State of Working Pennsylvania 2010
This report, the Keystone Research Center’s 15th annual check up on the Pennsylvania economy, makes three simple points.
First, the last 12 months of data on the Pennsylvania and U.S. economies make clear that the extraordinary interventions in the economy by the Federal Reserve, the Bush and Obama administrations, and Congress were effective in forestalling the free fall of the U.S. economy. For Pennsylvania, the simplest indicator of this is the monthly average change in jobs each month. Before the American Recovery and Reinvestment Act (ARRA), Pennsylvania was losing nearly 30,000 jobs per month and this number was growing rapidly. This year, Pennsylvania is gaining jobs each month, on average.
As in the early 1930s, many voices, including within Congress, urged policy makers to do nothing in the face of the collapsing economy. Had this point-of-view prevailed, current unemployment in the United States would be about 15% or 16%.
Second, despite the success of the ARRA, Pennsylvania’s economy remains in deep trouble. The state economy would need to add roughly 300,000 jobs to boost employment enough to replace the jobs that have been lost since the recession began, as well as to provide enough employment to match the growth in the working-age population. Even more troubling, the jobs deficit has stopped falling in recent months. Once again policymakers face a choice between intervening forcefully to create more jobs or doing nothing. If they make the second choice, the unemployment rate is likely to remain above 7% until 2014.
Third, there is another “deficit” that underlies the challenges of the U.S. and Pennsylvania economies— the deficit in the buying power of the middle class. This deficit contributed to the emergence of the Great Recession by prompting more families during good economic times to finance their consumption through debt, including risky mortgages or home equity loans that hinged on the unrealistic assumption that rapid increases in housing prices would continue indefinitely.
The deficit in the buying power of the middle class is the result of stagnation in the incomes and wages of working families, evident in trends in hourly wages for Pennsylvania workers since 1995. In the last 15 years during which productivity grew by 43%, the inflation adjusted hourly wages of both college-educated and high-school educated Pennsylvania workers barely budged.
To gauge the size of the “wage deficit,” consider how much more workers would earn today if wages for all workers were distributed as equally as in 1979. In this scenario, workers at all wage levels would have seen the same increases since 1979—as opposed to what actually happened, with wage increases going mostly to high earners. Today, a full-time, year-round Pennsylvania worker earns between $2,800 and $3,750 less today in annual income than if the wage distribution had not become more unequal. Middleclass families with two full-time earners would be making between $5,600 and $7,500 more per year.
The jobs and wage deficits are far more immediate problems for Pennsylvania families than the accumulated debt or annual federal deficit of the U.S. government. Especially in an election year, voters should ask lawmakers at the federal and state level, “What are you going to do about the jobs deficit?” and “What are you going to do about the wage deficit?”
Page nine at the end of this report briefly outlines our own recommendations for reducing the jobs deficit. The federal government should extend a successful program for creating subsidized jobs. It should also finance extended benefits for jobless workers as long as there are many more unemployed workers than there are available jobs. Beyond this, the federal government should finance a more ambitious jobs program using money saved by not extending the Bush Administration tax cuts for taxpayers earning over $250,000.
 For more detailed long-term policy recommendations that would also reduce the wage deficit, see The State of Working Pennsylvania 2009 (online at http://keystoneresearch.org/sites/keystoneresearch.org/files/SWP2009_2.pdf) and, especially, The State of Working Pennsylvania 2008 (online at http://keystoneresearch.org/sites/keystoneresearch.org/files/SWP2008. pdf).