarebenefitsandpensionsintheoverallcompensationofworkers(forthoseemployeesfortunateenoughtoreceivesuchbenefits).Anothercomponentistheincreasingshareofincomegrowththathasbeenflowingtothetop1%ofPennsylvaniahouseholdsinrecentdecades(seeChapter5formoredetails).

Falling Health Insurance and Other Benefits at Work

Whilemedianwageshavegrownverylittleoverthepastthreedecades,thepercentageofworkersreceivingwork‐basedbenefitshasdeclined.AsillustratedinFigure2.3,employer‐basedhealthcarecoverageforprivate‐sectorworkersinPennsylvaniahasdeclinedsince1979‐81by15percentagepoints(adeclineof20%)toabout61%in2008‐2010.Nationaldataalsomakeclearthatthoseworkerswhostillreceivehealthcoveragefromanemployerhaveovertimebeensaddledwithhigherdeductiblesandrequiredtopayalargershareofthemonthlypremiumforcoverage.14

TheshareofPennsylvaniaworkersparticipatinginapensionplanatworkhasalsodeclined:from60%in

14Seethe2011Kaiser/HRETEmployerHealthBenefitsSurvey(EHBS)availableonlineathttp://ehbs.kff.org/pdf/8226.pdf

DecliningJobQuality

JohnSchmittandJanelleJonesoftheCenterforEconomicPolicyResearchinWhereHaveAlltheGoodJobsGone?summarizenationaldataontrendsinwages,healthcareandpensioncoverage.ThesetrendsdocumentaseveredropintheeconomicrewardsofU.S.jobsovertime.

http://www.cepr.net/index.php/publications/reports/where‐have‐all‐the‐good‐jobs‐gone

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1979‐81to50%in2008‐2010.Overtime,thequalityofpensionbenefitsforworkerswhostillreceivethemhasdeclined,nationaldatashow,asemployershaveshiftedawayfromdefinedbenefitpensionplansto401(k)‐typeplans.15

Trends in Wages for Demographic

Groups

UnderlyingoveralltrendsinwagesinPennsylvaniaaredivergenttrendsfordifferentdemographicgroups.HourlyearningsforthetypicalmaninPennsylvaniahavedeclinedbetween2000and2011,atrendthatalsoholdsseparatelyforwhite,blackandHispanicmen.Figure2.4demonstratesthedivergingfortunesofmenandwomenoverthepastseveraldecades.Between1979and2011wagesforthetypicalmaleinPennsylvaniadeclinedby8%,closelymatchingthedeclineformennationally(7.5%).MeninPennsylvaniahaveneverfullyregainedthegroundlostintheearly1980s.Whilemendidpostwagegainsinthe1990s,tworecessionsinthe2000sbroughtareturntodecliningwagesformen.

Womenhavefaredsignificantlybetteroverthewholeperiod,enjoyingwagegainsinPennsylvaniaofnearly25%since1979.Forawomanworkingfull‐time,earningsrosefrom$11.99perhourin1979to$14.97in2011,anincreasethatboostsannualpay(forafull‐time,full‐yearworkerwith2,080annualworkhours)nearly$6,200.

15FornationaldataontheshifttodefinedbenefitpensionplansseeFactsFromEBRI,EmployeeBenefitResearchInstitute,June2007availableonlineathttp://www.ebri.org/pdf/publications/facts/0607fact.pdf.Formoreonthepitfallsof401(k)‐typeplansseeRobertHiltonsmith,TheRetirementSavingsDrain:Hidden&ExcessiveCostsof401(k)s,Demos,May2012,availableonlineathttp://www.demos.org/publication/retirement‐savings‐drain‐hidden‐excessive‐costs‐401ks

Table2.1MedianHourlyWagesbyGender,Race,andEthnicityinPennsylvania,2000and2011

Demographic 2000 2011PercentChange

AllWhite $16.56 $16.99 2.6%Black $13.49 $13.88 2.9%Hispanic $12.44 $12.21 ‐1.9%

MenWhite $19.51 $18.80 ‐3.6%Black $14.27 $13.91 ‐2.6%Hispanic $12.96 $12.67 ‐2.2%

WomenWhite $13.87 $15.24 9.9%Black $13.12 $13.86 5.6%Hispanic $11.26 $11.82 5.0%

Source.KeystoneResearchCenteranalysisofCPSORGdata

Table2.2MedianHourlyWagesbyGender,Race,andEthnicityinUnitedStates,2000and2011

Demographic 2000 2011PercentChange

AllWhite $17.32 $17.77 2.6%Black $13.69 $13.88 1.4%Hispanic $12.46 $12.21 ‐2.0%

MenWhite $19.90 $19.76 ‐0.7%Black $14.55 $14.25 ‐2.1%Hispanic $12.76 $12.73 ‐0.3%

WomenWhite $14.92 $15.88 6.4%Black $13.03 $13.12 0.7%Hispanic $11.02 $11.76 6.7%

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Table2.1alsopresentsearningsbyraceandethnicity,revealinglargegapsinearnings.ThetypicalblackworkerinPennsylvaniaearned$13.88perhourin2011,laggingbehindwhitesbymorethan$3.00perhour.Hispanicsfaredworse,earning$12.44anhour,justover$4.00lessperhourthanthetypicalwhiteworker(over$8,500peryearlessforfull‐time,full‐yearwork).Comparedtowhitemen,thetypicalblackandHispanicmanearns$5.23and6.55lessperhour,respectively.Amongwomen,the gapsaresomewhatsmaller,withlessthanadollarperhourseparatingwhiteandblackwomen’searnings.Hispanicwomenfallshortofthewagesofwhitewomenby$2.61perhour.

The Gender Gap in Wages

Whilewomenhaveenjoyedearningsgainsinthelastseveraldecades,agendergapremainsinthewagesofPennsylvaniamenandwomen.

In2011,thetypicalwomaninPennsylvaniaearned17%lessthanthetypicalman(Table2.4).

AsFigure2.4illustrates,thegendergaphasnarrowedsubstantially,althoughattimesthatnarrowinghasoccurredasmen’swageshavefallen.

Table2.4RatioofWomen'sMedianWagetoMen's,PennsylvaniaandU.S.,1979‐2011

Year PA US1979 61% 63%1989 71% 73%2000 73% 78%2011 83% 84%

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MoreontheGenderWageGap

Therearedifferencesbetweenmenandwomenintermsofwhateconomistscallproductivity‐relatedcharacteristics.Forexample,becausewomenaretheprimarycaregiverinmostfamilieswithchildren,thetypicalwomenwillhavelesslabormarketexperiencethanthetypicalman.Lessexperiencetendstoresultinlowerearningsformenandwomenwithsimilareducationandinsimilaroccupations.AstatisticalmethodcalledtheOaxacadecompositionattemptstodeterminehowmuchofthegenderwagegapcanbeexplainedbysuchproductivity‐relateddifferencesinindividualcharacteristics.InGenderWageDisparityinthePittsburghRegion:AnalyzingCausesandDifferencesintheGenderWageGap,SabinaDeitrick,SusanB.HansenandChristopherBriemoftheUniversityCenterforSocialandUrbanResearchattheUniversityofPittsburghusethismethodtoconcludethatabout24%ofthegenderwagegapintheUnitedStatescanbeexplainedbydifferencesinproductivity‐relatedcharacteristics.Inotherwords,forawomanwhoearned78centsforeverydollaramanearnedin2000,onlyabout5centsofthe22‐centgapcouldbeexplainedbyproductivity‐relatedcharacteristics.Therestofthegapisverylikelytheresultofcontinueddiscriminationagainstwomeninthelabormarket.

http://www.ucsur.pitt.edu/files/frp/DeitrickGenderWageDisparity12‐07.pdf

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The Black/White Gap in Wages

Blackandwhitemenexperiencedsubstantialdeclinesinearningsfrom1979‐81to1995‐97inPennsylvania.Thetypicalwhitemaleexperienceda6%reductioninearningsoverthisperiod,andthetypicalblackmalesawa17%declineinearnings.Asaresult,thewagegapbetweenwhiteandblackmeninPennsylvaniawidenedoverthisperiodfromjustunder$3.00perhourtonearly$5.00perhour,whereithasstayedthrough2011.ThislossofincomeforblackmeninPennsylvaniaalsoreversedtheirearlierwageadvantageoverblackmenintheUnitedStates.In1979‐81,thetypicalblackmaleemployedfull‐timeinPennsylvaniaearned$3,500morethanthetypicalblackmaleintheUnitedStates.By2011,thatadvantagehaddisappeared,withthetypicalU.S.blackmaleearningjustover$700moreperyearthanthetypicalblackmaninPennsylvania.

AslightlyslowerpaceofgrowthinhourlywagesofblackwomeninPennsylvaniacomparedtothenationalmedianforblackwomenleadtoaconvergenceinwagesbetween2009‐2011and1979‐81,althoughthetwogroups’relativewagesbetweenthesetwoendpointsfluctuate.Overthewholeperiod,thewagesofwhitewomeninPennsylvaniaandthenationgrewby32%,whilePennsylvaniablackwomensawtheirhourlyearningsrisebyjust15%.

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The Educational Gap in Wages

OneofthesinglemostimportantfactorsindeterminingwagelevelsintheU.S.economyiseducationalattainment.Inparticular,thebenefitfromcollegecompletionhasbeenrisingovertime,whilethewagesofthosewithoutacollegedegreehavestagnatedor,inthecaseofhighschooldropouts,fallen.WhilethisisgoodnewsfortheroughlythreeintenPennsylvanianswhohaveacollegedegree,itmeanstheother70%ofworkershavefounditincreasinglyhardto

getahead.

Figure2.7andFigure2.8makecleartherisingadvantageofcollegecompletionformenandwomeninPennsylvaniaaswellasthedecliningfortunesofthosewithfewercredentials.In1979,amalecollegegraduateinPennsylvaniacouldexpecttoearn$5.53moreperhourthanthetypicalmalehighschoolgraduate;forafull‐timejob,thatworksouttojustover$11,500moreinannualincome.By2011,at$28.22perhour,thetypicalmalecollegegraduatecouldexpecttomake$12.09moreperhourthanthe

typicalworkerwhohasonlycompletedhighschool;forafull‐timejob,thattotalsmorethan$25,000ayearinadditionalincome.Between1979and2011,malecollegegraduatessawa13.7%riseinwages.Forthetypicalmaleworkerwithonlyahighschooldiploma,wagesfell16%overthesameperiod,andformalehighschooldropouts,thewagelossoverthisperiodisastunning38%.

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AswasthecaseforwomeningeneralinPennsylvania,wagegrowthforwomenofalleducationallevelshasbeenstrongerinrecentdecadesthanithasbeenformen.Womenwithcollegedegreesexperienceda33%increaseintheirearningsbetween1979and2011.Womenwithhighschooldiplomasorsomecollegeexperiencedonlya6%increase,whilefemalehighschooldropoutssawtheirwagesdeclineby19%overthisperiod.Thetypicalfemalecollegegraduatesawherhourlyearningsrisefrom$17.13anhourin1979to$22.72anhourin2011.Amongwomen,thepremiumforcollegecompletionclimbedonanannualbasis(forafull‐time,full‐yearworker)from$11,319peryearin1979tomorethan$21,400ayearin2011.

The Power of Associate Degrees

ThedatafromtheprevioussectiononearningsforPennsylvaniaworkerswith“somecollege”obscurestheimpactofakeycredentialonearnings.The“somecollege”categorycanbebrokenintothreegroups:1)thosewhohaveattendedsomeamountofcollegeatanytypeofpostsecondaryinstitutionbuthavenotcompletedadegree;2)thosewhohavecompletedanassociate(AA)degreeinanoccupationalorvocationalarea;and(3)thosewhohavecompletedanacademicAAdegree.Itisonlypossiblesince1992todistinguishbetweenworkerswhohadattendedcollegebutnotcompletedanydegreeandthosewhohadobtainedeitheranacademicorvocationalAAdegree.

Whenearningsarecombinedforthesethreedifferentgroupsofworkers,thereisverylittledifferenceinearningsbetweenPennsylvaniaworkerswith“somecollege”andthosewhosimplycompletedhighschool.PresentedinTable2.5andFigure2.9aremoredetaileddataonearningsbyeducationthatillustratemuchmoreclearlytheearningsadvantagetoPennsylvaniaworkerswhoobtainanAAdegreeoverthosewhoonlyhaveahighschooldiploma.

Overall,PennsylvaniaworkerswithanacademicorvocationalAAdegreeearnedanannualwagepremiumoverthetypicalhighschoolgraduateofalittlemorethan$4,000.Thereislittledifference

Table2.5MedianWages(2011dollars)andShareofWorkersbyEducation:PennsylvaniaandU.S.,2011

Pennsylvania UnitedStatesWage Dropouts $9.97 $9.99HighSchool $14.48 $13.52SomeCollege,NoDegree $13.38 $13.60AssociateDegree $16.43 $16.06Occupational/Vocational $16.31 $16.67Academic $16.60 $16.56

Bachelor'sDegreeorHigher $24.82 $25.02LaborForceShare Dropouts 8.0% 10.3%HighSchool 35.6% 28.4%SomeCollege,NoDegree 15.0% 19.2%AssociateDegree 10.6% 10.0%Occupational/Vocational 4.7% 4.6%Academic 5.9% 5.5%

Bachelor'sDegreeorHigher 30.8% 32.0%ShareWithinAssociateDegrees Occupational/Vocational 44% 46%Academic 56% 54%

Source.KeystoneResearchCenteranalysisofCPSOrgdata

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inearningsbetweenworkerswithonlyahighschooldiplomaandthosewhohavesomecollegebutno degree.Thesedatahighlighttheimportanceofcredentialsaswellasthevalueoftaxpayer investmentsinAssociateDegree‐grantinginstitutionsinPennsylvania,especiallythestate’scommunitycolleges.

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Wages by Industry and Occupation

Table2.6presentsmedianwagesintheperiod2009‐2011byindustryandoccupationinPennsylvania.Industryandoccupationaredifferent,butrelated,waysofdescribingthelaborforce.Presentingdataby“industry”organizesemployersaccordingtotheproductsandservicestheyprovide.Forexample,“construction”includesallworkerswhoareemployedbyfirmsthatconstructbuildings,roadsandbridges.Itincludeseveryonefromsecretariesinconstructioncompaniestocarpenters.“Occupation”groupsworkersbaseduponthekindofworktheydo.“Constructionandextractionoccupations”includeworkersemployedintheconstructionindustrybutalsocarpentersandelectriciansemployedinallotherindustries.Secretariesinconstructioncompaniesinthisgroupingappearinthecategory“officeandadministrativesupportoccupations.”

Pennsylvania’shighest‐median‐wageindustryis“publicadministration”($20.85)followedby“financialactivities”($19.78).Thelowest‐payingindustriesinthecommonwealthare“leisureandhospitality”

Table2.6PennsylvaniaMedianWagesbyIndustryandOccupation,2009‐2011

IndustryandOccupation MedianWage

Overall $16.73

Industry

Agriculture,forestry,fishing,andhunting $10.55

Mining $19.38

Construction $19.49

Manufacturing $18.51

Wholesaleandretailtrade $12.82

Transportationandutilities $19.26

Information $19.36

Financialactivities $19.78

Professionalandbusinessservices $18.96

Educationalandhealthservices $17.98

Leisureandhospitality $9.19

Otherservices $14.46

Publicadministration $20.85

Occupation

Management,business,andfinancialoccupations $25.28

Professionalandrelatedoccupations $23.89

Serviceoccupations $10.42

Salesandrelatedoccupations $12.30

Officeandadministrativesupportoccupations $14.83

Farming,fishing,andforestryoccupations $9.46

Constructionandextractionoccupations $19.57

Installation,maintenance,andrepairoccupations $23.58

Productionoccupations $15.52

Transportationandmaterialmovingoccupations $14.39

MoreOnPayInThePublicSectorInPennsylvania

PublicVersusPrivateEmployeeCostsinPennsylvania:ComparingApplestoApples,byLaborandEmploymentRelationsProfessorJeffreyKeefeofRutgersUniversity

http://keystoneresearch.org/publications/research/public‐versus‐private‐employee‐costs‐pennsylvania

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($9.19)and“agriculture,forestry,fishingandhunting” ($10.55).Consideringwagesbyoccupation,thehighest‐payingoccupationsinPennsylvaniaare“management,businessandfinancialoccupations,”andthelowestpaidare“farmingfishingandforestry”($9.46)and“serviceoccupations”($10.42).

Unions and Wages in Pennsylvania

Thedeclineinunionmembershipisoneofthemajorreasonsbehindtheriseinincomeinequalityoverthelastseveraldecades.16Byraisingthebargainingpowerofworkers,unionsensurethatrisingproductivitytranslatesnotonlyintorisingprofitsforcompaniesbutalsorisingwagesforworkers.Evennon‐unionworkersbenefitfromhighlevelsofuniondensity,asnon‐unionemployerstendtoraisewagestobettercompetewithunionizedemployersforskilledlaborand/ordiscourageworkersfromunionizing.Asunionshavebecomelessprevalentintheeconomy,awidegaphasopenedupbetweenwageandproductivitygrowth,contributingtotheconcentrationofincomegrowthamongthehighest‐earninghouseholds.

Alesswellunderstoodbutimportanteffectofunionsistoraiseproductivitybypromptingemployerstocompeteinproductmarketsbasedonservice,qualityandotherfactors—andnotsimplybypayingworkerslowwages.Becauseunionsraisewages,theyprovideanincentiveforemployerstoincreaseinvestmentinlabor‐savingtechnologythathelpsoffsethigherwagecosts.In16LawrenceMishel,Unions,inequality,andfalteringmiddle‐classwages,EconomicPolicyInstitute,August2012,availableonlineathttp://www.epi.org/publication/ib342‐unions‐inequality‐faltering‐middle‐class/

MoreonUnions

TheUnionsoftheStatesbyJohnSchmittprovidesadetailedstate‐by‐stateanalysisofunionmembershipbystate.

http://www.cepr.net/documents/publications/unions‐states‐2010‐02.pdf

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industrieslikeconstruction,unionsandunionizedemployershaveestablishedmulti‐employerapprenticeshipsystemsthatprovidesophisticatedon‐the‐jobandclassroominstruction,raisingproductivityandembeddinginconstructionpricesthecostoftrainingeachnewgenerationofskilledcraftsmen.Thesesystemsarevirtuallynonexistentinthenon‐unionconstructionindustrybecausetheirpersistencedependsonthepresenceofauniontoensurethatallemployersandworkerswhobenefitfrominvestmentsinapprenticeshippaytomaintainthosesystemsovertime.Thisisoneconcretewaythatunionsimproveproductqualityaswellasequity.

Pennsylvaniahasmorethan700,000unionmembers,thefourth‐largestnumberofunionmembersandthe15thmostunionizedworkforceinthecountry.AsillustratedinFigure2.10,uniondensityin1983was27%andhasfallenbyalmosthalfto14.5%in2011.Allofthelossesinunionmembershiphaveoccurredintheprivatesectorwheretodayjustbelowonein10Pennsylvanianworkersaremembersofunions.

AsillustratedinFigure2.11,unionworkersearn27%morethantheirnon‐unioncounterpartsinPennsylvania.Whenyouconsiderthatunionizedworkersaremorelikelytohavecharacteristicsassociatedwithhigherwages,includinghigherlevelsofeducationandagreaterconcentrationinhigh‐wageindustries,theunionearningsadvantageshrinkssomewhatbutisstillsubstantial.Usingstandardstatisticaltechniquestoseparateouttheadvantagesofunionmembershipfromotherproductivity‐relatedcharacteristics,laboreconomistJohnSchmittfindsaunionwagepremiumin

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Pennsylvaniaof15.3%.17Forafull‐timeworkerin2011,theunionwagepremiumyieldsanadditional$5,100inannualincome.

Havingreviewedtrendsinhourlyearningsforworkersatdifferentwagelevelsandacrossandbetweendemographicgroups,inthenextchapterwenarrowourfocustothelowest‐payingjobsinthePennsylvaniaeconomy.

Chapter 3: Poverty‐Wage Jobs

Inthischapter,weturnourattentiontothelowestpayingjobsinthestate’seconomy.Specifically,welookatjobspayingpovertywages—inotherwords,wagesthatwouldearnanannualincome(forafull‐time,full‐yearworker)belowthefederalpovertylineforafamilyoffour.Asasociety,wehavefailedtohonorthecommitmenttoworkmadebyworkersinpoverty‐wagejobsbecausetheyarestillunabletoaffordadecentstandardoflivingfortheirfamilies.

Weconductouranalysisbyestablishingathresholdforapovertywageof$10.97anhour.In2011,justunderoneinfourjobsinPennsylvaniapaidwagesbelowthisamount.

Inthesectionsthatfollow,weanalyzethechangeovertimeintheshareofpoverty‐wagejobsinthePennsylvaniaeconomyaswellasthecharacteristicsoftheworkersinthesejobs.

17JohnSchmitt,TheUnionsoftheStates,CenterforEconomicandPolicyResearch,February2010,availableonlineathttp://www.cepr.net/documents/publications/unions‐states‐2010‐02.pdf

Definition:Poverty‐WageJobs

Wedefinepoverty‐wagejobsasthosepayinghourlywagesthatwouldnotbesufficientforafull‐time(40hoursaweek),year‐round(52weeks)workertoearnanincomegreaterthanthepovertylineforafamilyoffourwithtwochildren.In2011dollars,thepovertywagewas$10.97anhourorless.Atthiswage,aworkeremployedfull‐timeyear‐roundwouldearn$22,811.

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Trends in Poverty‐Wage Jobs

Table3.1ShareofPennsylvaniaWorkersEarningPovertyWages,1979‐2011

Demographic 1979 1989 2000 2011PercentChange1979‐2011

1989‐2011

All 24.0% 29.3% 24.4% 23.9% ‐0.6% ‐18.7%ByRaceandGender WhiteMen 11.3% 18.6% 16.6% 17.1% 51.2% ‐8.2%BlackMen 19.9% 31.0% 27.3% 34.8% 75.0% 12.3%WhiteWomen 40.6% 40.6% 30.9% 27.0% ‐33.5% ‐33.6%BlackWomen 41.1% 40.2% 36.5% 29.5% ‐28.2% ‐26.5%

ByEducation NoHighSchoolDegree 28.9% 44.9% 54.5% 57.9% 100.4% 28.8%HighSchoolDegree 26.0% 33.9% 29.1% 27.9% 7.2% ‐17.9%SomeCollege 25.7% 28.7% 26.1% 31.2% 21.7% 8.9%NoDegree n.a n.a 31.3% 38.9% n.a n.aAADegree n.a n.a 16.1% 20.2% n.a n.a

Bachelor'sorHigher 10.6% 11.2% 8.1% 7.9% ‐25.2% ‐29.6%Note.Povertywagesaredefinedhereaswageslessthan$10.97perhour,2011dollarsSource.KeystoneResearchCenteranalysisofCPSORGdata

PercapitaincomesinPennsylvaniagrewby61%between1979and2011.Despitethiseconomicgrowth,theshareofworkersinthecommonwealthearningpovertywagesremainedessentiallyunchangedoverthesameperiod(Table3.1).Overthecourseofthe1980s,theshareofpoverty‐wagejobsrose,reflectingthedeeprecessionearlythatdecade.Startinginthelate1980sandespeciallyinthelate1990s,theshareofpoverty‐wagejobsfellsharply.Theweakereconomyofthe2000shasonceagaindriventheshareofpoverty‐wagejobshigher.

Figure3.1abovepresentsthetrendsinpoverty‐wagejobsbygenderandracebetween1979and2011.Asmorewomenenteredintonewfieldsandexperiencedanincreaseinwagesoverthisperiod,therewasasharpdeclineintheshareofbothwhiteandblackwomeninPennsylvaniaemployedinpoverty‐wagejobs.Theshareofwhitewomeninpoverty‐wagejobsdeclinedfromnearly41%in1979to27%by2011.In1979,41%ofblackwomeninPennsylvaniawereemployedinpoverty‐wagejobs,andby2011justunder30%were.

Whitewomenarestillmorelikelytoholdpoverty‐wagejobsthanwhitemeninPennsylvania,althoughthegaphasnarrowed.In1979Pennsylvaniawhitewomenweremorethan3.5timesmorelikelytoholdsuchjobsthanwhitemen,butin2011theywerealittlemorethan1.5timesaslikely.Still,in2011morethanoneinfourwhitewomeninPennsylvaniawereemployedinpoverty‐wagejobs.

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Whiletheshareofwhitemenemployedinpoverty‐wagejobsinPennsylvaniaremainslowerthanforallothergroups,itrosefrom11%in1979to17%in2011.

JustunderoneinfourAfrican‐AmericanmeninPennsylvaniawereemployedinpoverty‐wagejobsin1979,butby2011overoneinthreewereemployedinsuchjobs.Todayblackmenaremorelikelythanblackwomeninthecommonwealthtobeemployedinpoverty‐wagejobs.

Finally,table3.1showsthatworkerswithmorecredentialsarelesslikelytobeemployedinpoverty‐wagejobs.In1979,29%ofPennsylvaniaworkerswithoutahighschooldiplomaheldpoverty‐wagejobs,butby2011thatfigurehadclimbedto58%.Highschoolgraduatesfaredsomewhatbetter,with26%holdingpoverty‐wagejobsin1979and28%by2011.OneinfivePennsylvaniaworkerswithanAssociatedegreeand8%ofcollegegraduatesheldpoverty‐wagejobsin2011.

Where Are All Those Bad Jobs?

Thecharacteristicsofpoverty‐wage,or“bad,”jobsboildowntothreefactors:lowwagesintheservicesector,theabsenceofaunion,andpart‐timework.In2011,almosthalfofPennsylvaniaworkerswithpoverty‐wagejobshadpart‐timejobs,andfewerthan5%weremembersofunions.Pennsylvaniaworkersin“serviceandsalesoccupations”accountfor57%ofallpoverty‐wagejobs.Whenexaminingthesamedatabyindustry,wefindsevenin10poverty‐wagejobsinthecommonwealthareinjustthreeindustries:leisureandhospitality;wholesaleandretailtrade,andeducationandhealthservices.

Theindustrycategory“educationandhealthservices”isacombinationof“educationservices”and“healthcareandsocialassistance.”AswediscussedinChapter1,healthcareandsocialassistanceisahighlypolarizedsectorcontainingbothhigh‐wagejobsforphysiciansandnursesaswellasmanylow‐wagebutfast‐growingjobs,suchashomehealthaidesandchildcareworkers.

Poverty‐WageJobsAreSticky

TheKeystoneResearchCenter’sbriefingpaperStuckontheBottomRungoftheWageLadderfoundthatroughly40%ofPennsylvaniaworkersearningpovertywagesin1998werestillearningpovertywagesin2004

http://keystoneresearch.org/publications/research/stuck‐bottom‐rung‐wage‐ladder

TheUnionAdvantageForLowWageWorkers

InUnionsandUpwardMobilityforLow‐WageWorkersbyJohnSchmitt,MargyWaller,ShawnFremstad,andBenZipperertheauthorsanalyzedwagesfor15lowwageoccupationsincludingChildCareworkersandHomeHealthaidesandfindthatunionizationraisedworkers'wagesbyjustover16percent‐‐about$1.75perhour‐‐comparedtothoseofnon‐unionworkers.

http://www.cepr.net/documents/publications/UnionsandUpwardMobility.pdf

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Despiterisingproductivityandeconomicgrowthvirtuallynoprogresshasbeenmadeinmorethan30yearsinreducingtheshareofjobsinPennsylvaniathatleaveworkerslivinginpoverty.Withthisinmind,inthenextchapterweexploretrendsinincomeandpovertyinPennsylvania.

Table3.2DistributionofPennsylvaniaWorkersbySelectedCharacteristicsandWageLevel,2011

CharacteristicsWorkerswithPoverty‐

WageJobs(wage<$10.97/hr.)

WorkerswithHigher‐WageJobs

(wage>$10.97/hr.)

Part‐Time 46% 9.9%UnionMember 4.9% 17.9%PercentinOccupation

Management,business,andfinancialoccupations 3% 17%Professionalandrelatedoccupations 10% 26%Serviceoccupations 38% 10%Salesandrelatedoccupations 19% 7%Officeandadministrativesupportoccupations 11% 15%Farming,fishing,andforestryoccupations 1% 0%Constructionandextractionoccupations 2% 5%Installation,maintenance,andrepairoccupations 1% 4%Productionoccupations 6% 7%Transportationandmaterialmovingoccupations 8% 7%

PercentinIndustry Agriculture,forestry,fishing,andhunting 1% 0%Mining 0% 1%Construction 2% 6%Manufacturing 7% 15%Wholesaleandretailtrade 24% 12%Transportationandutilities 3% 6%Information 1% 2%Financialactivities 3% 8%Professionalandbusinessservices 6% 9%Educationalandhealthservices 21% 28%Leisureandhospitality 24% 4%Otherservices 5% 4%Publicadministration 2% 6%

Source.KeystoneResearchCenteranalysisofCPSdata

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Chapter 4: Income and Poverty

Asthepreviouschaptershavemadeclear,widespreadjoblessnessandslowgrowthoverthelastdecadehaveledtofallingor,atbest,stagnatingwagesforabroadgroupofworkers.Withunemploymentexpectedtoremainhighforsometime,thewagegainsaccruedbyPennsylvaniaworkersinthelate1990sareatriskofcompletelydisappearing.

Againstthisgrimbackdrop,thischapterexaminestheproductofwagesandhoursworkedtoevaluatehowwelleconomicgrowthistranslatingintoprosperityforthetypicalfour‐personfamily.Wefind,byexaminingfamilyincomeandpovertyratesovertime,thatmiddle‐andlow‐incomePennsylvanianshaveexperiencedfallingincomes.

Median Family Income Below Its 2000 Level

Table4.1andFigure4.1presentdataonmedianincomesforfour‐personfamiliesfrom1980to2010.ThegrowthinmedianfamilyincomesovertimeinPennsylvaniacloselytracksnationaltrends.Afterfallingslightlybelowthenationalmedianinthe1980s,medianincomesin

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PennsylvaniagrewslightlymoreinPennsylvaniathannationally.In2010,thefour‐personmedianincomeinPennsylvaniawas$76,682comparedto$72,767nationally.

Adjustingforinflation,medianincomeforfour‐personfamiliesislowertodaythanadecadeago,withincomesfallingby$6,100from$82,800in2000.

Inthelastdecade,thegrowthinfour‐personmedianincomesinPennsylvaniahaslaggedallofourneighboringstatesexceptOhioandDelaware.

Table4.1

MedianIncomeforFour‐PersonFamilies,Pennsylvania,U.S.,andNeighboringStates,1980‐2010

State 1980 1990 2000 2010Change

1980‐1990

1990‐2000

2000‐2010

Pennsylvania $62,513 $66,129 $82,818 $76,682 $3,616 $16,688 ($6,136)UnitedStates $61,299 $67,033 $78,788 $72,767 $5,734 $11,754 ($6,021)Delaware $64,189 $75,237 $87,818 $79,829 $11,049 $12,580 ($7,989)Maryland $69,013 $86,333 $98,202 $100,928 $17,320 $11,870 $2,726NewJersey $69,965 $91,267 $99,466 $101,957 $21,301 $8,199 $2,491NewYork $61,634 $71,479 $81,690 $81,212 $9,845 $10,211 ($478)Ohio $62,725 $69,249 $78,817 $70,599 $6,524 $9,568 ($8,218)WestVirginia $53,520 $54,444 $58,583 $61,691 $924 $4,139 $3,108Source.U.S.CensusBureau,CPSandACS;dataserieschangesfromCPStoACSin2004‐2005

Where the Money Goes

Howisfamilyincomespent?PresentedinFigure4.2aredataonfamilyexpendituresfortheNortheasternUnitedStates(Pennsylvaniadataarenotavailable).Thesinglelargestspendingcategoryforhouseholdsishousing,consuming29%ofexpenditures.Thenextlargestcategoryistransportation,whichaccountsfor15%ofspending.Together,housing,transportation,andutilities,fuels,andpublicservicesaccountfor51%of

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expenditures;addinfood(13%),personalinsuranceandpensions(11%),andhealthcare(6%),andwehaveaccountedfor80centsofeverydollarofhouseholdexpenditures.

Poverty in Pennsylvania

In2010,afamilyoffourwasdefinedaslivinginpovertyiftheirannualincomefellbelow$22,811.Formostofthelastseveraldecades,exceptforaverybriefperiodintheearly1980s,thepovertyratehasbeenlowerinPennsylvaniathaninthenation.In2010,12.2%ofPennsylvaniaresidentslivedbelowthepovertylinecomparedto15%nationally.

Figure4.4showsthepovertyrateforchildreninPennsylvaniafrom1980to2010.Similartotheoverallpovertyrate,thechildpovertyrateinPennsylvaniahasgenerallybeenlowerthanthenationalchildpovertyrateoverthelastseveraldecades.In2010,17.3%ofchildreninthecommonwealthwerepoor,comparedto22%ofchildrennationally.

Thefederalpovertylineiscalculatedbymultiplyingthecostofasubsistencefoodbudgetbythree.Itiswidelyunderstoodthatthecurrentpovertythresholdisaconservativebenchmarkthatunderstatesthenumberofpeoplestrugglingtogetbyinoureconomy.Acommon

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ruleofthumbforasomewhatmorerealisticpovertymeasureistwicethepovertyline.Figure4.5showsthechangeintheshareofPennsylvanianswithincomesbelowtwicethepovertyline.In2010,29.5%ofthepopulationinPennsylvanialivesbelowthisthresholdcomparedto34%ofpeoplenationally.

In1980onein10Pennsylvanian’shadincomesthatputthembelowthepovertyline;33yearslateroneineightPennsylvanian’slivedinpoverty.Giventhecontinuedhighlevelofunemploymentmanyeconomistsarebracingforafurtherriseinpovertyrateswhennewdatafor2011arereleasedinearlySeptember.18Theriseofpovertyandstagnatingincomesforabroadgroupofworkersdocumentedinthisandpreviouschaptershasalsobeenaccompaniedbyanunprecedentedriseinincomeinequalityasubjectwefocusuponinthenextchapter.

18HopeYen,AssociatedPress,USpovertyontracktorisetohighestsince1960s,July22nd2012,availableonlineathttp://bigstory.ap.org/article/us‐poverty‐track‐rise‐highest‐1960s

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Chapter 5: Three Decades of Income Inequality

Aswehavedetailedinpreviouschapters,theGreatRecession’simpactonPennsylvania’seconomyandpeoplelingersbothintermsofhighunemploymentandfallingwagesforthosefortunateenoughtoholdontotheirjobs.TherewasastartlingriseinincomeinequalityinboththeUnitedStatesandPennsylvaniaevenbeforetheworstrecessionsincetheGreatDepressionhitusinlate2007—aswehavedocumentedinpasteditionsofTheStateofWorkingPennsylvania.Inthischapter,weexaminetrendsininequalityoverthelastdecadeinPennsylvaniabutfocusespeciallyondatafor2010,thefirstyearoftheeconomicrecovery.Alldatasummarizedinthischapterareadjustedforinflationandexpressedin2010dollars.

Taxdata,whichallowustoexaminetrendsinincomeamongthewealthiesthouseholds,areavailablefromtheInternalRevenueService(IRS)onlywithalonglag.19Atthetimeofpublication,wehaveonlypreliminary2010data(fromtheIRS)forPennsylvania,whichweareabletousetomakepreliminaryprojectionsoftopincomesfor2010inPennsylvania.20(Moredetailed2010Pennsylvaniadataontopincomes—permittedmorepreciseestimates—shouldbeavailablewithinthenextyearfromthePennsylvaniaDepartmentofRevenue.)

19ForexampletheCurrentPopulationSurvey(CPS)whichwerelyupontotracktrendsinwagesforthetypicalworkerwasnotdesignedtosampleeffectivelyhighincomehouseholds.20IRSdataon2010incomesareavailableonlineathttp://www.irs.gov/uac/SOI‐Tax‐Stats‐‐‐Historic‐Table‐2.FollowingthemethodologyoutlinedbyEstelleSommeiller,RegionalIncomeInequalityintheUnitedStates,1913‐2003,PhDdissertation,UniversityofDelaware(2006),weusetheseIRSdatatoestimateincomelevelsbytopfractiles.Wenormalizethe2010figuresfromtheIRSdatabaseduponanaverageoftheratiooftopfractileincomelevelsestimatedfromIRSdatatotopfractileincomelevelsasreportedbythePennsylvaniaDepartmentofRevenue(DOR)foreachyearbetween1997and2009.Forexample,wecalculatefollowingSommeiller(2006)thattheaverageincomeforthetop1%oftaxpayerswas,between1997and2009,85%oftheaverageincomeofthetop1%oftaxpayersasreportedbythePennsylvaniaDepartmentofRevenue.Tocalculatetheaverageincomein2010,wedivide$861,068by85.3%toarriveatapreliminaryestimateoftopincomesinPennsylvaniaof$1,009,688.

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Unequal Income Growth: It’s Lonely on the Top

Roughly62,000Pennsylvaniataxpayers,thetop1%,experiencedrapidgrowthinincomesastheeconomygrewfrom2002to2007(Table5.1).Duringthattimeperiod,whileaverageincomesgrewby15.4%,theincomesofthetop1%grewby50%.Asaresult,thetop1%inPennsylvaniacaptured54%ofallincomegrowthduringthisperiod.

AsthefinancialsectorcrashedduringtheGreatRecession,thetop1%inPennsylvaniaexperienceda27%declineintheirincomesfrom2007to2009—areflectionoftheconcentrationofwealthamongthe1%infinancialmarkets.Asallincomesdeclined,thetop1%absorbed44%ofalltheincomelossesduringtheGreatRecession.

Thebeginningoftherecoverymarkedastartlingreturntothepre‐recessionpatternofunevenincomegrowththathasfavoredthe1%attheexpenseofthe99%.Whileallincomesgrewonaverageby2.7%inPennsylvaniain2010,theincomeofthetop1%grewby11%.Asaresult,thetop1%captured76%ofallincomegrowthinthefirstfullyearoftheeconomicrecovery.IntheU.S.,thetop1%captured93%ofallincomegrowthin2010.21

Table5.1Inflation‐AdjustedIncomeGrowthinPennsylvania,2000‐2010

AverageIncomeGrowth

Top1%IncomeGrowth

Bottom99%IncomeGrowth

Fractionoftotalgrowth(orloss)capturedbytop

2001Recession2000‐2002 ‐9.4% ‐23.9% ‐5.8% 50%Expansion2002‐2007 15.4% 50.4% 8.5% 54%GreatRecession2007‐2009 ‐13.1% ‐26.5% ‐9.4% 44%

Recovery2009‐2010 2.7% 11.2% 1.0% 76%Notes.Seetextformethodologicaldetails

Source.KeystoneResearchCenterbasedonPennsylvaniaDepartmentofRevenue,InternalRevenueServiceandPiketty&Saez(2003)data

21EmmanuelSaez,StrikingitRicher:TheEvolutionofTopIncomesintheUnitedStates,UnpublishedWorkingPaper,March2012availableonlineathttp://elsa.berkeley.edu/~saez/saez‐UStopincomes‐2010.pdf.

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The Race Resumes to Surpass the 1920s Age Inequality

IncomeinequalityintheUnitedStatesreachedapeakin2007notseensince1928,astheshareofincomeearnedbythetop1%reached23.5%(Figure5.1).22HereinPennsylvania,theshareofincomeearnedbythetop1%peakedatjustshyof22%in2006beforefollowingthenationalpatternanddecliningto18%in2009.23In2010,thefirstfullyearoftherecovery,preliminarydatafromtheIRSindicatethattopincomeswereonceagainsurginginPennsylvania,drivingthe1%’sshareofallincometo19.7%.

In2010,theaverageincomeofthebottom99%ofPennsylvaniataxpayersgrewby1%,whiletheaverageincome

22ThomasPikettyandEmmanuelSaez,“IncomeInequalityintheUnitedStates,1913‐1998,”QuarterlyJournalofEconomics,118(1),2003.Updatedestimatesavailableonlineathttp://elsa.berkeley.edu/~saez/TabFig2010.xls.23Previously,whencalculatingincomeshares,wefollowedEstelleSommeiller,RegionalIncomeInequalityintheUnitedStates,1913‐2003,PhDdissertation,UniversityofDelaware(2006),andusedpersonalincomedatafromtheBureauofEconomicAnalysis(BEA).Becausepersonalincomedataalsocontainthedollarvalueoftransfersandhealthbenefits,itisgenerallygreaterthantotaltaxableincome.Asaresult,dividingthetotaltaxableincomeheldbythe1%bypersonalincomeunderstatestheirshareofallincome.Withthisyear’sreport,wecalculatetopfractileincomesharesinthefollowingway:FirstwecalculatePennsylvania'sshareofU.S.AdjustedGrossIncomeforeachyearbetween1997and2008(onlineathttp://www.irs.gov/taxstats/article/0,,id=171535,00.html).ThisfigureisthenusedtoderiveincomeforPennsylvaniafromU.S.income,includingcapitalgainsfoundincolumn6ofTableA0inhttp://elsa.berkeley.edu/~saez/TabFig2008.xls.WethencombinethisfigurewithestimatesoftheaverageincomeforeachtopincomefractileprovidedbythePennsylvaniaDepartmentofRevenuetoestimatetheshareofincomeearnedbyeachtopincomefractileforeachyearfrom1997to2009.

Table5.2PercentChangeinIncomebyIncomeGroup2009to2010(2010dollars)

PennsylvaniaIncomeGroup 2009 2010* PercentChangeBottom99% $41,281 $41,676 1.0%The1% $907,932 $1,009,688 11.2%Bottom90% $28,803 $29,162 1.2%90‐95% $128,536 $129,547 0.8%95‐99% $212,971 $213,407 0.2%99.99.5% $426,184 $452,527 6.2%99.5‐99.9% $770,245 $847,832 10.1%99.9‐99.99% $2,439,322 $2,750,248 12.7%99.99‐100% $16,731,881 $18,480,207 10.4%

UnitedStatesIncomeGroup 2009 2010 PercentChangeBottom99% $41,696 $41,777 0.2%The1% $913,451 $1,019,089 11.6%Bottom90% $29,967 $29,840 ‐0.4%90‐95% $124,916 $125,627 0.6%95‐99% $201,580 $205,529 2.0%99‐99.5% $399,985 $418,378 4.6%99.5‐99.9% $738,187 $798,120 8.1%99.9‐99.99% $2,465,244 $2,802,020 13.7%99.99‐100% $19,631,207 $23,846,950 21.5%

*The2010figuresforPennsylvaniaareprojectionsbasedondatafromtheInternalRevenueService.Finaldatafor2010onincomesbyincomelevelwerenotavailablefromthePennsylvaniaDepartmentofRevenueasthisreportwascompleted.Seetextforadditionalnotesonmethodology.

Source.KeystoneResearchCenterbasedonPennsylvaniaDepartmentofRevenue,U.S.InternalRevenueServiceandPiketty&Saez(2003)data

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ofthetop1%grewby11%.Thetop1%inthestatecaptured76%ofallincomegrowththatyear(Table5.1).OurpreliminaryestimateslikelyunderstatetopincomesinPennsylvania,sotheshareofincomecapturedbythetop1%willlikelymovehigheroncethePennsylvaniaDepartmentofRevenue(DOR)releasesitsfinaldataforthe2010taxyear.

Table5.2presentstopfractileincomelevelsfor2009and2010inPennsylvaniaandtheUnitedStates.In2010,theaverageincomeofPennsylvania’stop1%grewbyover$100,000to$1,009,688.Overthesameperiod,theaverageincomeofPennsylvania’sbottom99%grewbylessthan$400to$41,676.Thehighlyunevengrowthinincomesisevenmoreapparentwhenyouexaminethechangeinaverageincomesfortheroughly621Pennsylvaniataxpayerswhomakeupthe.01%(99.99‐100%inTable5.2).Ourpreliminaryestimateisthattheiraverageincomegrewby$1.7millionto$18,480,207in2010.Nationally,thisgroupoftaxpayersexperiencedanincreaseintheirincomesin2010of21.5%ormorethan$4.2million.BecauseourPennsylvaniaprojectionsunderstatethehighestincomesthemost,weexpectthegapbetweenthe.01%inPennsylvaniaandnationallytoclosesubstantiallyoncewehavethefinaldatafromtheDOR.

Chapter 6: Conclusion

ThisreporthasestablishedthatthePennsylvaniaeconomyisperformingpoorlyfromtheperspectiveofmiddle‐classandlow‐incomefamilies.Thisisparticularlyevidentsince2000,theendofthelong1990seconomicexpansion.Itisalsolargelytrueforthefullthirdofacenturythatbeganin1979.Theexplanationfortheeconomy’sfailuretoimprovethelivingstandardsandlivesoftypicalfamiliesisnotuncontrollableoutsideforcessuchasthethreehorsemenofthemiddle‐classapocalypse—globalization,technologicalchange,andthemarket.Theexplanationismisguidedpolicies.Currently,federalandstatepoliciesaremisguidedbecausetheyareputtingthebrakesonaneconomythatisalreadythreateningtogobackintoreverse.Weneedtopresstheaccelerator.Longer‐term,policiesaremisguidedbecausetheyhavefailedtodeliveronacoredemocraticpremise—andpromise.Bythisdemocraticpromisewemeanthatthecentralpointofpolicyinacapitalistdemocracyshouldbetoensurethatamarketeconomyimprovesthelivesofmostpeopleandbenefitsthecountry(orstate)asawhole.ThisitispossibletodefinepoliciesthatwoulddeliverbroadlysharedprosperityisillustratedbythedetailedpolicyagendainTheStateofWorkingPennsylvania2011(seetheboxattheendofthischapter).IfPennsylvaniaandtheUnitedStateshadadoptedayearagotheshort‐termpolicyrecipesweoutlinedlastyear,manymorePennsylvaniafamilieswouldbebenefitingfromgrowthtoday.Toclosethisyear’sStateofWorkingPennsylvania,wefirstsoundawarningandthenoutlineasimplethree‐partpolicyprescription.ThewarningisthatthereisaclearandpresentdangerofanotherlostdecadeforworkingfamiliesandariseofeconomicinequalityaboveeventhelevelsbeforetheGreatDepression.Usingconsensuseconomicforecastsforeconomicgrowth,whichprojectcontinuedhighunemploymentuntiltheendofthecurrentdecade,theEconomicPolicy

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Instituteprojectsthattheincomesofthemiddlefifthoffamilieswillbelowerin2018thantheywerein2007and2000.24Thisisa“statusquopolicy”forecast—theoutcomeintheabsenceofadditionalfederalpoliciestoincreasejobcreationandlowerunemploymentrates.Aby‐productofwagesnotrisingformostworkersduringanotherlostdecadewillbethatanoutsizedshareofthebenefitsofeconomicgrowthwillcontinuetogotothetop1%,asin2002to2007andonceagainin2010.Thiscouldproducelevelsofinequalitythatexceedthoseofthelate1920s.ForthreereasonscoretotheidentityofAmerica,evenhigherlevelsofinequalitywouldbebadnewsnotjustforthemiddleclassbutforthenationasawhole.

First,evengreaterinequalityisincompatiblewiththeAmericanDreamofwidespreadopportunity.Indeed,evenbeforethenationfeelsthefullimpactofincreasesininequalitysince2000,Americansaremorelockedintotheeconomicstatusoftheirbirththanpeopleinmostotheradvancednations.25

Second,countrieswithhighinequalityalsoexperienceloweconomicgrowth.26Amongotherpossiblereasonsforthiscorrelation,polarizedsocieties(a)struggletopersuadetheeconomicelitetoinvestintheeducationofthepopulationasawholeorinotherpublicgoodsthatboostlong‐runproductivity(e.g.,traditionalandtelecommunicationsinfrastructureandscientificresearch.),(b)lackarobustmiddle‐classthatsustainseconomicdemandovertime,(c)tendtohavehighcriminaljusticeandprivatesecuritycosts,and(d)havelargersharesofbusinesses(thanmoreequitablecountries)that“takethelow‐road”—competebyexploitingworkersordespoilingtheenvironment,businessstrategiesthatdonotincreaseproductivityorcontributetoinnovation.

Third,highlevelsofeconomicinequalityreinforcethepoliticalproblemsthatcontributedtopoorpolicychoicesinthefirstplace:theexcessiveresponsivenessofourdemocracytotheverywealthy,andourpoliticalsystem’slackofresponsivenesstoordinaryfamiliesandthepublicgood.

Insum,anotherlostdecadethreatensthreetreasuredAmericanandPennsylvaniavalues—widespreadmobility,ourrobusteconomy,andourdemocracy.ANewDirection:Thepastisnotprologuewhenitcomestoeconomicpolicy.Wethereforerecommendthreesimplestepstochartapositivenewdirection,allofthemaimedatrestoringthethreecoreAmericanvaluesthreatenedbypolarizinggrowth.

24SeetheEconomicPolicyInstitute’s(EPI’s)12thEditionofTheStateofWorkingAmerica,tobereleasedonTuesday,September11,2012.Onlineatwww.stateofworkingamerica.org25Inonestudyof17OrganizationforEconomicCo‐operationandDevelopmentcountries,theUnitedStatesranked13thonameasureofmobility.Americanslargelyendupwheretheystartontheeconomicladder,andthesameistrueoftheirchildren.SeeEPI’s12thEditionofTheStateofWorkingAmerica.26Foradditionalcitationsontheimpactofinequalityonmobilityandeconomicgrowth,seeAlanKrueger,“TheRiseandConsequencesofInequalityintheUnitedStates,”onlineathttp://www.whitehouse.gov/sites/default/files/krueger_cap_speech_final_remarks.pdf;andhttp://keystoneresearch.org/media‐center/op‐eds/democracy‐and‐inequality‐america‐response‐eric‐cantor

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1. Thefirstandmostessentialstepisthatourstateandournationcommitthemselvestobroadly

sharedprosperity.Candidatesforofficeshouldbeaskedtoendorsethreebasicvalues:theAmericanDreamofupwardmobility;theideathatpeoplewhoworkhardandplaybytherulesshouldbeabletoshareinournation’sexpandingeconomicpie;and,third,acommitmenttoademocracythatisresponsivetopeopleratherthanwealthandmoney.InPennsylvania,wecouldcallthistheContractwiththeKeystoneState.

2. ThesecondstepwouldbeanInvestmentintheFutureplanthatbolstersourinfrastructure,manufacturingsector,education,skills,andscientificresearchinawaythatgrowsjobsintheshortrunandlaysthefoundationforlong‐rungrowth.ThiswouldbemosteffectivelyimplementedbyanextPresidentandCongressin2013.ButversionsofthebasicapproachcouldalsobeimplementedinPennsylvania.WealsothinkthattheCorbettadministrationwouldbewelladvisedtorefocusinthisdirectioninitsnextbudgetifitwantstobolsterthestate’sjobandunemploymentperformanceoverthenext26months.

3. ThethirdstepshouldbewageandincomespoliciesthatrestorealevelofequityinAmerica

thatiscompatiblewithwidespreadmobilityandastrongeconomy.For33years,aseconomicinequalityhasgrownandthemiddleclasshasbeenundersiege,neithertheUnitedStatesnorPennsylvaniahashadapolicydiscussionthataddressesthebasicquestionofhowcanwerestoretheAmericanDream?27Giventheimportanceofthatdreamtoournation’sidentity,workethic,andinnovativespirit,wethinkthisisagapingholeinourpoliticaldiscourse.

Intheend,thebasicquestionis“WhatKindofPennsylvaniaDoYouWant?”Wewant:

aPennsylvaniainwhichhard‐workingandtalentedchildrenfromlow‐andmiddle‐incomecommunitieshaveafairshotatsuccess,notonlymoreprivilegedchildren;

aPennsylvaniawithopportunityforallwillingtoworkhard,and aPennsylvaniainwhicharesponsivedemocracyhelpscreateaneconomythatworksforall

Pennsylvaniansandthatcanholditsownagainstanyeconomicregionintheworld.Austerityeconomicsandpolicieswrittenforandbythecompaniesandindividualsthatmakethelargestpoliticalcontributionswon’tgetustothiskindofPennsylvania.It’stimeforanewdirection.

27PresidentObama’s“MiddleClassTaskForce,”chairedbyVicePresidentBiden,wasastepinthisdirectionbutdidnothaveafullenoughdiscussionabouttheeconomicforcesdrivingtheincreaseininequalityorthepoliciesnecessarytorestorelevelsofpre‐taxwageandincomeinequalitysimilartothoseofthe1970s.OntheTaskForce,seehttp://www.whitehouse.gov/strongmiddleclass

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aPennsylvaniainwhichtalentedchildrenfromlow‐andmiddle‐incomecommunitiescan

succeedaswellasmoreprivilegedchildren; aPennsylvaniawithopportunityforallwillingtoworkhard,and aPennsylvaniainwhicharesponsivedemocracyhelpscreateaneconomythatworksforall

Pennsylvaniansandthatcanholditsownagainstanyeconomicregionintheworld.Austerityeconomicsandpolicieswrittenforandbythecompaniesandindividualsthatmakethelargestpoliticalcontributionswon’tgetustothiskindofPennsylvania.It’stimeforanewdirection.

StateofWorkingPennsylvania2011: PolicyRecommendations

Maintainfederalsupportforextendedunemploymentbenefits(thatallowworkerstoreceivebenefits—andmaintaintheirconsumerbuyingpower—forupto99weeks).

Provideadditionalfederalaidforstateandlocalgovernments,sothatpublic‐sectorlayoffsdon’tundercutareboundinprivateemployment;

Investininfrastructureandschoolconstruction:aswehavepointedoutsince2008(inadvocatinga“buylow”Pennsylvaniaschoolconstructioninitiative),constructionprojectsthattakeplacewhenthemarketissoftsaveasmuchas20%becausebidpricescomeinlower.Additionalinfrastructureandschoolconstructionthusdeliveratriplebenefit:theycreatejobs,theyprovideafoundationforlong‐termcompetitiveness,andtheywouldbegoodvalueformoney.

Modernizeoursocialsafetynetforjoblessworkersinawaythatalsostrengthensourskillsandtheeconomy:thecurrentU.S.systemofunemploymentbenefitsstilllooksbasicallylikeitdidinthe1930s,payingpeopleaportionoftheirlostwageswiththe(implicit)expectationthattheydon’tneedre‐skillingbecausetheyaregoingtotheiroldjob.Infact,theyarenotgoingbacktotheiroldjobinmostcases.Weneedanadjustmentsystemthatcombinesincomemaintenancewithexpandedopportunitiesforworkerstogainnewskillsindecentpayingcareersprojectedtoexpandoverthenextfewyears.Thisshiftpartlyrequiresmakingtraininggenerallyavailabletojoblessworkersnotjustavailabletoafewtrade‐displacedworkers.Butitalsorequiressomeothercomponents:

o Strongerandmorewidespreadindustrytrainingconsortia(“IndustryPartnerships”)thatprovidereal‐timeintelligenceonskillneedsfrombusinesses—knowledgethatcanbeusedforjobless,incumbent(currentlyemployed),andlow‐incomeworkersalike;

o Incentivesforexpandingworksharing,whichDeanBakerhasshownhasbeencriticaltokeepingunemploymentlowinGermany;

o Whenunemploymentgetsabovecertainthresholds,theflexibilitytocombinetrainingwithjob‐creationincentivesforbusinesses;and

o Whenunemploymentgetshigherstill,theabilitytoinvestindirectpublicjobcreation.

o Thefederalgovernmentshouldfundinnovativeeffortsbystatestomodernizeintheseways,notprescribingsolutionsbutestablishingcriteriaandthenallowingstatestobelaboratoriesofdemocracy.Forourmoney,thisflexibleapproachwouldbeamoreeffectiveuseoffundsnowbeingconsideredforanextensionofpayrolltaxholidays.

Raisetheminimumwageasjustonestepinthelong‐overdueefforttoimprovewagesforthemiddle‐classandtorepairthebrokenlinkbetweenwagesandproductivitygrowth.Althoughoftenforgotten,thefirstfederalminimumwagewasestablishedin1938.Ourexperienceinthefollowingthreedecadesdemonstratedthatarisingminimumwagecouldactuallyhelptheeconomybycreatingpurchasingpoweranddiscouragingcompaniesfromcompetingusing“low‐wage”strategiesthatdon’traiseproductivity.Theminimumwagerosesteadilyininflation‐adjustedtermsfrom1938to1968,aperioddistinguishedbyverylowunemploymentratesandveryhighproductivitygrowth.

Catalyzelarger‐scaleenergy‐efficiencyretrofits,usingsmallamountsoffederalfundstomobilizeprivatecapitalthatcouldbeattractedtoanewmarketwithpredictablereturns(becauseoftherelativelypaybackperiodsofmanyenergyefficiencyupgrades).

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