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Are Middle-Income Jobs on the Decline in Pennsylvania?

Date: 11/16/2012

Are Middle-Income Jobs on the Decline in Pennsylvania?

Lindsay McPhail, Undergraduate Research Assistant,                          Theodore Fuller, Development Economist                                                  Theodore Alter, Professor and Co-Director of the Center for Economic and Community Development                                                                      Department of Agricultural Economics, Sociology, and Education, The Pennsylvania State University.

Our nation is currently slowly emerging from the Great Recession - the deepest economic downturn since the Depression of the 1930s. From peak to trough - Dec. 2007 to June 2009 - Pennsylvania lost over 200,000 jobs, and unemployment rose from 4.5% to 8.2%. Rebuilding the employment base of the nation and our state, and reducing the unemployment rate, are arguably the most important economic policy issues confronting us today. Addressing these problems effectively has important implications for increasing personal income and business profits, and consequently, the growth and development of our communities, the state of Pennsylvania, and the nation as a whole.

Embedded in the problem of growing employment and reducing unemployment, due to the Great Recession, is the nationwide concern that middle-income jobs are disappearing - effectively hollowing-out the middle-income class in the U.S. This is a long-run concern brought on by the changing industry mix of employment since the 1980s. Relatively well-paying manufacturing jobs have rapidly disappeared while lower-paying jobs in health care, accommodation, food services and other sectors have expanded both nationwide and in Pennsylvania, causing a reduction in the number of the middle-income wage earners. An important question for policy makers at both the state and national level is: Can the decline in middle-income jobs be reversed? This article explores employment change by industry wage level in Pennsylvania over the 2001 to 2007 business cycle and provides some insights about the current business cycle.

The U.S. Economic Situation

While there is debate over whether or not the Great Recession is truly over, the future of employment and middle-class income remains uncertain. Over the last two or three decades, those with higher incomes have enjoyed most of the benefits of economic growth. Income inequality is not only an issue of fairness and equity, but also important to the economic, social, and political well-being of the nation.

The recent September 2012 job growth statistics for the United States show that unemployment has been at its lowest rate, 7.8%, since President Barack Obama’s inauguration. Since 2011, the largest job growth occurred in the following sectors: professional and business services; education and health services; leisure and hospitality; and trade, transportation, and utilities (Mitchell and Murray). Important to keep in mind, however, is that the income of a typical U.S. household has fallen to levels not seen since 1995 (Dougherty and Mathews).

The Decline in Middle-Income Employment in Pennsylvania: 2001-07

Rebuilding Pennsylvania’s employment base and lowering our unemployment rate is central to the future growth and prosperity of the Commonwealth and its communities. Since the 1980s, the landscape of the Pennsylvanian job force has shifted from a heavy presence of manufacturing jobs to an increased relative reliance on service and trade sectors. From 2001 to 2007, Pennsylvania lost 166,747 manufacturing jobs, which was a 20.1% decrease over the business cycle. (Alter, Fuller, and Smith). The year 2010 also marked Pennsylvania’s highest unemployment rate in the last 30 years at 8.7%, despite being below the 2010 national average of 9.6%.

To a get a recent, but fairly long-run look at change in middle-income jobs in Pennsylvania, we tracked employment change in 276 private sector industries over the 2001-07 business cycle. The 276 industries were divided into four groups based on their annual average weekly wage (AWW) as a percent of the statewide AWW for total employment. The four groups were: 150% & over of state AWW, 100-149%, 50-99%, and less than 50%. The tracking of industries indicated that the number of industries in the top and bottom wage groups increased slightly from 2001-07, while the number in the two middle-wage groups declined (Figure 1). Employment change followed a similar pattern. Figure 2 shows that the 100-149% and 50-99% wage categories both lost jobs over the 2001-2007 business cycle, while the 150% & over and the less than 50% wage groups expanded employment. Figure 3 indicates the job gains and losses by wage group from 2001 to 2007 for 276 private sector industries.

The greatest loss from 2001 to 2007 was in the 50-99% category, which lost 139,965 jobs over the business cycle. There was also a loss of 10,905 jobs in the 100-149% category.

These trends suggest that a hollowing-out of private sector employment in the two middle wage categories occurred during the 2001-07 business cycle prior to the Great Recession. During this period, however, employment grew substantially in both the lower and upper wage groups suggesting growing wage inequality.

While not displayed graphically, data for the recession years 2007-10 revealed that the 50-99% and 100-149% wage groups continued to have a slight decrease in the number of industries, and the 150% & over and the less than 50% groups slight increases. The 150% & over group had a slight decrease in jobs from 2007-10, while the 100-149% group experienced a large loss of 222,152 jobs. The 50-99% and less than 50% wage groups both had gains of slightly over 20,000 jobs each.

Variations in Pennsylvania County Weekly Wages: 2001-07

Also interesting and important to note are variations in annual average weekly wages (AWWs) for total employment among the 67 counties in Pennsylvania. Differences in AWWs among counties lead to differences in local incomes available for consumption expenditures in local businesses and in local tax revenues. The following two maps indicate the Average Weekly Wage (AWW) for total employment of the 67 counties compared to average AWW for all counties for the years 2001 and 2007. The county average AWW in 2001 was $553, and $675 in 2007 - an increase of 22%. The legends on the maps indicate that counties are classified by whether their AWW is 50-99%, 100-149%, or 150% & over the average AWW for all counties in 2001and 2007.

The most striking pattern on both maps is that the counties with AWWs 100-149% or 150% & over are located mainly in the major metropolitan areas of Philadelphia and Pittsburgh.

Most counties - smaller city and rural - outside the two large metro areas had AWWs below the average AWW for all counties in both 2001 and 2007. Chester and Montgomery are the only two counties in the 150% & over group in both 2001 and 2007 - years defining the beginning and end of the business cycle prior to the Great Recession.

Between 2001 and 2007 there were few shifts of counties between AWW groups. Erie and Luzerne shifted to a lower category, from 100-149% to 50-99%, and Indiana, Fulton, and Monroe shifted from the 50-99% category up to the 100-149% group from 2001 to 2007.

While not displayed in a map, data indicated that from 2007 to 2010, Westmoreland, Beaver, Fulton, and Potter counties all moved from the 100-149% category to the 50-99% category. No Pennsylvania county moved to a higher category during this time period, and Fulton moved back to the 50-99% category, its status in 2001. Monroe County, however, did remain in the 100-149% category, which it moved to in 2007. Two counties on Pennsylvania’s northern border, Potter and Erie, which were in the 100-149% category in 2001, fell to the 50-99% category by 2010, at which time all counties along Pennsylvania’s northern border were classified in the 50-99% category.

The Big Picture: 2000-10

From 2000-10, Pennsylvania experienced a business cycle marked by slow employment growth as the Great Recession brought steep job losses. Over this ten-year period, the long-term shift in industry mix continued with declines in manufacturing jobs but employment gains in service, trade and other sectors. Pennsylvania’s workforce was significantly impacted by the changes in the number of employed and the industry job mix. There was a hollowing-out of employment in middle-income industries from 2001 to 2010. The 50-99% and 100-149% groups for the private sector, combined, lost approximately 350,000 jobs in this ten-year time frame. Over the same period, the highest wage group, 150% and over, gained over 125,000 private sector jobs while the less than 50% group added more than 160,000 jobs. Employment trends from 2000-10 coupled with the decline in middle-income jobs suggest that continued efforts to grow jobs in Pennsylvania - especially jobs in high-wage industries- are critically important. State and local government officials, including borough officials, and citizens in Pennsylvania, need to collaborate to find innovative solutions to tackle job creation challenges and to reverse the hollowing-out of middle-income jobs.

%2ASpecial thanks to Claudio Frumento, information systems consultant, for data management and analysis assistance. Thanks also to Brett Promisloff, undergraduate research assistant, for creating the county-level wage maps.

%2AData from the Pennsylvania Department of Labor and Industries

Works Cited

Alter, Theodore R., Theodore E. Fuller, and Stephen M. Smith (Feb. 2009). "Pennsylvania: Road to Growth: 2001-07 and Beyond." Penn State College of Agricultural Sciences, Department of Agricultural Economics and Rural Sociology. Print.

Dougherty, Conor, and Anna Wilde Mathews. (Sept. 13, 2012). "Household Income Sinks to ’95 Level."

The Wall Street Journal. On-line, Retrieved from http://online.wsj.com/article/SB10000872396390444426404577647470593975642.html.

Murray, Josh and Sara Murray. (Oct. 5, 2012). "Hiring Notches Modest Gains: Unemployment Rate’s Unexpected Slide to 7.8% Sparks Political Debate Over Health of Jobs Market."

The Wall Street Journal. On-line, Retrieved from http://online.wsj.com/article/SB10000872396390443768804578038150747630398.html.

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