In a February 8, 2011 report, the Keystone Research Center credits Pennsylvania’s recent comparatively good jobs performance on all the money spent in the last few years to promote green energy, workforce skills, and education. At the same time, the report blames New Jersey’s relative weakness on Governor Christie’s spending cuts and urges Pennsylvania’s new Governor to put away his budget paring knife. This Policy Brief reaches the opposite conclusion.
The Keystone Research report’s thesis that Pennsylvania’s relative job growth has improved relies heavily on the performance of Pennsylvania during the recession. However, much of the comparative improvement stems from the fact that Pennsylvania’s private job gains trailed well behind the country and far behind the faster growing states during the period from 2002 to 2007 and at half the national pace for the period 1990 to 2007.
Having grown more slowly than the country during the economic expansion that occurred prior to 2008, and not having the extraordinary housing boom experienced through much of the country, Pennsylvania did not suffer the dramatic decline in construction employment or the associated falloff in related sectors. Consider that over the period 1990 to 2007, national construction employment rose 45 percent compared to 16 percent in Pennsylvania—2.8 times as fast. And from 2002 to 2007, the growth period between the 2001 recession and the onset of the 2008 recession, U.S. construction jobs rose 2.5 times faster than Pennsylvania. So it is not overly surprising that the fall in construction jobs in the state was far smaller than the nation as a whole. From 2007 to 2010, construction employment nationally had plunged 28 percent and in the Commonwealth only 18 percent.
Since construction activity has fairly large backward and forward supply and demand linkages, the multiplier effect of these job losses is quite high. Little wonder the national recession was deeper than Pennsylvania’s. This is illustrated by the differences in losses in private service sector jobs, much of which can undoubtedly be traced to the fallout from the bursting of the housing bubble and other building construction declining sharply. From 2007 to 2010, service jobs fell 1.4 percent in Pennsylvania while over the same period the U.S. experienced a 4.1 percent decline in service employment.
Note too by way of confirming observation that North Carolina’s enormous and greater than national losses in construction employment and larger percentage declines in manufacturing during the 2007 to 2010 period pushed service employment down by 5 percent, worse than the national rate and far worse than Pennsylvania’s decline. In short, the bursting of the massive and unsustainable housing bubble crippled the state’s economy by seriously weakening many sectors. Pennsylvania, with its very slow population gains, largely avoided the worst of the impact of the housing and mortgage market debacles.
Interestingly, while Pennsylvania has suffered greater percentage losses in manufacturing for many years than has the nation, bringing the state’s manufacturing jobs to just 13 percent of private employment in 2007, the state and national losses during the recession have been closely matched and the share of manufacturing is now roughly the same. That in turn gives the state somewhat more recession resistance relative to the nation than has been historically the case.
In short, the fact that the Commonwealth has demonstrated relative strength during the recession and budding recovery does not mean that longer term it should continue its misguided development policies. Excessive government spending growth and wasteful subsidy programs, along with one of the worst tort and liability environments in the country, high corporate taxes and an excessively obsequious treatment of labor unions, especially public sector unions combine to mark Pennsylvania as a slow growth state for decades to come. While other states with friendlier business climates will regain their footing and begin to grow at a solid pace again in years to come, Pennsylvania will once again return to the bottom tier of states in terms of economic performance.
Jake Haulk, Ph.D., President
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