Sunday, November 18, 2007

The Perils of Looking Too Hard for Good News

As noted in previous posts, the region’s recent job growth has been disappointing across virtually every economic sector for the past several years.

Are headquarters jobs an exception? Changes in headquarters jobs can be measured from a category that the Bureau of Labor Statistics (BLS) reports called “Management of Companies and Enterprises.” If you look at the BLS data, you’ll see that employment in the Pittsburgh Region in this category began increasing rapidly starting in 2003. In fact, the number of reported headquarters jobs increased by 8,000 between 2002 and 2006, a nearly 50% increase.

What caused this remarkable success? Unfortunately, it doesn’t reflect a real increase in headquarters jobs. It’s simply an artifact of a change in the way that the Bureau of Labor Statistics classified jobs. Beginning in 2003, BLS switched from the 1987 Standard Industrial Classification (SIC) system to the 2002 North American Industrial Classification System (NAICS). The NAICS coding system has the category “management of companies and enterprises,” but the SIC system had nothing comparable. That means that prior to 2003, jobs at a company’s headquarters operations were classified as part of the sector that its products or services were in, but afterwards, those jobs were separated out. For example, prior to 2003, the employees working at Giant Eagle’s headquarters in O’Hara Township were classified as “retail,” but today, they’re classified as “management of companies and enterprises.” Prior to 2003, the employees working Downtown at the headquarters of Alcoa, PPG, and U.S. Steel were classified as “manufacturing,” but today they’re classified as “management of companies and enterprises.”

It took several years for the Pennsylvania Department of Labor and Industry to educate companies about the change and get all of the coding transitioned over to the new system. That’s why the jobs in the Management of Companies and Enterprises category increased significantly over a several year period, rather than all at once. Major reclassifications of jobs were still occurring well into 2006. Individual company job figures are confidential, so there’s no way to sort it out, but the Department of Labor and Industry will confirm that most of the job increases in this category were a result of reclassifications, not actual job growth.

The same thing happened to a lesser extent when jobs at the many corporate R&D centers in the region were reclassified from “manufacturing” to the category “Professional, Scientific, and Technical Services” under the NAICS coding system.

The flip side of this is that what appear to be job decreases in other categories, particularly manufacturing, are due to the headquarters and R&D jobs being reclassified into the Management of Companies and Headquarters and Professional, Scientific, and Technical Services categories. This phenomenon was noted last year in a study produced by Pittsburgh’s Future of job changes between 1999 and 2005 (see page 5). A significant portion of the reported loss of 15,000 manufacturing jobs which occurred between 2002 and 2005 may well have been merely a classification change. As noted in the Pittsburgh’s Future study, occupational data indicated that Pittsburgh had one of the smallest reductions in production worker jobs of any region in the country during that same time period. That’s the real good news in the data over the 2002-2005 period.

Now that the reclassifications for the transition to the NAICS coding system have presumably been completed, we can use the Management of Companies and Enterprises category to monitor changes in headquarters jobs in the future. Over the past year, they’ve grown by about 1,000 jobs, or about 3-4%. That’s much better than in most other sectors of the regional economy, and ahead of the growth rate nationally in headquarters jobs. So Pittsburgh is remaining strong as a location for corporate headquarters jobs, and that is good news for the region.


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