Sunday, December 30, 2012

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.)


OpenID f15cda78-536d-11e2-9d8e-000bcdcb2996 said...


I really enjoy the information in your articles. You hit the nail on the head. I was reading the Brookings report for Dec. 2012. Out of the top 100 metros in the nation we now rank 66 for economic recovery. Sadly, according to this report, Pennsylvania as a whole is doing very poorly. Pittsburgh is ranked the best in the state. Philadelphia, Lancaster, Harrisburg and Scranton are all in the bottom 20. Harrisburg is the worst in the country at 100 and Philly is 99. The report states the first 66 have job growth. Pittsburgh is in the last spot. Our neighbors to the west, Ohio, is faring much better. Toledo is 18, Youngstown is 22, Columbus 32, Akron 33, Dayton 44, Cincinnati 53 and Cleveland 81. In addition Detroit is in the top 10 at number 9!

12:17 PM  

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