African Americans Are Being Left Behind By Pittsburgh’s Economy

Every few months you hear about a new ranking showing that Pittsburgh is doing better than other regions. Last fall, we were rated the “best U.S. city for relocation.” In January, Pittsburgh was designated one of the “happiest cities” in which to work. In April, it was reported that there were more U-Hauls coming here than leaving in 2012.

There are some rankings you never hear about, however, because they aren’t statistics we can be proud of. They show that tens of thousands of our region’s minority residents not only aren’t sharing in the region’s overall economic progress, they’re worse off than in almost any other major region in the country.

For example, throughout the course of the recent recession and recovery, Pittsburgh has celebrated the fact that its unemployment rate was below the national average. However, Census estimates for 2011 indicate that the unemployment rate for African Americans in southwestern Pennsylvania was above the national average for African Americans. In fact, the Pittsburgh Region had the 11th highest unemployment rate among African Americans among the top 40 regions.

The Census estimated that the unemployment rate among African Americans in our region in 2011 was 19%, meaning nearly one out of every 5 African Americans who wanted to work was unable to find work. Our black unemployment rate was 2.6 times the unemployment rate among whites, the 7th worst disparity among the top 40 regions in the country.

Our unusually high unemployment among African Americans is not a new phenomenon and it’s not due to the recent recession. Throughout the last decade, African Americans in Pittsburgh have had one of the highest unemployment rates among major metropolitan regions in the country.

The disparity isn’t just in unemployment. The African Americans in our region who do have jobs are earning significantly less than white workers here and less than African Americans make in other regions of the country. In 2011, the average African American man with a full-time job earned only $39,132 in the Pittsburgh Region. That’s the second lowest average wage for African Americans among the top 40 regions (only Cleveland has lower earnings for blacks than Pittsburgh), and it’s more than 40% lower than the $65,850 the average white man with a full-time job makes in the Pittsburgh region. African American women with full-time jobs earned slightly less than men – an average of $37,138 – but their earnings rank slightly better (only 7th lowest) compared to African American women in other parts of the country.

One reason for the disparity in earnings compared to other regions is the types of jobs African Americans who live here have. Only 23% of African Americans in Pittsburgh work in management, business, science, and arts occupations, the second lowest percentage among the top 40 regions, whereas 34% work in service occupations, the highest percentage among major regions.

The combination of persistently high unemployment rates among African Americans and lower wage levels among those who are employed have resulted in an even more shameful statistic – Pittsburgh had the 3rd highest rate of poverty for working-age (18-64) African Americans among the major metropolitan regions in the country in 2011, and the sixth highest rate of poverty for African American children. Nearly one-third (31%) of 18-64 year old African Americans are living in poverty, nearly half (45%) of African American children under 18 are poor, and over half (53%) of African American children under age 5 live in households with income below the poverty line.

It’s not surprising that if minorities in the region have trouble finding work and fall into poverty, we would have trouble attracting and retaining minorities in the region. And, in fact, Pittsburgh has the least diverse population of any major metropolitan region in the country. The most recent estimates from the U.S. Census Bureau indicate that only 12% of the residents of the Pittsburgh Region are non-white, the smallest percentage among the top 40 regions in the country. The average among the largest regions is 32%, and in the U.S. as a whole, 24% of the population is non-white, twice as high a proportion as in Pittsburgh. If you looked to see who was behind the wheel of those U-Hauls that came here last year, you probably wouldn’t see many non-white families.

In a quirk of statistics, our lack of diversity makes our region look like it’s doing better in terms of unemployment than it really is. For example, in 2011, the overall unemployment rate in Pittsburgh was lower than the unemployment rate for Baltimore. But the Census data show that the unemployment rates for both whites and blacks were higher in Pittsburgh than in Baltimore. How can that be? Because 38% of the population in the Baltimore region is non-white, but only 12% of the population in southwestern Pennsylvania is non-white, Baltimore’s total regional unemployment rate is higher than Pittsburgh’s simply because Baltimore has a bigger non-white population.

What can be done to improve the economic status of African Americans in the region?

Improve the Region’s Business Climate. It’s hard to help African Americans get good jobs if there aren’t good jobs available in the region. As noted in a previous post (Pittsburgh Worst in U.S. in Both Job Growth and Unemployment Reduction), our region has had one of the slowest rates of job growth in the nation in recent months. In order to create more jobs, we need to lower state business taxes, create more industrial sites, fix our decaying roads, bridges, and water and sewer systems, and provide the capital that entrepreneurs need to start and expand businesses.

Improve the Quality of Public Education. If we are successful in creating more jobs, we need to make sure that our African American residents have the skills they’ll need to be hired for them, and that means improving our education system. State tests show that fewer than half (43%) of the African American 11th graders in the region can read properly and fewer than one-third (29%) are proficient in math. Only 15% of African Americans in the Pittsburgh Region over age 25 have a bachelor’s degree or higher, the 3rd lowest percentage of any major region in the country.

Support Adequate, Affordable Public Transit to Job Centers. Census data show that 25% of the African American workers in our region rely on public transportation to get to work, the second highest proportion of any major region in the country (only New York is higher), and six times higher than the proportion of white workers in our region who use public transit (4%). Cutbacks in transit service will have disproportionately negative impacts on the ability of African Americans to obtain and retain jobs.

While it’s good to celebrate our region’s successes, it’s time we started making more serious efforts to correct our weaknesses. We need to accelerate our economic and workforce development efforts, but we need to do it in a way that will benefit all of our region’s citizens.

(A version of this post appeared as the Regional Insights column in the Sunday, May 5, 2013 edition of the Pittsburgh Post-Gazette.)

Pittsburgh Worst in U.S. in Both Job Growth and Unemployment Reduction

Although Pittsburgh’s economy was doing better than most parts of the country during the early stages of recovery from the recession, that’s no longer true. In fact, Pittsburgh is now dead last in the country in job growth. The latest data from the U.S. Bureau of Labor Statistics show that jobs in the Pittsburgh Region grew by only 0.2% between February 2012 and February 2013, the slowest rate of job creation of any of the 40 largest metropolitan areas in the country. Most large regions grew ten times faster than Pittsburgh did over the past year.

A 0.2% growth rate means that the Pittsburgh Region added only 2,100 net new jobs last year. That’s fewer new jobs than any major region in the country except for Providence, Rhode Island, a region less than half our size. Other regions that are smaller than Pittsburgh created thousands more jobs than we did. For example, the Cleveland Region added 13,400 jobs over the past year, more than 6 times as many as Pittsburgh. Charlotte added 21,600 jobs, more than 10 times as many as southwestern Pennsylvania.

Not only is the Pittsburgh Region at the bottom in terms of job creation, it had the biggest increase in unemployment over the past year among the largest 40 regions in the country. That would be bad enough if unemployment were going up in all regions, as it was during the recession, but unemployment has been going down in most parts of the country over the past year. The Pittsburgh Region was one of only 11 major metropolitan regions in the country that saw its unemployment rate increase in the past year, and our unemployment rate was almost a full point higher in January than it was a year earlier (8.6% in January 2013 vs. 7.7% in January 2012), the largest increase by far of any major region.

The big increase in our unemployment rate means there are a lot more Pittsburghers unable to find work today than in the past. In January 2013, there were more than 108,000 people looking for work in the Pittsburgh Region, the largest number of people unemployed during January in over a quarter century. Even after adjusting for the fact that unemployment is typically higher in January than other months, there were nearly as many people unemployed at the beginning of this year as there were at the height of the recession three years ago. Pittsburgh now has the 13th highest unemployment rate among the top 40 regions in the country. Places like Baltimore, Boston, Cincinnati, Cleveland, Columbus, Kansas City, Milwaukee, Minneapolis, and St. Louis all have lower unemployment rates than we do.

If all of this is news to you, it shouldn’t be. Our job growth rate has been slipping and our unemployment rate has been increasing for almost a year. However, local civic boosters have ignored these troublesome statistics and instead celebrated the fact that the region’s labor force has been growing. The fact that the labor force grew last year would be indeed be good news except for the fact that job creation isn’t keeping up with the labor force growth. The 2,100 new jobs our region added last year didn’t come close to helping the more than 80,000 Pittsburghers who were looking for work throughout 2012, and adding 30,000 more people to the labor force only made it worse. Last fall, people were also touting the fact that we had a record high number of jobs, but that’s no longer true: there were 3,000 fewer jobs here in February 2013 than there were in February 2001, a dozen years ago.

Unemployment is continuing to increase because we’ve actually lost jobs over the past year in many of our biggest economic sectors. Our biggest loss of jobs last year was in government; we had 3,500 fewer government jobs in February 2013 than a year earlier, and 8,600 fewer than two years ago, a bigger percentage loss of government jobs than any other major region. But the problem isn’t just government jobs; we also had the third lowest growth rate of private sector jobs among the top 40 regions last year. We lost 2,600 jobs in the leisure and hospitality industry (one of only six of the top 40 regions to lose jobs in that sector over the past year); we lost 1,300 jobs in wholesale trade (the biggest percentage loss in that sector of any major region in the country); and we lost 500 manufacturing jobs (whereas most major regions added manufacturing jobs in 2012).

The two sectors that added the most jobs – professional and business services (4,000 jobs) and healthcare and social assistance (2,700 jobs) – both grew more slowly than in most other major regions. Our only economic sectors that added significant numbers of jobs and grew at a faster rate than other regions were financial services (1,700 jobs and a 2.4% growth rate) and mining (900 jobs and a 9.4% growth rate). The few sectors where we had growth barely created enough jobs to offset the losses in other sectors.

It’s time to stop pretending our economy is doing well or hoping that the next month’s job report will show that things have finally turned around. And we can’t blame federal policies when we’re doing worse than every other region in the country in almost all of our industries. The labor force will come to an abrupt end if those 100,000 unemployed Pittsburghers give up and move to one of the dozens of other regions that are adding thousands more jobs than we are. Our many cultural attractions and other amenities won’t mean much to people who can’t find work.

What do we need to do to jumpstart job growth?

Improve Pennsylvania’s Business Climate. Part of Pittsburgh’s problem is that it’s part of a state that’s also doing poorly economically. Over the past year, Pennsylvania had the 5th smallest growth in total jobs among the fifty states and the 6th smallest growth in private sector jobs. That’s not surprising since Pennsylvania has the second highest corporate income tax rate in the country and it’s the only state that taxes both business income and business assets. The Tax Foundation’s State Business Tax Climate Index ranks Pennsylvania as having the fifth worst corporate taxes in the country. To solve this, the Governor and General Assembly should eliminate the Capital Stock and Franchise Tax, reduce the Corporate Net Income Tax to 8.5% or less, and eliminate the cap on the Net Operating Loss Carryforward.

Improve Pittsburgh’s Business Climate. Pennsylvania is only part of Pittsburgh’s problem, however, since job growth in the Pittsburgh region is lower than almost any other region in the state. Since our biggest losses have been in manufacturing, that’s where our biggest economic development emphasis should be. We need to (1) make major investments in the infrastructure needed to support manufacturing firms, particularly ready-to-go industrial sites with easy access to airports, highways, railroads, and waterways; (2) create a workforce with the skills and willingness to work in manufacturing jobs; and (3) provide the capital entrepreneurs need to start and expand manufacturing businesses.

(A version of this post appeared as the Regional Insights column in the Sunday, April 7, 2013 edition of the Pittsburgh Post-Gazette.)

Better Information on Hospital Prices and Quality Will Help Make Health Insurance More Affordable

Imagine walking into an automobile dealer’s showroom, and when you ask the price of a car, they won’t tell you. They say you can’t find out the price until after you commit to buying the car, and moreover, you’ll have to pay for whatever options the dealer decides to include, whether you want them or not. There’s also no warranty on the cars they sell – if something doesn’t work properly, you’ll have to pay extra to have it fixed.

You’d undoubtedly shake your head in disgust and go to get your car elsewhere. But as bizarre as that sounds, it’s exactly the way our healthcare system works today. Many hospitals can’t or won’t tell you in advance what they’ll charge you for a procedure, they’re free to add on as many extra services as they want at your expense, and if they make a mistake or give you an infection, you have to pay extra to fix the problem, including paying for a second hospitalization if you have to be readmitted after discharge.

A study published in the Journal of the American Medical Association in February described what a researcher found when she called 122 hospitals around the country to find out what it would cost her healthy 62 year old grandmother to get a hip replacement. Nineteen of the hospitals were unable to give her any price information at all. For 27 other hospitals, she was only able to get the hospital’s price or the physician’s price, but not both. For about half (57) of the hospitals, she was able to get both the hospital’s price and the physician’s price, but only by calling them separately. Only 19 hospitals (16%) were able to give her a combined price for the hospital and physician services (both of which are obviously necessary if you need hip surgery).

It also turned out to be worth the effort she made to call and ask about prices. The combined hospital and physician prices ranged from $11,100 to a whopping $125,798 – a more than 10-fold difference. The lower prices weren’t coming from lower-quality hospitals, either; even among the hospitals on the highly-advertised U.S. News and World Report “Top Hospitals” list,” the prices ranged from $12,500 to $105,000, i.e., she might have to pay 8 times as much for the same procedure depending on which “top hospital” she chose.

Many other studies have found that when the veil of secrecy is removed from prices, tremendous variation across providers is revealed. It’s not just for major surgery, either; for example, the price of an MRI can range from several hundred dollars to several thousand dollars, depending on where you get it. Same test, huge differences in cost.

So if you’re uninsured, what you don’t know can hurt you financially. Even if you have health insurance, costs are going to start mattering more and more. A growing number of individuals now have high-deductible health plans, meaning they will pay 100% of the cost for many tests and outpatient procedures. Moreover, the ongoing battle between Highmark and UPMC may soon mean that many Pittsburghers will have to pay a higher percentage of the cost if the doctor or hospital they want to use is “out of network” for their health insurance plan. And regardless of what kind of health insurance you have, if people don’t start choosing the most cost-effective hospitals for their care, insurance premiums will continue to skyrocket.

Citizens, business leaders, and public officials should be demanding four things to ensure that all Pittsburghers can find the best quality hospital care at the most affordable price:

1. Hospitals Should Publicly Announce Their Prices for Tests and Procedures. 

Some progressive hospitals around the country put their prices right on their websites (for example, look at the website for the Spectrum Health system in Michigan at http://www.spectrumhealth.org/AveragePrices ). But you won’t find that on any hospital websites in the Pittsburgh Region. (Our hospitals’ websites tell you how to pay your bill, but not what your bill will be.)

Moreover, the published price should include all costs associated with the procedure, including all physician services and facility charges. Even for something as simple as a colonoscopy, a hospital can charge a lot more depending on what kind of anesthesia is used or where the procedure is done.

2. Hospitals Should Publish Detailed Statistics on Their Quality of Care. 

No one wants lower cost healthcare if it means poor quality care. Unfortunately, the quality of hospital care in the Pittsburgh Region is a lot worse than people realize. In fact, every large hospital in the Pittsburgh Region is going to be penalized financially by Medicare this year because of either poor quality care or high readmission rates (http://www.kaiserhealthnews.org/Stories/2012/December/21/value-based-purchasing-chart.aspx) . No Pittsburgh hospital appears on the just-released Truven Health list of Top 100 hospitals (http://100tophospitals.com/top-national-hospitals/) and even on the much-advertised U.S. News and World Report rankings (http://health.usnews.com/best-hospitals/rankings ) (which are driven heavily by physicians’ opinions of the hospitals’ reputation, rather than the objective data used for the Truven list) no Pittsburgh hospital is in the top 20 for cancer care (http://health.usnews.com/best-hospitals/rankings/cancer).

Some Pittsburgh Region hospitals have begun to put a limited number of statistics about the quality of their care on their websites, but most publish no information about their quality of care at all. In contrast, progressive hospitals like Beth Israel Deaconess in Boston (www.bidmc.org/Quality-and-Safety ) provide detailed information publicly about the quality of all aspects of the care they deliver.

3. Hospitals Should Offer a Warranty for Preventable Complications.

For several years, the Geisinger Health System in Central Pennsylvania has offered a “warranty” on services ranging from heart bypass surgery to maternity care (http://www.nytimes.com/2007/05/17/business/17quality.html?pagewanted=all&_r=0) . If you have a complication or if you have to be readmitted to the hospital for a problem related to your original procedure, Geisinger doesn’t charge extra the way other hospitals do. Studies have shown that the quality of care they deliver is now even higher than it was before, and their cost of care has also gone down because less money is being spent on treating complications.

Unfortunately, none of our hospitals in the Pittsburgh Region offer such a warranty. Medicare will be testing a new Bundled Payment program this summer that will pay for hospital care with a single, warrantied price (http://innovation.cms.gov/initiatives/Bundled-Payments/Participating-Health-Care-Facilities/index.html ), but only seven hospitals in our region volunteered to participate in this important new program (Allegheny General, Allegheny Valley, Canonsburg, Forbes, Indiana, Sharon, and West Penn).

4. A Consumer-Friendly Cost Comparison Website Should be Created. 

In many other states, either state government or the state hospital association has created a price comparison website that shows what all hospitals in the state charge for a wide range of procedures. (For example, look at the Wisconsin PricePoint system at www.wipricepoint.org and the New Hampshire Health Cost website at www.nhhealthcost.org ).

Unfortunately, nothing comparable exists in Pennsylvania. If you know where to look, you can find some information on the Pennsylvania Health Care Cost Containment Council (PHC4) website. The Council’s 2011 Hospital Performance Report for Western Pennsylvania (http://www.phc4.org/reports/hpr/11/docs/hpr2011west.pdf) shows average charges for a dozen common types of hospital admissions. It shows, for example, that the average hospital charge for laparoscopic gall bladder removal ranged from $13,383 at Uniontown Hospital to $55,202 at UPMC Presbyterian/Shadyside, despite having comparable mortality and readmission rates. However, these figures are just for what the hospital bills for the procedure, they do not include charges for the surgeon or other physicians involved in the case, so they underestimate what the total cost to a patient would be. More importantly, though, the report doesn’t include any information on the charges or payments made for common major procedures such as heart surgery or orthopedic surgery. The most recent information PHC4 published on cardiac surgery was for 2009 (http://www.phc4.org/reports/cabg/09/default.htm ); it showed that average hospital charges for cardiac bypass surgery ranged from$51,756 at Heritage Valley Beaver (with normal levels of mortality and readmissions) to $221,800 at UPMC Presbyterian/Shadyside (which had higher than expected readmissions), but that information is too old to be useful. The PHC4 report on orthopedic surgery (http://www.phc4.org/reports/ortho/ ) does not include information on the prices of surgery by hospital.

Although Pennsylvania was a national leader when it established the Pennsylvania Health Care Cost Containment Council (PHC4) 27 years ago, it has fallen behind many other states in making healthcare information available to the public. The Governor and General Assembly need to provide the funding and the mandate to PHC4 to publish timely, comprehensive information on the cost and quality of healthcare in the state.

(A version of this post appeared as the Regional Insights column in the Sunday, March 3, 2013 edition of the Pittsburgh Post-Gazette.

Higher-Quality Healthcare Can Help Solve the Federal Deficit (and Make Our Region More Competitive)

The single biggest challenge facing the President and Congress this year is solving the federal deficit. The last minute legislation that kept the country from going over the “fiscal cliff” was only a temporary solution, and across-the-board funding cuts are scheduled to go into effect this spring unless a more permanent solution is found.

How do you reduce the deficit? Although most of the rhetoric in Washington focuses on whether to raise taxes or cut special interest spending programs, the reality is that the deficit problem will never be solved unless we find a way to control healthcare spending. The Congressional Budget Office projects that almost half (46%) of the growth in the federal budget over the next decade will be due to higher spending on healthcare (Medicare, Medicaid, and health insurance subsidies), particularly Medicare spending. Another 31% of spending growth will be due to Social Security, and 17% will pay for higher interest on debt. Only 2% of the growth will be due to increases in discretionary spending (defense, social programs, etc.), so the kinds of spending cuts most politicians talk about won’t do much good.

What policymakers are struggling with today is not whether healthcare spending should be reduced, but how. Federal and state officials believe they have only two options for reducing Medicare and Medicaid spending. One option is to cut benefits, such as by refusing to cover certain healthcare services, charging patients more for healthcare services, or tightening eligibility standards. Not surprisingly, this is not an attractive option for elected officials who count on seniors’ votes, and it could seriously hurt seniors and low income families who count on Medicare and Medicaid to pay for their healthcare needs.

The second option is to cut payment rates to doctors and hospitals, and that is exactly what is on the table now. Doctors are being threatened with the most draconian cut: a 27% cut in Medicare payments to doctors was scheduled to go into effect this year, but Congress delayed that cut at the last minute by reducing payments to hospitals and other healthcare providers instead. In the past, hospitals and doctors have compensated for Medicare and Medicaid fee cuts by raising prices for private employers and commercial health plans, but that kind of cost shifting can’t continue, since it has made health insurance unaffordable for both employers and workers and it is making our businesses uncompetitive in world markets.

Is there a better way? Fortunately, yes. By redesigning the way healthcare services are delivered, quality can be improved and costs can be reduced without the need to cut benefits or cut fees. Here are just three examples:

Improve Primary Care. Demonstration projects all across the country, including here in Pittsburgh, have shown that if primary care physicians are given the resources to provide more comprehensive preventive care and care coordination services for patients, they can help patients stay well and avoid expensive emergency room visits, hospitalizations, and readmissions, thereby saving money for Medicare and health plans. Since Pittsburgh has one of the highest rates of hospitalization and emergency room use in the country, these “patient centered medical homes” could be of tremendous value here. Unfortunately, the health plans in our region have been very slow to implement payment systems which will support medical homes, and many physicians and health systems have been reluctant to accept accountability for controlling costs in return for more flexible payment. To solve this, employers should only use health plans that support multi-payer, physician-driven medical homes for all of their members, and patients should only choose primary care physicians who provide comprehensive medical home services. In addition, our Congressional delegation should demand that Medicare pay to support medical homes for seniors in the region.

Avoid Unnecessary Tests and Procedures. Study after study has shown that many patients are receiving medical tests, procedures, and even major surgery they do not need. This overuse not only increases healthcare costs, but it can often harm patients. Overuse is a particular concern in the Pittsburgh Region, since we have one of the highest rates of healthcare service utilization in the country.

For example, Federal data show that Medicare beneficiaries in the Pittsburgh region are hospitalized at the second highest rate among major regions, and they receive heart bypass surgery and stents 20% more often than the U.S. average and more than twice as often as some regions of the country. A study by the U.S. Bureau of Economic Analysis found that for commercially insured patients, the Pittsburgh Region had the 7th highest rate of healthcare utilization among 85 regions across the country.

 A growing number of medical specialties are trying to reduce overused tests and procedures through the Choosing Wisely campaign (www.choosingwisely.org); nine specialties have identified procedures that they believe are being overused, and more specialty societies will be doing so later this month. Patients and their family members can help by taking the time to learn about the risks as well as the benefits of treatment before making a decision about their care, and health plans and hospitals need to pay physicians based on whether they achieve good outcomes for their patients, rather than based on how many procedures they perform.

Improve Maternity Care. One of the most overused procedures in America is the Cesarean section. One out of every three babies nationally and in southwestern Pennsylvania is delivered by C-Section, 50% more than 20 years ago. Yet C-Sections create greater health risks for both the mother and the baby. A report issued last month called The Cost of Having a Baby in the United States (available at www.chqpr.org) found that employers pay almost $10,000 more for babies delivered by C-Section than by vaginal delivery, and Medicaid programs pay almost $4,000 more. That means that reducing the C-Section rate in the Pittsburgh Region could save tens of millions of dollars for employers and taxpayers, as well as producing healthier babies and mothers. Delivering more babies in birth centers instead of hospitals could save even more, while still providing a quality, safe birth experience for mothers and babies. Pregnant women should demand to deliver their babies naturally and at full term, and health plans should pay doctors more for vaginal deliveries than C-Sections.

Rather than forcing Congress to cut payments in order to reduce healthcare spending, our physicians and health systems need to step forward and agree to take accountability for controlling costs. Payers and purchasers, including employers as well as Medicare, need to create payment systems and benefit designs that give physicians and hospitals the flexibility to redesign care without expecting them to take on insurance risk. Quality of care for patients should be assured by the kinds of objective, publicly reported measures other regions use, not by where we rank on a U.S. News and World Report opinion poll.  Not only can this help solve the federal deficit, but having high-quality, affordable healthcare will help our region attract new businesses and residents in the increasingly competitive global marketplace.

(A version of this post appeared as the Regional Insights column in the Sunday, February 3, 2013 edition of the Pittsburgh Post-Gazette.)

Lessons from the Past for a Better Economic Future

The new year will begin with the nation still suffering from the effects of a recession that began five years ago. It has been called the “Great Recession” because it was the longest and worst national economic downturn since the Great Depression in the 1930s.

However, long-time Pittsburghers know the real Great Recession actually happened thirty years ago. Between 1979 and 1983, the U.S. experienced two back-to-back recessions as a result of high energy prices and efforts to control inflation. In January 1983, U.S. unemployment rate reached 11.4%, nearly a full point higher than the peak rate of 10.6% that was reached during the most recent recession.

No part of the country suffered more back then than Pittsburgh. Between 1979 and 1983, the Pittsburgh Region lost over 110,000 jobs, almost 9% of total employment at the time.

 Not surprisingly, unemployment in the region skyrocketed. At its peak, the unemployment rate reached 18.2% in January 1983, with over 212,000 southwestern Pennsylvanians unemployed. Perhaps even more devastating was the loss of thousands of young people who moved away in search of work. Between 1982 and 1987, 82,000 people left the region’s labor force, a 7% reduction.

 Although many people think the problem was caused solely by the collapse of the steel industry, there were job losses nationally across all manufacturing sectors, and nearly one-fourth of the jobs in Pittsburgh at the time were in some type of manufacturing, not just steel. When the recession hit, Pittsburgh lost over 95,000 manufacturing jobs in less than four years, one-third of the total manufacturing jobs in the region at the time. 

It took until 1989 for the number of jobs in the region to return to 1979 levels. Although over 100,000 net new jobs were added in the six years after 1983, that merely brought job levels back to where they had been before the recessions started. Since Pittsburgh lost more jobs than most regions did, it took longer for it to catch up. While jobs in the U.S. grew by 20% during the decade of the 80s, the Pittsburgh region had no net job growth at all.

 Part of the reason for our slow recovery was that manufacturing job losses didn’t stop when total jobs hit bottom in 1983. Between 1983 and 1987, another 37,000 manufacturing jobs disappeared. The region had to rely on job growth in service sectors such as health care, education, and tourism to make up the shortfall.

Fast forward to today. On the surface, it would appear that the restructuring of the region’s economy over the past thirty years has made our economy stronger and more resilient than other regions. The statistics you hear all the time seem to prove it: Pittsburgh had one of the smallest job losses of any region in the country during the 2008-2009 recession; our unemployment rate was below the national average during the recession (the first time that had ever happened in any recession), and we’re one of only a handful of regions that has more jobs today than before the recession began.

But a closer look suggests that we’re really not doing all that well:

• There are still over 80,000 southwestern Pennsylvanians who are unemployed. That’s 30,000 more people looking for work than before the recession started. The region’s unemployment rate in October 2012 was 6.6%, dramatically higher than the 3.9% rate in October 2007 before the recession began. The fact that the unemployment rate is below the national average is small consolation for the tens of thousands of people struggling to find jobs here.

• While it’s true that Pittsburgh lost fewer jobs during the recession than other regions, that was mostly because the region had created so few new jobs before the recession began. In fact, there were fewer jobs in the Pittsburgh Region in 2007 than in the year 2000, making it one of only a small number of major regions in the country that hadn’t recovered from the previous recession before the most recent recession began.

• Although Pittsburgh was adding jobs faster than other regions immediately after the recession ended in 2009, that’s no longer true. Between November 2011 and November 2012, Pittsburgh had the 9th worst job growth among the 40 largest regions in the country.

• Local boosters were quick to quote a recent Brookings Institution report saying that Pittsburgh was one of only three U.S. regions that had “fully recovered” from the recession, but they failed to point out that the same report showed Pittsburgh was doing worse than more than half of the regions in the world (not just the U.S.) in terms of growth in employment and real GDP per capita from 2011 to 2012.

Prior to 1980, our region had benefited from having a large number of high-paying manufacturing jobs, but we suffered from the 1982 recession more than other regions because we were so dependent on manufacturing. However, rather than learning from history, we’re repeating the mistakes of the past. Instead of having a more diversified economy today, we’ve simply become dependent on a different group of industries, namely, health care and higher education. Although those sectors helped us get through the recession, they’re a risky bet for the future, because the growing unaffordability of both healthcare and higher education makes it unlikely that the growth we’ve seen there in the past will continue. In contrast, Pittsburgh now has fewer high-paying manufacturing jobs than half of the major regions in the U.S.

So instead of patting ourselves on the back for surviving the recession better than others, let’s make a New Year’s resolution to encourage job growth in a wide range of sectors and to enable our region to succeed in an increasingly competitive global economy.

• Let’s resolve that Pittsburgh will be seen as one of the best places in the world for manufacturing firms to locate. To do that, we need to create a truly competitive state tax structure, prepare ready-to-go industrial sites all across the region, and educate our young people so they have both the skills and willingness to work in high-paying manufacturing jobs.

• Let’s resolve that Pittsburgh will also be seen as one of the best places in the world for entrepreneurs to start a new business. We need to ensure that there is sufficient startup capital available for every entrepreneur with an innovative idea and a solid business plan, and enough customers willing to try their innovative products and services.


(A version of this post appeared as the Regional Insights column in the Sunday, December 30, 2012 edition of the Pittsburgh Post-Gazette.)

How Can Our Region Compete if Our Children Can't Read?

There has been a lot of attention recently to how badly students in the Pittsburgh Public Schools are doing. State test scores showed that in most grades, City of Pittsburgh students’ proficiency levels in reading and mathematics declined between 2011 and 2012. In some individual schools in the City, there were double-digit drops in performance.

All of the focus on how the Pittsburgh Public Schools are doing might lead you to think the City is the only place in southwestern Pennsylvania where there are problems with student achievement. But you’d be wrong. Most of the region’s suburban schools aren’t doing very well either, and a number of them are doing worse than the Pittsburgh Public Schools.

In fact, there are a dozen school districts in the 10-county region where 11th graders are less proficient in math than students in the Pittsburgh Schools, and 16 school districts where students have poorer reading skills. While it’s a serious problem that only 56% of the 11th graders in the Pittsburgh School District can read at grade level, the 2011-12 Pennsylvania System of School Assessment (PSSA) shows there are eleven other school districts in the region where fewer than 50% of the 11th graders can read adequately. In fact, proficiency levels in both reading and math are twice as good in the Pittsburgh Public Schools as in the Clairton School District.

Low proficiency in basic skills isn’t just a problem with high school students. Many schools are failing students at a very early age. For example, there are thirteen school districts in southwestern Pennsylvania where fewer than half of the 5th graders can read adequately – and the Pittsburgh School District isn’t one of them.

Looking only at the lowest performing schools in the region risks missing the fact that many schools perform only marginally better than do the schools in Pittsburgh. Indeed, in the majority of school districts in the region, 30% or more of the 11th graders can’t read properly, and 40% or more aren’t proficient in math.

Among the 314 elementary schools in the region, there are only 17 where 90% or more of the 5th graders read at grade level. (If you’d like to find out how your own local schools are doing at each grade level, the Post-Gazette has an interactive website you can use at http://newsinteractive.post-gazette.com/PSSA/2012/.)

This widespread mediocrity means that even if student performance in the Pittsburgh Public Schools were to improve dramatically, it would barely make a dent in the student achievement problem the region is facing. There are over 6,400 students in the Pittsburgh Region who will be entering the workforce this year without being able to read properly, but fewer than 10% of them will be products of the City of Pittsburgh schools.

If you’re tempted to think that Pennsylvania’s tests may be too tough, or that having 30% of high school students unable to read isn’t so bad, think again. U.S. Department of Education data indicate that students’ skills in the Pittsburgh Region are likely a lot worse than the state tests imply. The National Assessment of Education Progress (NAEP) tests student proficiency across the country, and it shows that Pennsylvania students are only doing half as well as the state’s own tests indicate. For example, the 2011 NAEP tests showed that only 38% of eighth graders in Pennsylvania were proficient in reading or mathematics, even though the state’s own tests claim that 76% of eighth graders are proficient in reading and 80% are proficient in math.

Are the NAEP tests too tough? The only way to know that is to look at international benchmarks. Every three years, the Program for International Student Assessment tests 15 year olds in 65 countries to assess their skills in reading, mathematics, and science. The most recent results, for the test given in 2009, found that mathematics scores for U.S. students were below the average for developed countries. In mathematics, students in 17 of 33 OECD (Organization for Economic Cooperation and Development) countries had higher average math scores than students in the U.S., and only 5 had lower scores. For reading, the U.S. was a little above average; 6 countries had higher scores, 13 had lower scores, and 14 were about the same.

Which countries are beating us? Students in Australia, Canada, China, Japan, Korea, and Singapore are all doing better than U.S. students in both reading and math, and students in many European countries are doing better than American students in math while matching their skills in reading. (If you’d like to find out how education performance in your own school district stacks up against the rest of the world, you can use The Global Report Card available at http://globalreportcard.org/)

How can southwestern Pennsylvania families expect their children to get jobs in an increasingly competitive global economy if they can’t read? How will they find work in technology-driven industries if they don’t have adequate math skills?

The knee-jerk response to poor school performance from most educators and many politicians is to claim that school funding is inadequate. However, schools in the Pittsburgh Region already spend more per child on education than the state or national average, yet they clearly aren’t getting significantly better results. Moreover, some of the best performing schools in the Pittsburgh Region are spending less than the average, not more.

The fact that our schools probably won’t meet the Federal No Child Left Behind law’s goal of 100% proficiency by 2014 doesn’t mean the law should be changed, it means that schools and communities need to completely rethink their approach to educating students:

• First, we need to reward the many teachers who are successfully helping their students to learn, and replace the teachers who are just going through the motions.

• Second, we need to cut the billions of dollars in school district spending that’s going to administrative overhead, sports, and other non-instructional programs and focus school funding on improving education proficiency.

• Third, we need people leading our school districts who will implement these kinds of bold changes. Now is the time to recruit candidates for next year’s school board elections who will commit themselves to ensuring that every child has the skills they need to be successful.

(A version of this post appeared as the Regional Insights column in the Sunday, December 2 edition of the Pittsburgh Post-Gazette.)

Some Parts of the Pittsburgh Region Are Suffering More Than Others

In the Presidential campaign, both candidates agree that the national economy is growing too slowly, but disagree on what to do about it. For those of us in Pittsburgh, however, the U.S. job growth rate actually looks good compared to what we’ve been experiencing in recent months.

Last year, things looked pretty rosy in the Pittsburgh region; jobs were growing significantly faster here than in the U.S. as a whole in 2011. However, since May 2012, our region’s job growth has fallen below the national rate. In both June and September, the 12-month rate of job growth in Pittsburgh was less than 1%, the lowest rates in the past two years, whereas the national job growth rate has been 1.3% or higher for over twelve straight months.

What’s worse, if you adjust for the normal seasonal variations in jobs during the summer, there were actually fewer jobs in the Pittsburgh region in September than in August, and fewer jobs in August than in July. In other words, we’re moving backward, not forward.

The slowing rate of job growth here has meant that instead of seeing unemployment improve, it has actually been getting worse. In September 2012, there were 84,876 people unemployed in the Pittsburgh region, 1,700 more than a year earlier, and 37,600 more than in September 2007, the year before the recession began.

Although it’s true that our region’s unemployment rate is below the national average (6.7% here vs. 7.6% nationally in September), that gives little comfort to the nearly 85,000 people who are still looking for work. And things are even less positive for some parts of our region. In September, both Armstrong and Fayette Counties had unemployment rates higher than the U.S. (7.7% in Armstrong and 8.3% in Fayette), and the unemployment rate in Lawrence County (7.5%) was only barely lower than the U.S. rate.

As explained in a previous post, even though our region has more jobs today in total than before the recession began, that’s not the same as saying that all the jobs we lost during the recession have come back. Most of the layoffs during the recession were in manufacturing, but most of the jobs that have been created since the recession have been in professional/business services and the hospitality industry. As a result, many of the people who lost work during the recession still can’t find the kinds of jobs they have the skills and experience to fill.

This mismatch between job creation and unemployment is exacerbated when you look at individual counties in our region. For example, over 60% of the manufacturing jobs in the region are located outside of Allegheny County, and 65% of the manufacturing job losses during the recession occurred outside of Allegheny County. Before the recession began, manufacturing jobs represented only 6% of the jobs in Allegheny County, but over 12% of the jobs in most of our other counties. That means the job losses in manufacturing had twice as big an impact on the economies of Armstrong, Beaver, Butler, Fayette, Lawrence, Washington, and Westmoreland Counties as they did in Allegheny County.

In contrast, over 70% of the region’s jobs in business and professional services and nearly 60% of the region’s jobs in the leisure and hospitality industry are in Allegheny County, and the majority of the job gains in those two sectors have occurred in Allegheny County, meaning Allegheny County has disproportionately benefited from much of the job growth that has occurred in our region since the recession.

Some counties have been luckier than others in getting back the manufacturing jobs they’ve lost. For example, Beaver County has regained three-fourths of the manufacturing jobs it lost during the recession, but in most of the other counties, fewer than 20% of the manufacturing jobs lost in the recession have come back.

The hardest hit in terms of manufacturing job loss has been Butler County, where over 17% of the jobs in the county were in manufacturing prior to the recession. Butler County lost 1700 manufacturing jobs during the recession (12% of its total), but only 5% of them have come back. Yet Butler County has the lowest unemployment rate in the region – 5.8% in September. What’s its secret? Butler County has had a huge influx of jobs from business headquarters moving to the office parks in the southern part of the county. In fact, essentially all of the job growth the county has experienced in the past four years has come from new business headquarters and expanded public schools due to population growth. Butler County’s unemployment is also low because more of its residents commute to Pittsburgh for jobs than any other county in the region.

The highest rate of job growth over the past two years has occurred in Greene County. Twenty years ago, the unemployment rate in Greene County was double the regional average, but in September, the unemployment rate in Greene County was 6.5%, lower than the region as a whole and the second lowest rate of any county in the region. The reason is simple – coal mining as well as gas well drilling has been a growth industry recently, and mining/extraction represents almost one-fourth of the jobs in Greene County, a dramatically larger share of the economy than in any other county in the region.

There are two lessons in all of this.

First, just because the region as a whole is doing well doesn’t mean that every part of the region or every type of worker is also doing well. We need to constantly ensure that the entire region is benefiting from our economic development initiatives.

Second, we can’t predict where economic growth will occur, so we can’t put all of our economic eggs in any one basket. The counties in our region each contribute unique strengths, ranging from manufacturing to tourism, energy to life sciences, etc. We need economic development programs that will support both new and existing firms in a wide range of industries across the entire region in order to have a diversified and stable regional economy that provides job opportunities for all of our residents.

(A version of this post appeared as the Regional Insights column in the Sunday, November 4, 2012 edition of the Pittsburgh Post-Gazette.) 

High-Growth Firms Needed To Reduce Unemployment

The most recent economic data for the Pittsburgh Region continue to be a cause for concern. Our unemployment rate has increased for two months in a row. Over 95,000 of our residents were unemployed in August, more than any August since 1985. Job growth in the region has been slowing, and most of the jobs being created are not in the high-wage sectors where they were lost. Our labor force won’t keep growing for long if there aren’t enough job opportunities for those looking for work.

How can we accelerate job growth? National studies have consistently shown that most new jobs are created by small businesses, and recent studies have found that virtually all net new jobs are created by young startup firms. Some of the most desirable young firms are those with fast-growing revenue, because more revenue typically means more jobs, and rapidly growing revenue means new jobs will created quickly.

The federal government doesn’t report information on how many fast-growing firms there are, but a national publication does. Each year since 1982, Inc. magazine has published a list of the “Inc. 500” – the fastest growing young firms in the country. To be considered, a firm must: (1) be privately-owned (i.e., its stock is not publicly traded); (2) have high revenue growth over the previous three years; and (3) have at least $2 million in revenue in the most recent year. The 500 firms with the highest revenue growth in the country make the Inc. 500 list. Although being on the list is no guarantee of long term success or large job creation, many of the companies that have made the Inc. 500 list have created thousands or tens of thousands of jobs in the course of the past decade. Past Inc. 500 lists have included companies like Intuit, Jamba Juice, Jiffy Lube, Microsoft, Oracle, Qualcomm, Under Armour, and Zappos.

Last month, the Kauffman Foundation (a large foundation headquartered in Kansas City that has dedicated itself to studying and supporting entrepreneurship) released a study that analyzed the locations of Inc. 500 companies over the past 30 years. Its findings should be a wake-up call for economic development efforts in Pittsburgh.

Although the study showed there was at least one firm from Pittsburgh on the Inc. 500 list every year since 2001, there have never been more than 6 on the list in any one year. On average, Pittsburgh had 3 firms on the list every year from 2001 to 2010. (In 2012, there was only one Pittsburgh firm on the Inc. 500 list – an IT staffing firm called Independent Catalyst. In 2011, Precision Therapeutics and Urban Lending Solutions were on the list as well as Independent Catalyst.)

In contrast, the Washington, DC region had an average of 39 firms on the Inc. 500 list every year between 2001 and 2010, more than 10 times as many as the Pittsburgh region. Boston had an average of 21 firms every year, 7 times as many as Pittsburgh. Atlanta had an average of 19 firms on the list every year, Chicago had 18, Dallas had 16, Philadelphia had 14, Seattle had 12, Denver had 9, and Indianapolis had 7. Even Buffalo had more firms on the list (nearly 4 per year) than Pittsburgh.

In fact, Pittsburgh ranked near the bottom (42nd) among the 52 largest metropolitan areas in the country in producing Inc. 500 firms relative to population. It also had fewer Inc. 500 firms relative to population size than 33 smaller metropolitan regions, including Provo (Utah), Ann Arbor (Michigan), Tulsa (Oklahoma), Des Moines (Iowa), and Akron (Ohio). Scranton, Pennsylvania had a firm on the list almost every year, a higher rate of success relative to population than Pittsburgh.

The Kauffman Foundation researchers looked for factors that might explain which regions had the most firms on the Inc. 500 lists. What they found surprised them. Although the availability of venture capital, the amount of academic research, and the number of patents filed have often been viewed as important indicators of a region’s ability to create new startup firms, the Kauffman study found that none of those factors was significant in predicting the number of Inc. 500 firms.

The most significant factors were the proportion of a region’s jobs that were in high-technology sectors and the number of science and engineering graduates per population. This isn’t surprising because many fast growing firms aren’t inventing a brand new technology; they’re merely finding a new way to use an existing technology, such as computer software, the internet, or medical devices. That means that many successful entrepreneurs will need to have skills and experience in using technology, but the most important skills will still most likely be creativity and entrepreneurship, which is why high growth firms can and do start anywhere.

With such a small number of fast-growing firms in the last decade, it’s not surprising that Pittsburgh also had one of the slowest rates of total job growth in the country before the most recent recession. If we’re going to accelerate job growth in the decade ahead, we’ll need more fast-growth firms to lead the way.

The best-funded economic development efforts in Pittsburgh have focused either on trying to attract large new facilities or on supporting commercialization of completely new technologies, but the Kauffman study suggests we need to broaden our economic development focus and help entrepreneurs in a wide range of industries to start up and grow rapidly.

We already have many effective programs to provide advice and mentoring to entrepreneurs, but startup firms also need capital, customers, and skilled workers in order to succeed. We’re fortunate to have a professionally managed network of investors in startup firms (BlueTree Allied Angels) but more high net worth individuals in our region need to join so that entrepreneurs don’t have to move away to find capital. Banks need to help by providing working capital to small firms with significant growth prospects. Large firms can help by buying the products and services startup firms produce, so young firms aren’t forced to leave the region in order to find their first customer. And a much higher percentage of our high school graduates need to be proficient in math and science so rapidly-growing technology businesses can find the kinds of workers they need.

Pittsburgh never makes the national lists of “top regions to start a business,” and it’s time we made that a regional goal. If we want our region to grow, we need to put out a much bigger welcome mat for entrepreneurs.

(A version of this post appeared as the "Regional Insights" column in the Sunday, October 7 edition of the Pittsburgh Post-Gazette.)

Pittsburgh's Job Growth Isn’t Helping the Unemployed

In January 2012, it looked as though Southwestern Pennsylvania was poised to be a national leader in job creation. The Pittsburgh Region’s 2.1% job growth in 2011 was nearly double the 1.1% national rate and the 8th highest rate of growth among the largest 40 metropolitan areas in the country.

By Labor Day 2012, however, things no longer look quite so rosy. According to U.S. Bureau of Labor Statistics data, the rate of job growth in Pittsburgh Region has slowed, while job growth in most other regions has accelerated. Our 12-month rate of private sector job creation fell from 2.4% in July 2011 (the 11th fastest growth among the top 40 regions) to 1.9% in July 2012 (ranking only 21st out of 40). Regions like Boston, Cincinnati, Columbus, Detroit, and Indianapolis all created jobs at significantly higher rates than Pittsburgh over the past year.

The fact that Pittsburgh lost fewer jobs during the recession than other regions means that even with slower job growth, Pittsburgh is still ahead of other regions compared to the immediate pre-recession days. Indeed, Pittsburgh is one of only 8 major regions with more jobs today than in July 2008. (The only other regions that have seen positive net job growth over the past four years are Austin, Boston, Dallas, Houston, New Orleans, San Antonio, and Washington DC.)

But having more jobs today than before the recession started is not the same thing as saying that we’ve recovered all of the jobs we lost during the recession. In fact, the increase in total jobs here continues to mask the fact that in many important industries, there are still significantly fewer jobs in our region today than before the recession began. For example, in July 2012, we have 9,800 fewer manufacturing jobs, 8,400 fewer construction jobs, 2,400 fewer jobs in the information sector, and 700 fewer retail jobs than we did in July 2008.

Our biggest loss of jobs during the recession was in the manufacturing sector. In the 12 months between July 2008 and July 2009, we lost 11,600 manufacturing jobs, 12% of the total manufacturing jobs in the region. In the last 36 months (July 2009-July 2012), only 1,800 manufacturing jobs (16% of what we lost) have returned. In contrast, regions like Cincinnati, Detroit, Milwaukee, and Seattle have recovered 50%-100% of the manufacturing jobs they lost during the recession.

Most of the recent job growth we’ve experienced has been in industries other than those which lost the bulk of the jobs during the recession. Our two biggest job creators over the past three years have been the professional and business services industry and the leisure and hospitality industry; those two sectors created more than half of our net new jobs since 2009.

But when jobs are created in different industries than where they were lost, many of the people who lost jobs will have serious problems finding work. Jobs in law firms and accounting firms require different training and skills than jobs in manufacturing and construction, so new jobs in the former don’t necessarily reduce unemployment in the latter. This is not just a Pittsburgh problem, but a national problem. The U.S. Bureau of Labor Statistics looked at long-tenured workers (those who had worked for an employer for more than three years) who had been laid off during the recession, and determined that only 56% had found work by January 2012. Of those who had, 14% were only working part time, and another 21% were earning 80% or less of what they made in their previous job.

So while it’s true that in June, the Pittsburgh Region had more jobs than at any time in its history, it’s unfortunately also true that we had more people unemployed than at any time in the past quarter-century. In July 2012, there were 97,200 people unemployed in the Pittsburgh Region, over 30,000 more than in July 2008 when the recession began. Except for July 2010, when the number of unemployed was just slightly higher (97,500), that’s the largest number of people unemployed in any July since 1985. And it’s getting worse, not better: the number of unemployed people here has increased for three months in row.

Unemployment in Pittsburgh remains high not only because jobs haven’t returned to the industries where layoffs occurred, but because the region’s labor force has been growing. For years we lamented the fact that people were leaving the region and the population was declining. That’s now changed – the region’s labor force grew by over 57,000 in the past seven years. Our new problem is that the rate of job creation in the region isn’t keeping up with the growth in the labor force. Over the past two years, even though employment increased by 37,700, the labor force increased by almost as much (37,400), which means that unemployment only decreased by 300.

What do we need to do?

First of all, regional economic development efforts need to concentrate on manufacturing, where most of our jobs were lost during the recession. Although manufacturing has been one of the leaders in national growth, it has lagged behind in Pittsburgh. We won’t make up this gap with one or two new plants; we need to encourage more entrepreneurship and help our existing manufacturing firms to expand by creating a more competitive business climate and ensuring manufacturing businesses can get the capital they need for growth.

Second, job training efforts need to focus on preparing individuals for jobs in sectors where job growth is likely to occur. In many manufacturing firms, jobs aren’t increasing simply because there aren’t qualified workers to fill them. We can’t count on higher education and health care continuing to drive our economy, because the unaffordably high costs of both will likely result in slower growth or even cutbacks over the next few years. In fact, many high school graduates would be better off pursuing careers in manufacturing than immediately going off to college.

Although it’s great that Pittsburgh continues to get high national rankings for quality of life, it doesn’t mean much if people who want to live here can’t find good jobs. Regional leaders should commit themselves to getting the unemployment rate back down to pre-recession levels by Labor Day 2013.

(A version of this post appeared as the "Regional Insights" column in the Sunday, September 2, 2012 Pittsburgh Post-Gazette.)

Does a College Degree Have to Be So Expensive?

Most parents get sticker shock when they see the price of a college education. According to U.S. Department of Education data, annual tuition at private, non-profit, four-year colleges and universities across the country averaged $22,782 last year, and it was over $45,000 at the most expensive private schools. Public colleges and universities are less expensive than private schools, but the cost depends on where you live and which school you want to attend. Last year, the national average for out-of-state tuition at public four year colleges and universities was $16,074, and the average in-state tuition was $7,083, but the most expensive public schools charged more than twice as much.

The price of college seems to be particularly high in the Pittsburgh Region. Carnegie Mellon University had the sixth highest tuition and fees among all private colleges in the country last year ($44,010), and the University of Pittsburgh had the highest in-state tuition and fees of any public university ($16,132).

Does a college degree have to be so expensive?

Most people don’t realize that students typically pay a lot less to attend college than the published tuition would lead you to believe. On average, students at the most selective and expensive private schools in the country receive grants to cover over 40% of their tuition and fees, and 70% of those grants come from the schools themselves. If you check the “net price calculator” that all colleges are now required to have on their websites, you’ll find that a low-income family might actually pay less for their child to attend an “expensive” school than a college with a lower published price. For example, in 2009-10, even though Carnegie Mellon’s published tuition was 7th highest in the country at $40,920, its net tuition (i.e., what students actually paid) averaged only $30,178, ranking 46th among private four-year colleges in the country

Moreover, even though tuition at private schools seems to be increasing rapidly each year, many of these increases appear to be going back to students in the form of scholarships. In fact, the College Board estimated that after adjusting for inflation, the average net tuition at private non-profit four-year colleges has remained essentially unchanged over the past decade.

The situation is different at public four-year colleges; nationally, their net tuition has almost doubled over the past decade even after controlling for inflation. This is because public schools rely heavily on state and local government appropriations to keep their tuition costs low, and financially-strapped state and local governments have reduced inflation-adjusted appropriations per student by an average of 12.5% between 2006 and 2011, with 17 states reducing aid per student by over 20%.

Public higher education is particularly expensive in Pennsylvania. Last year, the state’s public colleges and universities had the second highest in-state tuition among the fifty states (only New Hampshire was higher) and the fifth highest net tuition per student. In part, this is due to low state subsidies – data from the State Higher Education Executive Officers show that Pennsylvania provided the 10th lowest state higher education subsidies per student in FY2011, and the state spent 40% less on higher education funding than the U.S. average on both a per capita basis and relative to personal income. However, it also appears that public colleges and universities in Pennsylvania have higher costs than in other states – they collected the 11th highest total educational revenue per student (from both tuition and state subsidies) in 2011. In an effort to address this, Governor Corbett has tied increases in state aid to commitments by the schools to control their costs and their tuition.

Is it possible to deliver a good college education at a significantly lower cost? Yes; in fact, right here in southwestern Pennsylvania, Grove City College has the lowest tuition ($14,212) of any private college and actually charges less than the in-state tuition of most of the public colleges and universities. It attracts a high-quality student body (its students have higher SAT scores than most colleges in the region), and a higher percentage of its students graduate (83%) than do students at most other colleges.

Reducing the cost of higher education is going to become an increasingly important priority in the future for both our region and the nation as a whole. Although getting a college education is neither necessary nor sufficient for young people to get good jobs, having a college education increases the types of opportunities that young people can pursue, and our region and our nation will be more competitive if as many of our citizens as possible have a good college education.

But if young people have to incur tens of thousands of dollars of debt to go to college, it will both limit their career choices and reduce their ability to spend money elsewhere in the economy for decades to come. So it’s incumbent on the faculty and administrators at our colleges and universities to do what every other industry in America has been forced to do – become more efficient. For example:

• Many courses could be delivered online, reducing the need for colleges to spend as much building and maintaining facilities, and allowing more students to learn directly from senior faculty rather than teaching assistants.
• Unnecessary administrative costs should be reduced; many of the “lean” redesign tools that have worked in manufacturing can be used in higher education, too.
• Tuition revenues should be devoted to education, rather than social activities and sports. Over the past decade, both public and private colleges nationally have increased spending more on student support and administration than on instruction.
• The length of time needed to complete many degrees could be reduced, and students who take college-level courses in high school should be allowed to finish their college degrees sooner.

Parents and students can help, too, by choosing those colleges that offer a high quality education at an affordable cost, rather than going deeply into debt to pay whatever a college charges. Informed consumer choice drives value-based competition in other industries, and it can help higher education become more efficient, too.

(A version of this post appeared as the Regional Insights column in the Sunday, August 5, 2012 Pittsburgh Post-Gazette.)

Is a College Education Worth The Cost? Part 2: The High Cost of College Dropouts

A previous post showed that merely getting a college degree doesn’t always result in better job prospects or earnings. But the value of pursuing a college education also depends on how much college costs and how likely you are to graduate.

The Pittsburgh Region is lucky to have some of the best universities in the nation, but they also have fairly high tuition. U.S. Department of Education statistics show that in 2010-11, the University of Pittsburgh had the second highest tuition and fees for in-state students of any four-year public university in the country (Penn State was the highest), and Carnegie Mellon University had the 10th highest tuition and fees among four-year private, non-profit colleges in the nation.

The most expensive college education of all, however, is the one that never results in a degree. A shocking fact about higher education in America is that on average, over 40% of the students who go to a four-year college or university don’t graduate (at least not from the school where they started). The most selective colleges generally have the highest graduation rates, whereas the colleges that are easiest to get into generally turn out to be the hardest to finish, at least for the students who go to them. U.S. Department of Education data show that among the students who started college in 2004, the graduation rate was 87% for those who went to the most selective colleges (i.e., colleges that admitted fewer than 25% of those who applied), but the graduation rate was only 45% for those who went to the least selective colleges (those that admitted 90% or more of their applicants), and only 29% for those who went to open enrollment schools (those that admit anyone who can pay).

In the Pittsburgh Region, the highest graduation rate is at Carnegie Mellon, where 86% of students who were admitted graduated within 6 years. The second highest graduation rate is at Grove City College, where 84% of students graduate, and Pitt’s 76% graduation rate is third highest. In contrast, most other colleges in our region graduate fewer than two-thirds of the students who enter, and at some, fewer than 50% of the students graduate within 6 or even 8 years, including The Art Institute, the Penn State regional campuses, Point Park University, Thiel College, and the University of Phoenix. (Graduation rates are based on the percentage of students who graduated from the same school where they started, and so some students may transfer to other colleges and graduate from there.)

These differences are so large that it’s actually misleading to simply rank colleges based on their tuitions. A more expensive college can actually be a better value if it has a higher graduation rate, because students who enroll there will be more likely to receive a degree.

Consider two hypothetical colleges. College A charges $30,000 per year in tuition, while College B charges only $20,000. 80% of College A’s students graduate, but only 40% of College B’s students graduate. For simplicity, let’s assume that those who don’t graduate drop out after two years.

If College A admits 1,000 students, 800 of them will graduate, and the college will have collected a total of $108 million in tuition revenue over the previous four years: $96 million from those who graduated, and $12 million from those who didn’t. That works out to $135,000 for every degree awarded. If College B admits 1,000 students, only 400 of them will graduate; the college will have collected a total of $32 million in tuition revenue from those who graduated but another $24 million from those who didn’t, for a total of $56 million, or $140,000 for every degree awarded. In other words, even though College A’s tuition makes it look like it’s 50% more expensive than College B, College A actually produces college graduates at a lower cost than College B.

Even worse, college students who don’t graduate will very likely have thousands or even tens of thousands of dollars in debt with no degree to show for it. Although national statistics indicate that people with “some college” do better in the labor market than those with no college at all, it’s likely that much of this is because the students who made it into college in the first place have higher skills than the average high school graduate. Those students might have been better off going to a two-year college, getting an Associate Degree, and avoiding a lot of debt, or going directly into a manufacturing job, developing skills through on-the-job training, and saving money to go to college in the future.

Low graduation rates aren’t entirely the fault of the colleges, though. They’re also due to the poor preparation of the students who enter them. U.S. Department of Education data show that about one-third of students entering post-secondary education have to take at least one remedial course. Moreover, remedial education has become a significant and growing expense at many colleges and universities, and that increases the cost of a college degree for everyone.

So if we want to increase the value of higher education, we should start by improving the effectiveness of elementary and secondary education, i.e., our public schools. Although many high schools proudly report the percentage of their graduates who go on to college, they rarely tell you how many of those students actually finish their college degrees. The best measure of the quality of public schools is how proficient their graduates are in key skills, not whether they go to college, since high proficiency levels will help students whether they want to go to college or go directly into the workforce. And schools in the Pittsburgh Region have a lot of improving to do, since more than 37 percent of the 11th-graders in the region can't do math properly, and 26 percent can't read adequately.

A future post will look at what else makes college education so expensive and what can be done about it.

(A version of this post appeared as the Regional Insights column in the Sunday, July 1, 2012 edtition of the Pittsburgh Post-Gazette.)

Is a College Education Worth the Cost? (Part 1)

A new crop of college graduates will be entering the job market this summer, and they’ll have to confront one of the slowest-growing economies in history. Most of them will have tens of thousands of dollars in debt hanging over them during their job search. Nationally, total student loan debt now exceeds one trillion dollars, and those with federal student loans will see their interest rates double this summer if Congress doesn’t act to extend current subsidies.

Is a college education worth all of the expense? A study last year by the Pew Research Center found that a majority (57%) of Americans feel that higher education fails to provide students with good value for the money spent, and 75% say college is too expensive for most Americans to afford.

The conventional wisdom has been that college is one of the best investments you can make. For years, many parents have believed that getting their child into college would guarantee they’d get a good job, or at least a better job than they could get with just a high school diploma. But in a world economy that’s changing rapidly, the conventional wisdom may no longer apply.

In fact, much of the conventional wisdom has been based on statistics about how college graduates fare compared to high school graduates on average. However, what happens to any individual may be much better or worse than average.

How much does a college degree improve your chances of getting a job? Although having a college degree doesn’t guarantee a job, the unemployment rate for college graduates is much lower than for those with just a high school diploma. According to an analysis by the Economic Policy Institute, the unemployment rate for young college graduates (ages 21-24) over the past year (April 2011-March 2012) was 9.4%, whereas for young high school graduates, the unemployment rate was more than three times as high – 31.1%.

Those are averages for all recent graduates, though. Whether an individual college grad gets a job depends heavily on their major. A study by the Georgetown University Center on Education and the Workforce found that in 2009-2010, unemployment rates for recent college graduates varied from a high of 13.9% for students majoring in architecture and 11.1% for arts majors to a low of 5.4% for students majoring in health or education. Unemployment rates for engineers and business majors were around 7.5%.

Similarly, whether a high school graduate gets a job depends on how well they did in high school and what kind of job they pursue. There are thousands of highly-paid manufacturing jobs going unfilled today because businesses can’t find workers. Instead of a college degree, most of those jobs require someone with high-school level proficiency in reading and mathematics, a good work ethic, and on-the-job training.

Even though most recent college graduates are employed, many aren’t working in jobs that require a college education or are even related to their degree. A 2011 study by Rutgers University found that 40% of recent college graduates said their first job didn’t actually require a college degree. Less than half (44%) said their education was closely related to their first job, and nearly one third (30%) said there was little or no relationship between their education and their job.

Will you make more money if you get a college degree? U.S. Bureau of Labor Statistics data show that in 2011, the median annual pay in the U.S. for people with a bachelor’s degree (but not a more advanced degree) was $54,756. That’s 65% more than the median annual pay of $33,176 for people with only a high school diploma.

But just because the average college graduate makes significantly more than the average high school graduate doesn’t mean that going to college guarantees a higher salary for everyone. In 2011, 25% of workers with a bachelor’s degree earned less than $38,000 and 10% earned less than $27,000, whereas 25% of the people with a high school diploma but no college degree earned over $48,000 and 10% earned $66,000 or more. In other words, many people with just a high school diploma make more money than many who have a college degree.

Will the need for a college education increase in the future? You’ll often hear people say that “most new jobs in the future will require a college education.” That’s true, but it only applies to truly new jobs, i.e., jobs that have never existed before. 70% of job opportunities in the future will be existing jobs that become available due to retirements, relocations, and promotions, and experts project that most of those replacement jobs will not require a college education.

For example, thousands of manufacturing jobs will be opening up every year as current workers retire. But only 20% of production job openings in the future are expected to require an Associate Degree or higher. Just because they don’t require a college degree doesn’t mean the workers can be dumb; indeed, today’s manufacturing firms need people who can operate sophisticated computerized machinery and implement customized production processes, and that requires far more proficiency in mathematics than was required of the typical assembly line worker in the past. Training is typically provided by the companies themselves or by specialized certificate programs, not by four-year colleges. If we’re going to help industries such as manufacturing and energy grow in our region, we need to encourage smart, hard-working high school graduates to pursue the high-paying jobs they offer.

Does the benefit of college outweigh the cost? Although there are clearly advantages to a college degree, it’s very expensive to get one, and for many students, the results may not justify the financial sacrifices they have to make. High school guidance counselors should help parents and high school students understand that going to college isn’t the only path to a rewarding career and a good income, and make them aware of the many high-paying opportunities available in manufacturing and other industries that need a lot of smart workers, but not necessarily college graduates.

A future post will look at why college is so expensive and whether there are ways to increase the value of higher education relative to its cost.

(A version of this post appeared as the Regional Insights column in the Sunday, June 3, 2012 Pittsburgh Post-Gazette.)