State of Working PA 2012
Listen to Media Conference Call: State of Working PA (August 29, 2012) with Stephen Herzenberg and Mark Price. Download the Audio
The State of Working Pennsylvania 2012 represents the Keystone Research Center’s deepest and most comprehensive recent look at the Pennsylvania economy and how it has performed for working and middle-class families. Our central findings are straightforward: The Pennsylvania economy is performing poorly from the perspective of middle- and low-income families—over the last year, the last decade, and the last third of a century. Although growth in productivity and the size of the overall economic pie have been sufficient to support rising living standards, wages and incomes for most families have stagnated—for those with full-time jobs as well as those who can’t find as much paid employment as they want.
Why Are We Hitting the Economic Brakes? The performance of the Pennsylvania economy reflects policy choices—poor policy choices—in both the short run and the long run. In the short run, we need more jobs and less unemployment. Current unemployment rates equal about 8%, and have risen recently, more in Pennsylvania than nationally. Predictably, sustained high unemployment led to falling wages for most Pennsylvania workers in 2011. Why is this predictable? Because our economy lacks policies and institutions that bake in broad sharing of increases in the economic pie—policies such as a minimum wage indexed to inflation and productivity growth, and institutions such as collective bargaining agreements that cover most workers in an industry or region. The only time in which economic growth was broadly shared in the last third of a century was also the only time that we had sustained unemployment below 5%—the second half of the 1990s. While we need more jobs and less unemployment, economic austerity policies at the federal and state level have increased Pennsylvania’s shortage of jobs in the past year by an estimated 74,000. (This shortage, or “job deficit,” is defined as job loss since the Great Recession began in December 2007 plus the additional jobs needed to keep pace with the growth of the working-age population.)
A Lost Decade…and More: In the longer run, there has also been a disconnect between our increasingly productive economy and stagnating wages and incomes. Over the last—or “lost”—decade, from 2000 to 2010, for example, median four-person family income in Pennsylvania declined by $6,100 from its 2000 peak (of $82,818). During the short economic expansion from 2002 to the end of 2007, the top 1% of Pennsylvania taxpayers captured 54% of ALL income growth in Pennsylvania. Going back further, to the late 1970s, growth has also failed to translate into rising living standards across the board. Again this was the predictable result of policy choices—policy choices unfriendly to working families but very friendly to the wealthiest Americans. Pick a policy area related to the economy—wage and tax laws, trade agreements that establish rules governing trade and investment flows across national borders, workers’ rights to unionize and bargain collectively, laws regulating (or deregulating) specific industries, the social safety net—and almost without exception national and state policies have tilted against middle- and low-income families. In some cases, policies have been tailored very explicitly to suit multi-national corporations that want to produce for the U.S. market from low-wage offshore platforms, or to allow billionaire hedge fund managers to pay lower tax rates than middle-class families.
Looking Forward: Another Lost Decade? While the first year of the current decade (2010) started well for Pennsylvania, with the state ranked near the top based on job growth, in 2011 the loss of jobs for more than 25,000 teachers, first responders and other public servants contributed to Pennsylvania’s fall towards the bottom of the state job rankings. Pennsylvania job growth in 2012 has been negative so far. Consensus economic forecasts predict continued high unemployment in the nation and in Pennsylvania for the next several years. Indeed, the Economic Policy Institute’s forthcoming State of Working America projects that the incomes of the middle fifth of families will be lower in 2018 than in 2007 and 2000. Similar to the last decade, robust income growth is likely to return for only a tiny sliver at the very top. Already in 2010, the first full year of economic recovery, Pennsylvania’s top 1% saw its average incomes grow by 11%. This 1% of Pennsylvania taxpayers captured 76% of all income growth in the state in 2010. The top 1% of this top 1% (an estimated 620 taxpayers) enjoyed an average income increase, adjusted for inflation, of $1.75 million in 2010. (This is a conservative estimate of the 2010 increase for Pennsylvania’s 1%.) In sum, polarized growth and another lost decade for most families is a predictable result of a continued failure to address the short-term problems of insufficient economic demand and job creation, and the long-term problem of stagnant wages and incomes.
The problems with another lost decade go beyond the threat to the living standards of Pennsylvania’s broad middle class. More years of polarizing growth will result in levels of inequality that exceed those of the late 1920s. Such inequality is bad news not just for the middle class but for the nation as a whole, and for three reasons core to the identity of America. First, very high inequality is incompatible with the American Dream of widespread opportunity—and Americans are already more locked into the economic station of their birth than people of most other advanced nations (for references, see Chapter 6). Second, countries with very high inequality also tend to experience lower economic growth. (Among other explanations for this, polarized societies struggle to persuade the economic elite to invest in the education of the population as a whole.) Third, very high levels of economic inequality reinforce the political problem that contributed to poor policy choices in the first place: the excessive responsiveness of our democracy to the very wealthy and our political system’s lack of responsiveness to ordinary families and the public good. In sum, another lost decade threatens three treasured American and Pennsylvania values: widespread mobility, our robust economy, and our democracy.
A New Direction: While there is no past year quite like the current one, one parallel is 1936. In that year, the U.S. economy was not yet healthy. While it had begun to recover from the Great Depression, the unemployment rate was still 17%, roughly twice today’s level. Moreover, the policy choices that would govern moving forward remained uncertain. Even President Roosevelt acquiesced to austerity economics in 1937, triggering a five-percentage-point increase in unemployment by 1939. Rather than consolidating the New Deal as it did starting in 1938, the United States could have made a different set of political and policy choices that would have led to prolonged high unemployment and a return to 1920s inequality. Instead it made policy choices that lifted living standards for America’s working families over four decades and created the most powerful economy the world had ever known.
If America and Pennsylvania make the wrong policy choices in the next few years, they will miss a golden opportunity for another generation of broadly shared prosperity. But the wrong choices over the next few years are no more inevitable than were the right choices from 1938 forward. The end of this report outlines three simple steps to chart a positive new direction, all of them aimed at restoring the three core American values threatened by polarizing growth.
- The first and most essential step is that our state and our nation commit themselves to broadly shared prosperity. Candidates for office should be asked to endorse three basic values: the American Dream, the idea that people who work hard and play by the rules should be able to share in our nation’s expanding economic pie, and a commitment to a democracy that is responsive to people rather than wealth and money. In Pennsylvania, we could call this the Contract with the Keystone State.
- The second step would be an Investment in the Future plan that bolsters our infrastructure, manufacturing sector, education, skills, and scientific research in a way that grows jobs in the short run and lays the foundation for long-run growth.
- The third step should be wage and incomes policies that restore a level of equity in America that is compatible, in the long run, with widespread mobility and a strong economy.
In the next several pages, “The State of Working Pennsylvania at a Glance: Just the Facts” contains a fuller summary of the key findings in the body of this report. The report itself provides an explanation of the numbers, along with many easy-to-read charts and complete sources. Our intent in releasing a more comprehensive report this year is to provide an authoritative reference manual for members of the Pennsylvania media, policymakers, and the public as they evaluate policy and electoral choices over the next year.