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Middle-Income Job Decline In Pennsylvania, 2001-2011

Business Cycle to Great Recession and Beyond

Authors

Prepared at the Center for Economic and Community Development by:

  • Theodore R. Alter, Professor of Regional Economics
  • Theodore E. Fuller, Development Economist

Research Assistants:

  • Lindsay McPhail
  • Abigail L. Miller
  • Brett Promisloff

Information Systems Consultant:

  • Claudio Frumento

Date

August 2013

Executive Summary

From 2001-11 total employment in Pennsylvania declined 0.03 percent, a loss of 16,451 jobs. The employment decline was due mainly to the large job loss of the 2007-09 Great Recession more than offsetting job gains in the 2001-07 business cycle. Embedded in these macro employment trends was a major job shift from higher to lower wage industries. This report tracks job shifts from 2001-11 among 17 major private sector industries grouped by industry Annual Average Weekly Wage (AAWW) as percent of state AAWW for total employment statewide. The industry wage groups targeted were:

Wage Group Industry AAWW Percent of State AAWW Total Employment Number of Industries
High 150% and over 4
High-Middle 100-149% 5
Low-Middle 50-99% 7
Low 0-49% 1

On Employment

Job changes from 2001-11 reflected wide differences among wage groups:

Wage Group Employment Change
High 64,214
High-Middle -298,741
Low-Middle 173,896
Low 35,625

On Wages

Change in Average Annual Weekly Wage for wage groups also varied from 2001-11.

Wage Group AAWW Change 2001-11 (Dollars) AAWW Change 2001-11 (Percent)
High 519 48
High-Middle 296 37
Low-Middle 160 31
Low 61 26

Pennsylvania: What to Do?

The shift of jobs from High-Middle to Low-Middle wage industries from 2001-11 indicates that a critical problem for the Pennsylvania economy is how to slow down or reverse this trend and strengthen the state's economy overall. Promising policy options include:

  • Expand training of worker to fill current and future openings for skilled jobs.
  • Encourage entrepreneurs to start new businesses in growth industries.
  • Upgrade roads, bridges, and other public infrastructure to improve public safety, reduce business costs, and generate well-paying construction and related jobs.
  • Encourage off-shoot industries to the mining of Marcellus Shale gas.
  • Revamp Pennsylvania's tax structure to increase taxpayer fairness and business competitiveness.

Middle-Income Job Decline: A National Problem?

The U.S. economy is steadily emerging from the Great Recession of 2007-09, the deepest downturn since the Depression of the 1930s. Since 2009 employment has made slow but steady gains, and unemployment is down from its Recession high. The 2001-2007 business cycle, prior to the Great Recession, the nation experienced a period of moderate job growth and relatively low unemployment.

The Pennsylvania economy was also hit hard in the Great Recession - nearly 200,000 jobs were lost from 2007-09, and the annual unemployment rate soared to 8.5% in 2010. From 2007-09, Pennsylvania's unemployment rate was lower than that for the average unemployment rate of the U.S. Notably, job growth in Pennsylvania lagged the nation during the 2001-07 business cycle (i.e. 1.8% versus 4.4% for the U.S.), suggesting a long-run problem with job creation for the state.

The adverse impact of the Great Recession coupled with lack luster growth during the 2001-07 business cycle highlights the importance of rebuilding the employment base of both the nation and Pennsylvania as a critical public policy issue. Embedded in the problem of growing jobs and reducing unemployment is the long-run nation-wide concern with the decline in middle-income jobs. A major factor in this decline has been the nation-wide shift in industry-mix since the 1980s from well-paid manufacturing jobs to lower paying jobs in Health Care and Social Services, Accommodation and Food Services, and other industries. The decline in manufacturing jobs is largely the result of foreign competition due to globalization. In addition, during the Great Recession manufacturing job losses resulted from cost-cutting by substituting technology for labor.

Recent employment trends strongly suggest that an important question for both state and national policy makers is: "Can the long-run decline in middle-income jobs be reversed?" This report looks at the problem in Pennsylvania.

Tracking Middle-Income Jobs In Pennsylvania

Defining Middle Income

This report explores middle-income job trends in Pennsylvania from 2001 to 2011 by tracking employment trends in private sector industries grouped by wage level. This is accomplished by looking at employment and wage trends in 17 major private sector industries that comprise over 98% of total private sector employment in Pennsylvania, 2001-11. The 17 industries are divided into four wage groups based on their "Annual Average Weekly Wage" (AAWW) as a percent of AAWW for total employment statewide - private and government. The four industry wage groups 2001-11 are:

Wage Group Industry AAWW Percent of State AAWW Total Employment Number of Industries
High 150% and over 4
High-Middle 100-149% 5
Low-Middle 50-99% 7
Low 0-49% 1

High Wage

Industry Industry AAWW 2001 Industry AAWW 2011
Utilities 1308 1929
Management of Companies and Enterprises 1241 2057
Professional, Scientific and Technical Services 1085 1521
Finance and Insurance 1015 1443

High-Middle Wage

Industry Industry AAWW 2001 Industry AAWW 2011
Information 944 1265
Wholesale Trade 898 1321
Manufacturing 797 1062
Construction 773 1051
Education Services 674 955

Statewide

Industry Industry AAWW 2001 Industry AAWW 2011
Total Employment: Private and Government 673 905

Low-Middle Wage

Industry Industry AAWW 2001 Industry AAWW 2011
Transportation and Warehousing 652 765
Health Care and Social Assistance 616 834
Management and Remedial Services 477 602
Agriculture, Forestry and Fisheries 418 556
Arts, Entertainment and Recreation 418 566
Other Services (except Public Administration) 410 541
Retail Trade 407 486

Low Wage

Industry Industry AAWW 2001 Industry AAWW 2011
Accommodation and Food Services 237 298

Data Sources

Data in this report are from the following sources: Employment and wage data, "Quarterly Census of Employment and Wages" (QCEW) collected by the Pennsylvania Department of Labor and Industry. Unemployment data, PA Department of Labor and Industry and U.S. Bureau of Labor Statistics.

Pennsylvania Statewide: The Big Picture, 2001-2011

Employment

Total Employment

From 2001-11 total employment—private sector plus federal, state and local government—in Pennsylvania declined by -16,541 jobs (-0.3%) with wide cyclical fluctuations.

Total Employment in Pennsylvania: Annual 2001-11

Total Employment in Pennsylvania: Annual 2001-11

Pennsylvania's Job Loss

Pennsylvania's loss of -184,336 jobs in the Great Recession from 2007-09 more than offset a gain of 100,944 jobs during the business cycle 2001-07.

Number Change in Total Employment: Pennsylvania, 2001-11

Number Change in Total Employment: Pennsylvania, 2001-11

Rate of Change in Jobs

Pennsylvania's job growth (1.8%) lagged the U.S. (4.4%) in rate of job growth during the 2001-07 business cycle, but experienced a lower rate of job loss (-3.3%) than the U.S. (-5.0%) during the 2007-09 Recession.

Percent Change in Total Employment: Pennsylvania and the U.S., 2001-11

Percent Change in Total Employment: Pennsylvania and the U.S., 2001-11

Unemployment

Unemployment Rate

From 2001-11 Pennsylvania's annual rate of unemployment ranged from a low of 4.4% in 2007 at the peak of the 2001-07 business cycle, to a high of 8.5% in 2010 at the depth of the Great Recession.

Percent Unemployed: Pennsylvania, 2001-11

Percent Unemployed: Pennsylvania, 2001-11

Unemployment Trends

Although Pennsylvania lagged the nation in rate of job growth, unemployment rates held steady at near or below the U.S. over the 2001-07 business cycle, and were below the nation in the Great Recession 2009-11.

Percent Unemployed: Pennsylvania and the U.S., 2001-11

Percent Unemployed: Pennsylvania and the U.S., 2001-11

Number of Unemployed

However, in 2009 through 2011 the actual number of unemployed in Pennsylvania jumped dramatically during the Great Recession, hitting over 500,000 annually 2009-11. Peak annual unemployment during the 2001-07 business cycle was only 349,000, which occurred in 2003, 64% lower than the peak number of unemployment between 2009-2011..

Number Unemployed: Pennsylvania, 2001-11

Number Unemployed: Pennsylvania, 2001-11

Employment: Sectors and Major Industries

Private and Government Sector Employment

In 2001 the private sector provided 4,848,788 jobs in Pennsylvania, accounting for 87.3% of total employment, while the federal, state, and local sectors combined employed 703,029 workers (12.7% of total employment). Government employment only increased by 0.007 jobs and private employment decreased by only 0.024 jobs.. Significant trends in the two sectors and in major industries were:

Private and Government Sectors: Number Employed 2001 and 2011

Private and Government Sectors: Number Employed 2001 and 2011

Private and Public Sector Employment Trends

The private sector added 88,188 jobs over the 2001-07 business cycles, lost -195,424 in the Great Recession 2007-09, and regained 83,508 in the initial recovery years 2009-11. The government sector added jobs during the business cycle and the Recession, but lost jobs in the recovery years.

The private sector lost -23,730 jobs (-0.5%) from 2001-11, while the three government sectors combined had a gain of 7,190 jobs (1.0%).

Private and Government Sectors: Number Change in Employment, 2001-11

Private and Government Sectors: Number Change in Employment, 2001-11

Employment Growth and Decline by Industry Sector

From 2001-11 the top job creating major industry input in Pennsylvania was Health Care and Social Assistance—adding 169,787 jobs. In contrast, Manufacturing was tops in employment decline, losing -258,077 over the decade.

Top 5 Growth and Decline Industries: Number Change in Employment, 2001-11

Top 5 Growth and Decline Industries: Number Change in Employment, 2001-11

Middle Income Job Decline In Pennsylvania 2001-2011

Employment by Industry Wage Group, 2001 and 2011

Employment by Industry Wage Group, 2001 and 2011

Employment in 17 major industries accounting for over 98 percent of private sector employment was unevenly distributed among four industry wage groups 2001-11, averaging over 2,000,000 jobs in the Low-Middle wage industry group to fewer than 500,000 in the Low-wage industry group. However, only the High-Middle wage group experienced a net job loss from 2001 and 2011.

Number Employed: Industry Wage Groups, 2001 and 2011

Number Employed: Industry Wage Groups, 2001 and 2011

Change in Number Employed by Wage Group

Between 2001-11: Industries in the High-Middle wage group had a net loss of -298,741 jobs (-18.8%), while industries in the Low-Middle wage group gained 173,896 jobs (8.1%).

Between 2001-11: Industries in the High wage group gained 64,214 jobs (10%), while the Low wage group added only 35,625 jobs (9.3%).

Change in Number Employed: Industry Wage Groups, 2001-11

Change in Number Employed: Industry Wage Groups, 2001-11

Distribution of Employment by Wage Groups

The large job loss in the High-Middle industry wage group coupled with the gains in the other wage groups led to a redistribution of employment among wage groups from 2001to 2011. Most notably employment in the High-Middle wage group shrank from 33 to 27% of the four group total, and jobs in the Low-Middle wage group increased from 45 to 49% of the total.

Number Employed and Percent of Total Employment: Industry Wage Groups 2001 and 2011

Number Employed and Percent of Total Employment: Industry Wage Groups 2001 and 2011

Employment by Industry Wage Groups: Business Cycle, Great Recession, and Beyond

Employment in the four industry wage groups varied through Pennsylvania's slow-growth peak to peak in the business cycle 2001-07, the Great Recession 2009-09, and tepid initial recover 2009-11.

Employment by Industry Wage Groups for 2001 through 2011

Jobs in the High-Middle wage group declined throughout the ten years.

From 2001-11 the Low-Middle wage group provided the most jobs followed by the High-Middle wage group.

Number Employed: Industry Wage Groups, 2001-11

Number Employed: Industry Wage Groups, 2001-11

Employment Change

From 2001-11 the High-Middle wage group experienced employment declines during the business cycle of 2001-07, the Recession 2007-09 and the first two years of the 2009-11 upturn.

The High, Low-Middle and Low wage groups lost jobs only during the Recession.

Number Change in Employment: Industry Wage Groups, 2001-2011

Number Change in Employment: Industry Wage Groups, 2001-2011

Employment Trends by Industry Wage Groups, 2001-2011

From 2001-11 the variations in employment change among industry wage groups resulted from the industry-mix among the four groups and in particular the dominance of a single industry within a group. High impact industries on job change in the four wage groups were:

Employment Trends of Industries by Wage Groups

The 10 percent employment increase, in the High wage group, was powered by a 67,659 job gain in Management of Companies and Enterprises and 27,026 new jobs in Professional, Scientific and Technical Services.

The 18.8 percent employment decline, in the High-Middle wage group, was almost entirely due to the -258,077 job loss in Manufacturing.

The 8.1 percent employment increase, in the Low-Middle wage group, was mainly due to the 169,787 job gain in Pennsylvania's largest private employer—Health Care and Social Assistance.

The 9.3 percent employment increase, in the Low wage group, was due to a 35,625 job gain in its sole industry—Accommodation and Food Services.

Number Change in Employment: Industries in Wage Groups, 2001-11

Number Change in Employment: Industries in Wage Groups, 2001-11

Total Wages: Industry Wage Groups, 2001-2011

From 2001-11 the variations in employment and employment change among the four industry wage groups were matched by significant differences in total wages generated year to year, and changes in total wages among wage groups over the 10 years. As in job change the High-Middle wage group also lagged in growth in total wages from 2001-11. Important trends in total wages earned among the wage groups 2001-11 were:

Wages by Wage Group

The High-Middle industry wage group led in total wages in 2001 at $66.8 billion, but the Low-Middle wage group was tops in 2011 at $80.7 billion.

Total Wages by Wage Group, 2001 and 2011

Total Wages by Wage Group, 2001 and 2011

Change in Wages

The Low-Middle wage group led in total wage gain from 2001-11 with $23.8 billion (41.9%). The High wage group was a close second at $22.6 billion (128.2%). The High-Middle wage group added only $7.4 billion in total wages (11%).

Dollar and Percent Change in Total Wages: Wage Groups, 2001-11

Dollar and Percent Change in Total Wages: Wage Groups, 2001-11

Share of Wages

From 2001-11 the High-Middle wage group's share of total wages for all 17 private sector industries shrank from 41% in 2001 to 34% in 2011, while the Low-Middle wage group's share increased from 34 to 37% and the High wage group's share jumped from 22 to 26%.

Percent of Total Wages—All Wage

Percent of Total Wages—All Wage

Percent of Total Wages—All

Percent of Total Wages—All

Annual Average Weekly Wage: Wage Groups, 2001-2011

From 2001-11 there was a considerable variation in trends in Annual Average Weekly Wage among the four industry wage groups in addition to differential changes in employment and total wages,. Annual Average Weekly Wage increased for workers in each wage group from 2001-11, but workers in the High-Middle, Low-Middle, and Low wage groups lost ground to the High wage group in both dollar and percentage wage gains.

Annual Average Weekly Wage by Wage Group in 2001 and 2011

From 2001-11 changes in Annual Average Weekly Wage ranged from $1,081 to $1,600 in the High wage group, to $237 to $298 in the Low wage group.

Annual Average Weekly Wage: Wage Groups, 2001 and 2011

Annual Average Weekly Wage: Wage Groups, 2001 and 2011

Change in Annual Average Weekly Wage

From 2001-11 the dollar change in Annual Average Weekly Wage ranged from a gain of $519 for industries in the High wage group to a low of only $61 for industries in the Low wage group.

Dollar Change in Annual Weekly Wage: Wage Groups, 2001-11

Dollar Change in Annual Weekly Wage: Wage Groups, 2001-11

Percent Change in Annual Average Weekly Wage

From 2001-11 the percentage change in Annual Average Weekly Wage ranged from a high of 48 percent for the industries in the High wage group to a low of 26 percent in the Low wage group industries.

Percent Change in Annual Average Weekly Wage: Wage Groups, 2001 and 2011

Percent Change in Annual Average Weekly Wage: Wage Groups, 2001 and 2011

High-Middle Wage Job Loss In Pennsylvania: Impacts

Pennsylvania had substantial job loss in High-Middle wage industries from 2001-11. Coupled with large job gains in Low-Middle wage industries over the decade, this job loss significantly impacted the workforce and economy of the state. Areas of impact included not only a reduction in well-paying jobs for many in the state's labor force, but also led to a widening of the wage gap between workers in High and Low wage industries, and a re-distribution of total wages earned between workers in high and lower wage industries. Broad impacts of the High-Middle wage job decline not explicitly documented in the report but likely to have occurred include:

Labor Force

It is likely the shift in job-mix from High-Middle to Low-Middle wage industries caused hardship for many of those losing High-Middle wage jobs - especially if they were unable to find alternative well-paying jobs or even jobs in lower wage industries. Additionally, the demand for fewer workers in the High-Middle wage industries from 2001-11 suggests sharply reduced opportunities in well-paying jobs for new entrants to the labor force over the decade. These adverse impacts will likely continue in the future if job loss continues in the High-Middle wage industries.

Wages

Data on Annual Average Weekly Wages earned by workers in industries grouped from High to Low wage indicate the wage gap widened between High and Low wage workers from 2001-11. Average dollar and percent gain in Annual Average Weekly Wage decreased from High to Low wage groups over the decade. Bottom-line: the lower the wage group the more likely a worker was to fall behind in take home pay from 2001-11, both in dollars and percent-wise. Presumably, this also led to some widening of the gap between High and Low individual/family incomes over the decade.

Total Wages

From 2001-11 there was a shift of "total annual wages" earned between the High-Middle and Low-Middle industry wage groups. Over the decade "total annual wages" earned by workers in High-Middle wage industries was only increased by $7.4 billion versus $23.8 billion for workers in Low-Middle wage industries. This suggests that if High-Middle wage workers typically purchase different "market baskets" of goods and services than Low-Middle wage workers, then the job shift from High-Middle to Low-Middle industries should have also changed the relative mix of consumer goods and services demanded of Pennsylvania businesses from 2001-11.

The 2001-11 redistribution of total wages from High-Middle to Low-Middle wage groups also suggests a shift in state/local wage taxes paid by workers in the two groups. In 2001 workers in the High-Middle income group earned 41% of total wages for all groups and only 34% in 2011, versus 34% in 2001 and 41% in 2011 for the Low-Middle wage industry group. This suggests a regressive redistribution of tax burden from workers in the High-Middle to those in the Low-Middle group over the decade.

High-Middle Wage Job Loss In Pennsylvania: Where To?

It is impossible to predict with accuracy whether jobs in High-Middle wage industries will continue to decline in Pennsylvania - either in the next few years or further out. Perhaps the best that can be done to assess the future is to take a broad look at major forces influencing recent trends - and see if they might be changing

Since the 1990s - and even before - global competition has resulted in extensive job loss in both High-Middle and Low-Middle wage manufacturing industries in the U.S., affecting production ranging from autos to apparel. A main factor has been relatively lower labor costs in other places, notably Mexico, China and Southeast Asia. Brightening the cost picture a bit recently for U.S. manufacturers are the slowly rising labor and pollution costs in foreign countries - particularly in China which may help level the playing field for U.S firms, and falling natural gas prices. The Great Recession forced also many U.S. manufacturing firms to substitute technology for labor. This change cut jobs but also reduced labor costs for some firms in a few industries making them more competitive, even to the point of returning a few jobs to the U.S.

However, this is a mere glimpse of the big picture of global competition for jobs in High-Middle wage industries. The question for Pennsylvania is: "What can be done to slow the job loss in High-Middle wage industries, mainly manufacturing, in a global economy and in competition with other states?"

Pennsylvania: What to Do - Promising Policy Options

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

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Middle-Income Job Decline In Pennsylvania, 2001-2011

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