Pittsburgh's Future

Leading the Nation, But Leaving Many Behind

2012-02-05T06:48:00.002-05:00

Like a rocket suddenly leaving the launch pad after a long countdown, the Pittsburgh Region’s economy surged forward last fall with unprecedented job growth. In September, the region still had 7,000 fewer jobs than before the recession began and over 9,000 fewer jobs than in the year 2000. But just one month later, the exact opposite was true – there were more jobs in the Pittsburgh Region in October than any October in history. We had 14,900 more jobs in October than in September, 23,100 more than a year earlier and 2,500 more than in October 2008 when the recession was just beginning.

This job growth was not just a national wave that Pittsburgh was lucky enough to ride. The Pittsburgh Region actually led the nation in job growth in October with the largest percentage increases in both total jobs and private sector jobs of any major region in the country.

The job surge wasn’t a temporary phenomenon, either. Preliminary figures for December indicate that another 1,400 net new jobs were added between October and December, pushing the region’s job count to the highest level in history. Over the twelve months ending in December 2011, Pittsburgh had the 4th highest rate of job growth of any region in the country.

Which businesses should we thank for this remarkable turnaround?

The total number of jobs always increases in the fall due to a variety of seasonal factors, so you have to look closely to see what’s really going on. Most of the new jobs were created in sectors such as healthcare and higher education where we’ve become accustomed to seeing growth, but we also saw better-than-typical growth in the retail sector.

Our economic success in the fall was also helped by an industry that didn’t add any jobs at all – the leisure and hospitality sector (which includes arts, sports, restaurants, bars, and hotels). Although there were 200 fewer jobs in the leisure and hospitality sector in October than the month before, that’s actually good news because in every other year for the past 20 years, that sector has lost between 1,400 and 4,800 jobs in October due to seasonal layoffs. The leisure and hospitality sector ended the year with more jobs than any December in history, helping to boost regional job totals beyond what they otherwise would have been.

But despite all this good news, there’s also a dark side to the job growth story. Although the total number of jobs in the region is now higher than it was before the recession, that doesn’t mean that we’ve recovered all of the jobs we lost. The strong job growth in sectors such as health care and higher education is masking the fact that over 21,000 jobs that were lost in manufacturing, construction, retail, and the information sector still haven’t returned.

Our manufacturing sector was the hardest hit during the recession, and the recovery there has been weaker than almost any other industry. We lost over 12,000 manufacturing jobs between 2007 and 2009, far more than in any other industry, but since then, only 1,500 net new manufacturing jobs have been created – i.e., seven of every eight manufacturing jobs lost still haven’t come back. Here we lag the nation rather than lead it. While Pittsburgh was #4 in job growth overall last year, it ranked only 26th among the top 40 regions in manufacturing job growth. Cincinnati has restored more than half of the manufacturing jobs it lost, Milwaukee has had more than one-third of its lost manufacturing jobs return, and even Detroit has recovered over a quarter of the manufacturing jobs it lost thanks to stronger manufacturing growth in those regions.

Our construction industry has also not come close to recovering; only 2,000 of the 7,000 jobs lost during the recession have come back. The information industry (newspapers, TV, etc.) has experienced no recovery at all; it lost 1,300 jobs during the recession and another 2,500 jobs since, for a 17.6% loss of jobs over the past 4 years.

This is why, even though the Pittsburgh Region now has more total jobs than any time in history, 27,000 more of our residents are unemployed today than in 2007, before the recession began. Many of those individuals likely worked in businesses such as manufacturing, construction, and retail where the jobs haven’t returned, and are having difficulty finding work because their skills don’t match the needs of the hospitals, research labs, and professional services firms where job growth is occurring.

Can we just ignore the stagnation in manufacturing and other sectors and keep relying on “eds and meds,” with a dash of the Marcellus Shale, to drive our economy in the years ahead?

That would be a dangerous bet. The job growth in both healthcare and higher education has been supported by price increases in those sectors that are well above the rate of inflation, and that can’t continue forever. Although the Pittsburgh Region may see some continued short-run healthcare job growth as Highmark and UPMC gear up to do battle, federal cuts in healthcare payments and demands for lower health insurance premiums mean that healthcare providers cannot continue to expand forever. Job growth in higher education is also likely to slow due to Federal and state budget cuts for both research and scholarships and families’ increasing inability to afford high tuition costs. And the recent plunge in natural gas prices is already cooling the overheated growth in Marcellus Shale drilling, and it may also begin affecting jobs in the coal industry, too.

With that kind of stormy forecast for our current growth sectors, we should redouble our focus on manufacturing rather than writing it off. That means far more than just assembling special tax credits for the occasional opportunity to attract a big new manufacturing plant. We need to help our thousands of existing manufacturing firms expand and encourage entrepreneurs to start new manufacturing firms here by providing access to capital (both business loans and startup investments), adequate infrastructure (particularly industrial sites and transportation systems), and a more competitive tax and regulatory climate. And we need to encourage more high school students to pursue careers in manufacturing so that manufacturing firms can quickly fill jobs when they do create them.

(A version of this post was published as the "Regional Insights" column in the Sunday, February 5, 2012 Pittsburgh Post-Gazette.)

Better Data Would Help Us Get Better Hospital Care

2012-01-01T08:32:00.000-05:00

Depending on how the battle between Highmark and UPMC is resolved, Pittsburghers may have to choose a health insurance plan based on which physicians and hospitals it covers. People in the midst of treatment are understandably frightened about being forced to change doctors or hospitals. But for most people, the challenge will be to decide where they will get the best care for health problems they may develop in the future.

UPMC touts the fact that it’s the only Pittsburgh hospital on the U.S. News and World Report “honor roll” of best hospitals in the country. The West Penn Allegheny Health System (WPAHS) promotes the fact that it’s the only health system designated as a top national performer by Thomson Reuters, and notes that Allegheny General Hospital (AGH) is also recognized by U.S. News and World Report as one of the country’s best hospitals.

Should you use either of these rankings to choose a hospital? Ideally, what you’d like to know is whether a hospital will improve your health rather than worsen it, e.g., how likely you are to die, be injured, or be infected during your hospital stay, or to be readmitted because of complications you experience after discharge. You’d also like to know if the hospital staff will treat you respectfully, respond promptly when you need help, and make sure you’re not in pain.

The U.S. News and World Report “Best Hospitals” list only looks at two outcome measures (patient survival and safety), and gives them relatively low weight. Only 32.5% of a hospital’s score is based on how often patients survive, and a mere 5% is based on patient injury rates. Another 30% is based on “structural measures” like whether the hospital has the latest technology and how many nurses it has. The remaining 32.5% is based on an opinion poll: 200 randomly selected doctors around the country in each specialty are asked to pick the top 5-10 hospitals for “inpatient care for the most complex or difficult conditions [in that specialty].” Patients’ ratings of their experience don’t count at all.

Let’s look at the rankings for cardiac care, since heart problems are the most common reason people are hospitalized. The most recent “Best Hospitals” report shows that AGH performs better than UPMC on patient safety, and that both hospitals performed the same on patient survival. (“UPMC” here means only Presbyterian/Shadyside Hospitals; the other UPMC hospitals are ranked separately and have lower scores.) But UPMC was ranked higher (#20) than AGH (#44) because 5.2% of the cardiologists surveyed listed UPMC as one of the best U.S. hospitals for cardiac care, whereas only 1% put AGH on their list. For U.S. News, that small difference in the opinion poll outweighed the better patient safety scores at AGH. (The #1 hospital was the Cleveland Clinic, which had better patient survival rates than either UPMC or AGH and was chosen as a top hospital by 75% of the physicians surveyed.)

If you’re thinking about a knee or hip replacement, both UPMC Presbyterian/Shadyside and AGH are on the “Best Hospitals” list for orthopedic care. Here, AGH outperformed UPMC on both patient survival and patient safety, but AGH was again ranked lower overall because a smaller percentage of the 200 physicians surveyed nationally picked AGH as a best hospital. The same was true for cancer care, diabetes/endocrinology, gynecology, and other specialties.

The bottom line is that for the most common types of conditions, the limited objective data in the U.S. News rankings give a slight edge to the quality of care at AGH, but also show that neither AGH nor UPMC has outcomes as good as many other hospitals in the country.

Thomson Reuters ranks hospitals based only on objective data, not opinion polls, and uses a broader range of measures of outcomes, care process quality, patient experience, and cost of care. (The patient survival measures used by U.S. News are actually generated by Thomson Reuters.) None of the hospitals in our region made Thomson Reuters’ list of “100 Top Hospitals” in 2011, but AGH made the list of “50 Top Cardiovascular Hospitals,” and WPAHS was ranked in the top 20% on the list of “Top Health Systems.” However, since Thomson Reuters doesn’t make the underlying data public, you can’t easily find out why any hospital did or didn’t make the lists, so they’re not of much value for patients who want to choose a hospital.

A number of quality measures (including many of those used by Thomson Reuters) are publicly available for each of the hospitals in our region on the U.S. Department of Health and Human Services’ Hospital Compare website (www.hospitalcompare.hhs.gov). However, the outcome measures are based only on patients admitted for a heart attack, heart failure, or pneumonia. Although some hospitals in our region have better outcomes than others, most of the differences aren’t big enough to be statistically significant. Once again, though, there are hospitals in other parts of the country with significantly better outcomes than any hospital here.

In sum, the limited data available indicate that you can get good quality care for the most common types of health conditions at both UPMC hospitals and non-UPMC hospitals, but that all hospitals here could deliver much better care than they do today.

We shouldn’t be satisfied with anything less than the best possible healthcare, but today, we don’t have enough data to know whether we’re getting it. People living in places like Iowa, Minnesota, and Wisconsin can access far more data on the quality of hospital care in their communities than we can. They can find out how often patients get blood clots and infections after different kinds of surgery in each of their local hospitals, how often mothers and babies are injured during labor and delivery, and a host of other measures of quality. The reason is their hospitals have made a commitment to measure and publicly report on their performance. And because they publicly report and compare their performance, they are also working hard to improve the quality of care they deliver.

Few people would buy a car without first looking at ratings of the car’s quality and safety. How can we choose hospitals without similar information? And how can hospitals improve if they don’t know how well they’re performing? Pittsburghers should demand that their hospitals publicly report data on the quality of care in a common format, along with the prices of that care. That would enable us to make informed choices about which hospitals to use, and it would encourage our hospitals not just to be good, but to be the best in the nation.

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

Reducing Hospital Costs Can Benefit the Region’s Economy

2011-12-04T07:16:00.001-05:00

Congress is now going back to the drawing board after the Joint Select Committee on Deficit Reduction, commonly known as the “Super Committee,” failed to reach agreement on a plan to reduce the federal deficit. The problem isn’t just partisanship and unwillingness to compromise. Congress can’t control the deficit unless it can find a way to reduce the growth of healthcare costs, since one-half of the projected growth in federal spending over the next decade will come from growth in the Medicare and Medicaid programs.

Healthcare costs are not just a problem for the federal government. High health insurance premiums are increasingly making businesses uncompetitive, and they’re making health insurance less and less affordable for individuals and families.

The biggest driver of healthcare cost increases is hospital care. Over one-third of the growth in national healthcare spending over the past decade has been caused by higher spending on hospital care, far more than spending on either physician services or pharmaceuticals. Any long-term solution to healthcare costs will require that we significantly reduce the growth in spending on hospitals.

Nowhere is this more true than in Pittsburgh. According to American Hospital Association data, Southwestern Pennsylvania has more hospital beds relative to the size of its population than any of the forty largest metropolitan regions in the country. “More” is actually an understatement – the Pittsburgh Region has 50% more hospital beds per capita than the U.S. average, and three times as many beds per capita as Dallas, Detroit, or Seattle.

Not only do we have more hospital beds, we fill them with patients more often than other regions. In 2008, the Pittsburgh Region had the highest rate of hospital admissions per capita among the top 40 regions in the country. We also had the fourth highest rate of emergency room visits and the second highest rate of surgeries per capita of any major region in the country.

The high rate of hospitalization here is not because we have an older population. In fact, if you just compare hospitalization rates among Medicare beneficiaries, you find that the seniors living in Pittsburgh are hospitalized much more often than in other regions. All that hospitalization doesn’t lead to better health, either; it just leads to higher costs. (See Less Health Care Could Be Better For Us.)

But haven’t hospitals been one of the major contributors to our region’s economic growth? Won’t cutting hospital spending mean fewer jobs and higher unemployment?

While it’s true that over the past decade, more jobs have been created in healthcare than any other sector of Pittsburgh’s economy except for professional and business services, those jobs haven’t been created in hospitals. Despite significantly higher spending on hospitals, there are fewer people working in hospitals here today than twenty years ago. All of the healthcare job growth in Pittsburgh over the past two decades has been in ambulatory care services, particularly physicians’ offices.

Hospital spending hasn’t gone up because of higher wages for hospital workers, either. In fact, hospitals in Pittsburgh pay their employees less than hospitals in any other major region. In 2008, average compensation for hospital staff here was 25% below the national average. For example, registered nurses in Pittsburgh had lower average salaries than nurses in 36 of the top 40 regions in the country.

What’s been driving the growth in hospital spending is that hospitals have been building more facilities, buying expensive equipment, and using expensive medical devices and drugs. This is particularly true in Pittsburgh. In 2008, more than 55% of hospital spending here went to non-personnel costs, compared to a national average of less than 49%.

This means that hospital spending in Pittsburgh could be reduced significantly without cutting hospital jobs at all and without harming patients. Hospitals in other parts of the country have found ways to significantly reduce their costs through more efficient scheduling of procedures, better methods of purchasing equipment and medical devices, and eliminating unnecessary expenses. Many of the techniques for doing this were pioneered here in Pittsburgh by the Pittsburgh Regional Health Initiative. Hospital employees could help reduce costs and actually improve the quality of care for patients by learning these techniques and using them more systematically.

Today, however, hospitals are rewarded for the types of equipment they have and how many procedures they do, not for their quality or efficiency. Employers in Pittsburgh need to demand that health insurance plans give patients incentives to choose more efficient hospitals, as employers and health plans in other regions are doing. (See Creating the Right Kind of Competition in Health Care.)

The biggest opportunity to reduce spending on hospitals, though, is by helping people avoid the need for hospital care in the first place. One reason there are more hospital admissions here is that people in other regions are getting better preventive care and care management than we are. For example, thousands of hospital admissions for chronic diseases could be prevented if we made fairly simple, low-cost improvements in our region’s primary care services.

If we do a better job of keeping people well so they don’t need to be hospitalized as often, we’ll need fewer hospital beds and fewer hospital employees. But that doesn’t necessarily mean unemployment for healthcare workers, because helping people stay out of the hospital will require more jobs in primary care, home health agencies, and other ambulatory care services. The healthcare careers of the future will increasingly be in primary care and home care, not in hospitals.

Having fewer hospital beds doesn’t necessarily mean we should have fewer hospitals, either. In fact, if we want to ensure hospital care is delivered as efficiently as possible, we need to have a choice of hospital systems and to make that choice based on both the cost and quality of hospital services.

The bottom line is that reducing spending on hospital care can actually boost the region’s economy, not harm it. Lower health insurance costs will give our families more money to spend, make our businesses more competitive, and create more jobs for everyone. And if we want to attract more businesses and families to Pittsburgh, one of the best ways to do that is to offer lower-cost, higher-quality healthcare than other regions.

(A version of this post appeared as the Regional Insights column in the Sunday, December 4, 2011 Pittsburgh Post-Gazette.)

Reinventing Our Schools

2011-11-06T06:08:00.000-05:00

Tuesday is Election Day, and the most important vote you cast will be for people you almost never hear about: the members of your local School Board.

It’s your most important vote because the performance of our public schools is one of the most important determinants of our region’s economic success.

Businesses won’t create or retain jobs in southwestern Pennsylvania if they can’t find workers that are proficient in basic skills. Although many people think that our region’s workforce strength is determined by how many college graduates we have, the fact is that most jobs, both now and for the foreseeable future, will require a high school-level education and on-the-job training, not a college degree.

Unfortunately, a high school diploma in the Pittsburgh Region doesn’t mean that a student has the basic skills employers expect from a high school education. Pennsylvania State System of School Assessment test scores for 2011 show that over 1/3 (37%) of our 11th graders can’t do math properly and over 1/4 (26%) can’t read adequately. That means that southwestern Pennsylvania schools are sending over 9,000 young people into the workforce every year without the minimum skills they need to get a job, much less go to college.

It’s not just the high schools that are failing. The problem starts all the way back in elementary school. Nearly 30% of the fifth graders in the region can’t read at grade level, and more than 20% aren’t proficient in math.

No business could survive if one-third of its products were defective, and our region can’t be competitive in the global marketplace if a third of our workforce lacks basic skills.

If you think the state tests may be too tough, think again. The National Assessment of Education Progress (NAEP) has found that Pennsylvania’s standard for “proficiency” is only equivalent to what NAEP calls “basic” skills. Under the NAEP standard for proficiency, fewer than 50% of the elementary school students in our region would be considered proficient in either reading or math.

You might think that your own local school district is doing well because it proudly told the community it is meeting state standards for “Adequate Yearly Progress,” or “AYP.” But a school can be classified as making “adequate yearly progress” even if 1/3 of its students are not proficient in math and 1/4 are not proficient in reading. In fact, some schools are classified as AYP even if the majority of their students can’t read or write, due to the complex rules by which the state awards AYP status. For example, the Clairton Middle/High School is classified by the state as making “adequate yearly progress” even though 82% of its 11th graders aren’t proficient in math and 63% can’t read properly on state standards.

If we graded schools the way they grade their students, 150 of the 322 elementary schools in the region would get a “D,” “E,” or “F”, and 109 of the 150 high schools would get a “D” or worse. (If you’d like to see your local schools’ grades, go to www.pittsburghfuture.com/schoolgrades.html.)

Are the schools getting better? Some are, but most aren’t. This year, there were more than twice as many elementary schools that had 90% or more of their 5th graders proficient in both reading and math as there were last year (25 vs. 11). That’s great news. But more than half of the elementary schools in the region had worse performance in math, reading, or both in 2011 than in 2010. That’s terrible news. And 62% of the high schools did worse in 2011 than in 2010. Clearly, the majority of schools are going in the wrong direction.

Even if you’re not concerned about how poorly our schools are educating children, you should be concerned about how much of your money schools spend to do it. Schools in the Pittsburgh Region spent an average of $14,000 per child in 2010, more than both the state and national averages. To get that money, they collected over $2.4 billion in local taxes from the residents and businesses of southwestern Pennsylvania. That’s nearly four times as much as our county governments collect, so the people you elect to your school board will have a far bigger impact on your wallet than those you elect as your County Executive or County Commissioners. Moreover, schools in the Pittsburgh Region spend an additional $2.4 billion of your state and federal tax monies on top of what they collect locally.

Although many schools claim they need even more money in order to improve educational performance, the fact is that some of the best performing schools in our region spend significantly below-average amounts of money, including schools that have large numbers of low-income children, so most districts could be spending less while still getting better results than they do today.

Unfortunately, if you go to the polls to try and make a change in the leadership of your school district, you likely won’t have much of a choice. For example, in 19 of the 46 school districts in Allegheny County, there is no competition for any of the seats. In 22, there are more candidates than there are seats, but in most (13) of these, there is just one more candidate than there are seats available (i.e., six candidates for the five seats that are typically open in most districts). In 5 Allegheny County school districts, there are not even enough candidates to fill all the available seats.

It’s not surprising that with little improvement in school performance and little choice about who will lead the schools, the Governor and General Assembly are looking for ways to give parents more choices about which schools their children can go to, including private schools, and to change the way teachers are evaluated. Rather than fighting these efforts, school boards, superintendents, and teacher unions should instead focus their energies on radically reinventing the way their schools function in order to deliver much better performance at much lower costs. And if you’re in a school district where you have a choice about whom to vote for on Tuesday, you can elect the candidates who are committed to making dramatic improvements in the efficiency and effectiveness of the schools.

(A version of this post appeared as the "Regional Insights" column in the Sunday, November 6, 2011 Pittsburgh Post-Gazette.)

Curing Our Ailing Infrastructure

2011-10-02T06:57:00.000-04:00

There’s a part of the Pittsburgh Region that’s getting older and sicker every day, and it’s not our senior citizens. It’s our infrastructure.

Adequate and reliable water lines, sewer systems, stormwater systems, roads, bridges, transit systems, airports, locks and dams, industrial sites and buildings, and many other physical systems are critical if our citizens and businesses are to have clean water to drink, the ability to travel to work, the ability to ship and receive products, etc. Yet many of those systems in southwestern Pennsylvania are either wearing out or unable to deal with demands they were not designed for.

You can see the effects of this in the news on a regular basis. People drowning when storm runoff floods streets. Bridges collapsing or being closed. Tainted drinking water supplies and unhealthy levels of sewage in the rivers. Barges backing up in the rivers due to broken locks.

We’re not alone in having problems with aging and under-capacity infrastructure. It’s a national problem, and it’s particularly bad in older regions in the Northeast and Midwest like ours.

But in many ways, our problems are worse than those in almost any other region. For example, we have one of the worst problems of sewage-contaminated water in the nation due to urban sewage overflows and failing rural septic tanks. And in transportation, not only do we have more bridges than almost any region of the country, over one-fourth of our bridges are structurally deficient, more than double the national average.

But despite the severity and importance of these problems, we’re not aggressively modernizing our infrastructure. At best we’re doing a portion of the needed preventive maintenance and replacing things only after they collapse completely.

Every year that we avoid more fundamental solutions, the problem will just get worse. Thanks to years of deferring the problems, we now have a multi-billion dollar backlog of important projects.

Many people have looked to the federal government to solve our infrastructure problems. Earlier this year, a bipartisan national group called “Building America’s Future” issued yet another call for increased federal investment in infrastructure. But with a $1.2 trillion deficit and challenges paying its $14 trillion in existing debt, it’s unlikely that the federal government will be able to solve the problem. Moreover, any help they provide will not pay 100% of the costs of a project; there will be requirements for local matching funds. Where will that money come from?

Others have looked to state government to solve infrastructure problems, either directly or in partnership with the federal government, but it has historically been unable to keep up with the need. For example, the latest in a long string of state transportation financing commissions completed its work in August, but even if state legislators actually implement its recommendations, it will only address a part of our infrastructure problems, and any new state money will likely require local governments to invest money, too.

The fact is that no federal or state program will provide enough resources to address all of the important infrastructure problems our region faces. So if we want to ensure our highest priority needs are met, our region will need effective ways to choose which projects will be funded and to pay for the costs that aren’t covered by federal and state sources.

Unfortunately, the Pittsburgh region is more poorly organized to do that than most major regions. The uniquely fragmented local government structure in southwestern Pennsylvania means that we have, in effect, over 500 separate highway departments and nearly 1,000 agencies involved with water and sewer management, none of which has the resources to make investments of the magnitude needed to address our multi-billion dollar infrastructure backlog.

Moreover, the failure of any one community to maintain its infrastructure isn’t just a problem for the residents of that community, it’s a regional problem. For example, any contamination in the water you drink likely came from a problem in a different community somewhere upriver. And since 87% of the region’s residents work at a job located in a different municipality than where they live, you’re likely very dependent on how well multiple municipalities maintain their roads and bridges.

Clearly, if we’re going to address our serious, regional infrastructure problems, we need regional financing and priority-setting mechanisms. Although we have a 10-county agency called the Southwestern Pennsylvania Commission or SPC that’s charged with addressing at least some infrastructure issues, it has almost no actual money to allocate. It develops regional transportation plans and prioritizes highway, bridge, and transit projects, but PennDOT still makes the final decision about which projects will be funded, not SPC. Similarly, although a variety of local agencies plan, organize, and prioritize large economic development projects, the decisions about which projects get state funding are made by the state, and those decisions do not always match local priorities.

Why should we raise state taxes and fees to improve infrastructure, only to have to fight to get our fair share back? A better approach would be for the state to delegate the decision-making authority for at least a portion of state funding to those regions that have an effective regional infrastructure planning, decision-making, and financing mechanism in place. The burden will then be on us to create such a regional mechanism in Southwestern Pennsylvania.

If our region is going to be economically competitive in the future, we need to make infrastructure investment and improvement a central part of our economic development strategies, and we need to do it on a multi-county, regional basis. Although issues like whether to save Mellon Arena or build a new museum tend to generate far more passion and excitement than fixing sewers and bridges, a region with recreational amenities but no clean water or functional highways will not be able to keep its jobs or residents for long.

(A version of this post appeared as the "Regional Insights" column in the Sunday, October 2, 2011 Pittsburgh Post-Gazette.)

The Mismatch Between Jobs and Skills in the Recovery

2011-09-04T07:56:00.002-04:00

It’s now been over three years since the national recession began, and although job losses bottomed out two years ago, unemployment remains high, and there are growing concerns that we’re facing a “double-dip” recession.

If you look at the statistics on jobs, the Pittsburgh Region looks like it’s doing pretty well. After losing over 35,000 jobs during the recession (July 2008 – July 2009), the region has added 27,800 jobs over the past two years (July 2009 – July 2011), i.e., we’ve gained back about 80% of the total number of jobs we lost during the recession. Although that’s been a slow recovery, it’s actually better than most regions have done; over the past two years, we’ve had the 9th highest rate of job growth of any of the 40 largest regions in the country. In contrast, seven major regions, including places like Atlanta, Indianapolis, and Kansas City, have continued to lose jobs in each of the last two years.

But if you look at the statistics on unemployment, you see a very different picture. The seasonally adjusted unemployment rate here in July was 7.4%, hardly changed from the 7.6% rate in July 2009 when job losses were near their peak. There are still more than 92,000 southwestern Pennsylvanians who are unemployed, 27,000 more than before the recession started.

If the region has been adding thousands of new jobs, why has unemployment remained so stubbornly high? A major reason is that we have not been creating jobs in the same sectors where we lost them. During the recession, our biggest job losses were in manufacturing (11,600 net jobs lost just in the 12 months between July 2008 and July 2009), in professional and business services (8,900 jobs lost), in construction (6,100 jobs lost), and in retail (3,900 jobs lost). Since then, the professional and business services sector has restored all of the 8,900 jobs it lost, but only 2,100 manufacturing jobs have been added (18% of the total number lost during the recession), only 1,400 retail jobs have been created (36% of the total number lost), and there has been no net gain at all in construction jobs since 2009.

Two of our other sectors lost jobs during the recovery instead of adding them. The information sector (which includes everything from newspapers to telephones) has shed 1,600 jobs over the past two years on top of the 1,000 it lost during the recession, and we have 1,100 fewer government jobs now than we did three years ago.

Most of the job growth we’ve experienced during the recovery has been in a different set of industries, some of which experienced no net loss of jobs at all during the recession. Over the past two years, our health care and social services sector has added 5,800 jobs on top of the 1,500 jobs it created during the recession for total three-year growth of 7,300 jobs; higher education has added 400 jobs on top of the 2,700 jobs it created from 2008 to 2009; and the mining industry has added a total of 2,800 jobs over the past three years. In addition, the leisure and hospitality industry added 3,900 jobs over the past two years, more than replacing the 2,300 it lost in 2009, for net three-year growth of 1,600 jobs.

So if you look just at the construction, government, information, manufacturing, retail trade, and other services sectors, there are still 23,000 fewer jobs here today than there were three years ago. In the total job count for the region, that is offset by the fact that there are 14,000 more jobs in finance, health care and social assistance, higher education, and mining. But most of the jobs in those latter four sectors require special training or experience that most construction, production, and retail workers aren’t likely to have. Consequently, many of the people who lost their jobs during the recession may still be unemployed simply because the kind of work they do hasn’t come back to the region.

To solve this mismatch, our primary focus should be on rebuilding our manufacturing base. We still have almost 10,000 fewer manufacturing jobs than we did just three years ago, a bigger job loss by far than in any other sector. Although it’s good news that we’ve added 1,500 manufacturing jobs over the past year, fourteen other regions have experienced faster growth in manufacturing than we have, and manufacturing jobs have grown twice as fast over the past year in regions like Cincinnati, Milwaukee, Seattle, and St. Louis as they have in Pittsburgh. Even Detroit has regained over 50% of the manufacturing jobs it lost during the recession, while Pittsburgh has recovered fewer than 20%.

Some might argue that we should simply retrain unemployed manufacturing workers for jobs in health care, since that’s where we’ve experienced our largest and most consistent job growth in recent years. However, national and local efforts to control healthcare spending make it unlikely that the healthcare sector will keep creating jobs the way it has in recent years. In fact, because so many of Pittsburgh’s current jobs are in healthcare (the second highest percentage of any region), slower growth in healthcare will have a disproportionately negative impact on our region, making it all the more important to encourage more growth in manufacturing and other industries.

How can we increase the number of manufacturing jobs? By helping manufacturing firms access capital (both business loans and startup investments), developing ready-to-use industrial sites and buildings, encouraging more high school students to pursue manufacturing careers (some of our manufacturers have jobs available but can’t find qualified workers), helping small firms access international markets, and creating a more supportive tax and regulatory climate.

Growth in manufacturing will not only bring money into the region from around the world, it will also help create jobs in the construction industry and other struggling sectors of our economy.

(A version of this post appeared as the Regional Insights column in the Sunday, September 4, 2011 Pittsburgh Post-Gazette.)

Less Healthcare Could Be Better For Us

2011-08-07T08:10:00.006-04:00

The previous post explained how high prices for healthcare services are a major cause of high health insurance costs both in Pittsburgh and other regions. But healthcare costs in the Pittsburgh Region are also high because we hospitalize people more often than any major region in the country.

The most comprehensive national information about utilization of healthcare services comes from Medicare data on senior citizens. In 2007 (the most recent data available), the Dartmouth Atlas of Health Care reported that Medicare beneficiaries in the Pittsburgh Region who had chronic diseases such as asthma, diabetes, emphysema, and heart failure were hospitalized at the highest rate among the 40 major regions in the country. Chronic disease patients here are hospitalized 50% more often than the national average.

Medicare beneficiaries in our region also underwent surgery at the fourth highest rate among the top 40 regions —10% more often than the national average. Pittsburgh seniors had 23% more heart valve replacements, 14% more heart bypass operations, and 8% more back surgeries than seniors in the rest of the country.

This dramatically higher amount of hospital care is not due to people being older or sicker in Pittsburgh than in other regions, and it’s unlikely that Pittsburgh seniors have both weaker hearts and more bad backs than seniors in the rest of the country. In fact, when Dartmouth Atlas researchers adjusted for differences in age, sex, race, and Medicare payment rates across regions, Pittsburgh ranked #1 in the nation in Medicare spending for hospitals and skilled nursing facilities in 2008.

Younger people are also going to the hospital more often here than in other regions. A 2010 study by the actuarial firm Milliman found that for commercially-insured individuals, the Pittsburgh Region had 6% more hospital admissions and 26% more emergency room visits than the national average. We had one of the highest rates of emergency room utilization among 33 regions they analyzed.

High rates of hospitalizations, surgeries, and emergency room use are not only expensive, they’re signs that the region’s healthcare systems aren’t functioning efficiently or effectively:

•Many of the chronic disease patients who are being hospitalized today could stay healthier and avoid the need for hospitalization through better primary care and patient support services. A great place to start is by reducing readmissions – Pennsylvania Health Care Cost Containment Council data show that 23% of the chronic disease patients in Pittsburgh who are hospitalized end up back in the hospital in less than a month. These high readmission rates can be significantly reduced; for example, projects organized by the Pittsburgh Regional Health Initiative at UPMC St. Margaret and at Premier Medical Associates showed that improving care for chronic disease patients can reduce readmission rates by 40% or more.

•Although it’s great that we have access to excellent surgeons and hospitals when we need them, national studies have shown that many types of major surgery, such as heart surgery, back surgery, and Cesarean sections, are being performed on many patients who don’t really need them. For example, in our region, a review earlier this year found 200 cases of unnecessary coronary stent implants at Excela Health in Greensburg. Studies have shown that when physicians take time to review all the options with patients, the patients choose surgery far less frequently.

It would be one thing if Pittsburgh residents were healthier as a result of all of this hospital care, but they’re not. Pittsburgh had the 11th highest death rate for Medicare recipients among the top 40 regions, and nearly one out of every 50 people hospitalized in the Pittsburgh Region gets an infection during their hospital stay. National studies have shown that regions with high rates of hospital utilization tend to have worse outcomes for patients.

Our overuse problem primarily occurs in hospitals, not in the rest of the healthcare system. In fact, our region ranks below the national average in spending on physician services for both Medicare beneficiaries and commercially-insured patients. Although we have 12% more hospital beds and 19% more hospital employees per capita than the national average, we have 5% fewer primary care physicians and 3% fewer specialists.

What this means is that in order to reduce our health insurance costs, we’re going to need to stop spending so much on hospitals and invest more in primary care and wellness initiatives.

How can we do that? First, physicians need to take the leadership to reinvent the way healthcare is provided so their patients can stay well and stay out of the hospital, rather than forcing health plans and Medicare to cut fees (which underpays physicians and hospitals for needed care) or to create bureaucratic prior authorization systems (which can delay or deny needed care), or allowing hospitals try and put each other out of business in order to keep filling their own beds. Only physicians, who know their patients and what they really need, can ensure costs are reduced in ways that are actually better for patients.

Second, we need to change the way we pay for health care. Today, doctors and hospitals get paid more when patients are hospitalized more often, rather than being rewarded for keeping patients well. There are better ways to pay for health care that give physicians greater flexibility over the care their patients receive as well as greater accountability for outcomes and costs (you can learn about them at http://www.paymentreform.org/ ), but unfortunately, the health plans in our region have not yet implemented them.

Would reducing the overuse of hospital care hurt the region’s economy? Spending less money on the expensive drugs and medical devices used in hospitals and spending more on primary care could actually boost the local economy by keeping more of the healthcare dollars we do spend inside the region, making our workforce healthier and more productive, putting more dollars into workers’ wallets that they can spend locally, and encouraging new businesses and residents to locate here.

Clearly, creating a higher-quality, lower-cost healthcare system should be one of the region’s highest economic development priorities.

(A version of this post appeared as the Regional Insights column in the Sunday, August 7, 2011 Pittsburgh Post-Gazette.)

Creating the Right Kind of Competition in Healthcare

2011-07-03T08:24:00.005-04:00

The prospect of a “divorce” between the region’s largest health insurer (Highmark) and the region’s largest hospital system (UPMC) has caused concern for many residents of the region. Will they have to switch doctors or change insurance? Many community leaders have called on Highmark and UPMC to settle their differences and return to business as usual.

However, business “as usual” isn’t good enough anymore. The high cost of healthcare is hurting businesses and families, both nationally and in southwestern Pennsylvania. We need to find ways to make health insurance more affordable without denying patients the care they need.

Contrary to popular belief, the reason health insurance costs are increasing is not lack of competition among health plans. There is growing evidence nationally that a major cause of high costs is high prices charged by large health systems.

For example, last year, an investigation by the Massachusetts Attorney General found that some of the larger hospitals and physician groups in that state charged twice as much or more than others for the same services. The higher-priced facilities did not provide higher quality of care, nor were they paid more because they treated more complex patients or had teaching programs. The only explanation was that big hospitals and physician groups had the power to demand and receive higher prices. Moreover, the report found that “price increases, not increases in utilization, caused most of the increases in health care costs during the past few years in Massachusetts.”

Last month, the Massachusetts Division of Health Care Finance and Policy issued a new report with even more detail on price variations. In 2009, some hospitals in Massachusetts were paid an average of $25,000 for knee joint replacements while others were paid an average of only $14,000 for similar cases, a nearly 80% difference. Payments for Cesarean sections ranged from under $5,000 to over $10,000, payments for appendectomies ranged from just over $6,000 to just under $12,000, and there were similar variations for other procedures. There was no correlation at all between cost and quality across a wide range of procedures.

High prices are not just a problem in Massachusetts. The Health Insurance Commissioner in Rhode Island found that large health systems in that state were being paid 50% more than smaller hospitals for the same procedures. The Medicare Payment Advisory Commission (MedPAC) issued a report last month which showed that in many regions of the country, some hospitals and physician groups are paid twice as much or more than others.

In the Pittsburgh Region, the amount that hospitals are paid by health plans is a closely guarded secret, but several years ago, the Pennsylvania Health Care Cost Containment Council (PHC4) revealed what our hospitals are actually paid by commercial health plans. While some hospitals in southwestern Pennsylvania were paid an average of $18,000 to perform heart bypass surgery, others were paid as much as $35,000 for the same procedure. Similarly, payments for heart valve surgery ranged from a low of $24,000 to a high or $54,000. Moreover, the lowest priced hospitals (Jefferson Regional, Butler Memorial, and St. Clair Hospitals) actually had lower mortality and readmission rates (i.e., better quality) than the highest-priced hospitals (UPMC Presbyterian/Shadyside Hospitals, Mercy Hospital (then an independent hospital), and Washington Hospital).

What all of this means is that we could be spending 30%-50% less on hospital care than we are today, without sacrificing quality, if the highest price hospitals would reduce their costs. And since hospital care represents 40% of typical commercial insurance costs, cost reductions there could make health insurance policies 10-20% cheaper than they are today – saving thousands of dollars per year on a typical family health insurance plan.

Tougher negotiations between health plans and hospitals aren’t the answer. Each side just tries to get bigger to gain more leverage, and patients and businesses are the losers. The answer isn’t getting more or different health insurance companies, either.

The problem is the type of health plans insurance companies offer. Under most health insurance plans, hospitals don’t have much incentive to reduce their costs, because it doesn’t matter to patients how much the hospital charges.

For example, suppose you need knee surgery and you have a choice of two high-quality hospitals; Hospital #1 charges $15,000 and Hospital #2 charges $30,000. If you were paying on your own, you’d likely choose Hospital #1. But under a typical individual health plan, you would only be responsible for a 10% co-insurance payment up to an overall annual $1,500 limit on out-of-pocket expense. So it would cost you $1,500 to get your knee replaced at Hospital #1 and $1,500 to have it done at Hospital #2 – exactly the same amount.

It would be no different under a high-deductible plan, because the cost of the surgery is well above most deductibles. You might think twice about whether you need the knee surgery at all, given that it will cost you more than under the low-deductible plan, but once you decide to go for the surgery, it won’t matter to you how much the hospital actually charges.

On the surface, this sounds like a pretty good deal – go wherever you want without regard to cost. The health insurance company, not you, would pay the $15,000 difference if you choose Hospital #2. However, the insurance company has to charge you a higher premium for the privilege of choosing more expensive hospitals without regard to cost. The more members of your health plan who choose higher-cost hospitals, the faster your premiums will increase. Even if you’re healthy and you don’t need a hospital at all, you’re paying to give everyone else the freedom to choose without regard to cost. It would be as if your neighbor decided to buy a Ferrari instead of a Ford, and you had to help them pay for it.

Other regions have different kinds of health plans that give patients more responsibility for choosing hospitals and doctors based on cost as well as quality. For example, Blue Cross Blue Shield of Massachusetts now offers a health plan where members pay less if they choose lower-cost hospitals. Employers in Minnesota created a tiered network plan called Patient Choice where employees pay lower premiums and lower copayments if they choose to get their care from lower-cost health systems.

Not surprisingly, the biggest resistance to these types of health plans comes from large, high-priced health systems, since the plans give consumers an incentive to use hospitals and doctors that offer high-quality care at a lower price. In some regions, large non-profit hospitals have refused to contract with a health insurance company at all if it offers such a health plan. That’s not only anti-competitive behavior, but counter to the mission of a charitable institution.

So instead of going back to the old system where cost doesn’t matter or creating “narrow network” health plans that limit patient choice, Pittsburgh’s health insurance companies and health systems should be creating health plans that (1) give patients full choice of which doctors and hospitals to use, (2) better information about the cost and quality of care that they provide, and (3) greater responsibility for deciding whether a higher-priced provider is worth the extra cost. That would encourage health providers to compete on both cost and quality, resulting in better and more affordable healthcare for the entire region.

(A shorter version of this post appeared as the "Regional Insights" column in the Sunday, July 3, 2011 Pittsburgh Post-Gazette.)

Pittsburgh's Gender Gap in Entrepreneurship

2011-06-05T18:11:00.003-04:00

A previous post described the dismal state of African-American business ownership in the Pittsburgh region based on the results of the 2007 U.S. Economic Census.

Are Pittsburgh’s female entrepreneurs doing any better?

The short answer is “No.”

The Pittsburgh Region ranks dead last among the top 40 regions in the number of women-owned businesses relative to the size of its population, and the number of women-owned businesses here has grown more slowly than in most other regions.

In 2007, there were 48,354 businesses in southwestern Pennsylvania that were owned by women (i.e., women had a 51% or higher ownership stake). Although that’s a lot, it represents only 68 women-owned businesses for every 1,000 women ages 20-64 living in the region, versus an average of 89 in other regions. Compared to places like Charlotte, Columbus, and Detroit, which rank about average on this measure, we have 15,000 fewer women-owned businesses than we should.

In every region, the majority of businesses are owned by men, but an even larger share are owned by men here than elsewhere. In southwestern Pennsylvania, only about one-fourth (26.7%) of all businesses were owned by women in 2007, the second smallest percentage among major regions (only Nashville had a smaller proportion of businesses owned by women). The highest percentage was in Washington, DC, where women own one-third (33.1%) of the businesses.

The Pittsburgh Region has seen significant growth in women-owned businesses over the past decade; there were 8,179 more women-owned businesses here in 2007 than in 1997, a 20% increase. However, that was the third smallest growth among the top 40 regions; the number of women-owned businesses grew three times as fast in other regions. Of course, overall business growth in Pittsburgh was slow compared to other regions during that period, but southwestern Pennsylvania also saw below-average growth in the percentage of businesses that were women-owned compared to other regions.

A bright spot is that although Pittsburgh has fewer women-owned businesses than other regions do, the ones that are here are bigger and employ more workers than those in other regions. In fact, Pittsburgh ranked #1 among the top 40 regions in the country in the proportion of women-owned businesses which had at least one employee. Nearly one in seven (14.8%) women-owned businesses here had employees, compared to only 12% on average elsewhere. (About 75-80% of businesses of all types in every region are sole proprietorships or partnerships with no employees). Also, Pittsburgh’s women-owned businesses had average annual revenues of $181,000; that’s the 10th highest average among the top 40 regions.

What types of businesses do women own in Pittsburgh? Sixty percent of them are in four sectors: health care and social assistance; retail trade; professional services; and “other” services (primarily personal services). Compared to other regions, women owners are under-represented in every sector here except for manufacturing and retail.

You might be surprised to learn that 867 manufacturing firms in our region in 2007 were owned by women (17% of all of our manufacturing firms), and they employed over 4,200 workers. It’s important to note, though, that the region has lost a lot of manufacturing jobs since 2007, and we don’t yet know how women-owned manufacturers fared compared to others.

In total, Pittsburgh’s women-owned firms employed over 63,000 individuals in 2007 (in addition to the owners themselves). However, the average wage for their employees was only $24,953, the third lowest among the top 40 regions; the average wage paid by women-owned businesses in most other regions was more than $30,000. The lower wages here are likely due in part to the fact that so many of our women-owned firms are in lower-wage sectors like social services and retail.

The numbers make a clear case for stronger efforts by regional leaders to encourage women to start businesses and to help women entrepreneurs grow their businesses. Even a small percentage increase in the number of women-owned businesses or in the average number of employees per firm could result in thousands of new jobs for the region.

Fortunately, there are a number of organizations in the region whose mission is to help female entrepreneurs. For example, Chatham University’s Center for Women Entrepreneurship, the University of Pittsburgh’s Center for Women in Business, Seton Hill University’s E-Magnify Women’s Business Center, the Diversity Business Resource Center, the National Association of Women Business Owners, the Women’s Business Network of Southwestern Pennsylvania, and others all have programs specifically directed at women starting or operating a business.

However, the fact that there are so many different organizations and programs could be confusing for women considering becoming entrepreneurs and could result in inefficiencies in the delivery of services. Coordination of services and joint marketing by these programs might enable them to expand their collective impact and help improve Pittsburgh’s rankings compared to other regions.

If you’d like to learn more about the challenges women entrepreneurs have faced and the successes they’ve achieved, you might want to attend The Enterprise Forum’s program on women-owned companies this Wednesday (June 8). More information is available at www.enterpriseforumpittsburgh.com.

(A version of this post appeared as the "Regional Insights" column in the Sunday, June 5, 2011 Pittsburgh Post-Gazette.)

Helping African American Businesses in Pittsburgh

2011-05-01T18:03:00.004-04:00

Hidden behind the many positive rankings of the Pittsburgh Region is the poor economic condition of the region’s African American population. Census data for 2009 show that southwestern Pennsylvania has the highest rate of poverty for working age African Americans of any major region in the country. More than one of every three African Americans (37%) in our region is poor. That’s nearly quadruple the 10% poverty rate among the white population in Pittsburgh, and double the 19-20% poverty rates among African Americans in regions such as Atlanta, Baltimore, Boston, and Charlotte.

As discussed in a previous post, part of the solution to this persistent problem is improving the performance of our public schools and expanding training and assistance programs for African-Americans. But another important element of a comprehensive solution is increasing the number and size of African American-owned businesses. Black-owned businesses help to bring wealth as well as jobs into the black community, and the leaders of these businesses can help to ensure the region’s economic development strategies support all segments of the community.

How is the Pittsburgh Region doing in creating and expanding African American-owned businesses? Some important insights can be gained from the national Survey of Business Owners which was released earlier this year. The Survey was conducted as part of the 2007 Economic Census.

Based on the Census Bureau’s estimates, there were 6,101 African American-owned firms in the Pittsburgh Region in 2007. That’s the 5th smallest number of black-owned firms among the 38 largest metro regions for which statistics are available.

You might expect there to be relatively few African American businesses here simply because of the small size of the region’s African American population. However, if you adjust for that, we look even worse: Pittsburgh ranks dead last among the largest regions in the ratio of the number of black-owned firms to the number of working-age black residents in the region.

Although we have a relatively small number of black-owned businesses, they are, on average, larger than black-owned businesses in other metro areas in terms of both employees and revenues:

Although only 480 (8%) of the 6,101 African American firms in the Pittsburgh Region had any paid employees (the rest were sole proprietorships or partnerships), only eight other regions had a higher proportion of firms with employees.

The African American firms in Pittsburgh had more employees than most regions; on average, the businesses with employees here had an average of 10.7 workers, the 12th highest number among the major regions.

The African American businesses with employees in Pittsburgh had an average of $1.2 million in annual sales/receipts, the 7th highest average revenues among the 38 largest regions for which these data were available.

Our region has African American-owned businesses in a wide range of industries ranging from construction to finance; the largest concentrations of businesses and workers were in the health and social services sector and the hospitality industry.

We have seen some encouraging signs of growth in African American-owned firms over the past decade:

The number of black-owned businesses in our region nearly doubled between 1997 and 2007 (more than 3,000 new firms), although this was a smaller growth rate than in most regions.

The number of businesses that had employees declined by 14% (77 fewer firms), but the total number of employees working for these businesses grew by 27% (nearly 1,100 more jobs).

Average revenues of black-owned businesses in Pittsburgh grew by only 11% over the decade, but that was the 8th highest growth among the largest regions; in most other regions, average revenues of African American businesses decreased.

The African American business community in the Pittsburgh Region is clearly smaller than it could or should be, but the businesses we do have provide a solid base to build on. What can we do to strengthen our region’s black businesses?

First, we should be proactive in providing technical assistance and seed funding to African American entrepreneurs who are trying to start or grow their businesses. We have many organizations and programs designed to help entrepreneurs and startup businesses, such as the Small Business Development Centers and Innovation Works, but they need to measure and report on how effectively they are reaching the African American community, and establish special outreach programs where appropriate.

Unfortunately, the Pittsburgh Region missed an important opportunity to support minority businesses this spring. At the beginning of April, the U.S. Department of Commerce’s Minority Business Development Agency (MBDA) awarded $7.8 million in funding to 27 MBDA Business Centers across the country to assist minority entrepreneurs, including a new center in Cleveland, but Pittsburgh wasn’t included.

Second, majority-owned businesses in the region need to help African American businesses by seeking them out as suppliers and by providing mentoring and other support. The African American Chamber of Commerce provides an excellent way for majority-owned businesses to find the African American businesses which are located in the region. In addition, the Western Pennsylvania Minority Supplier Developer Council operates programs specifically designed to match minority suppliers with other businesses. Businesses who want to help grow the minority business community should attend WPMSDC’s 35th Annual Business Opportunity Fair in Monroeville on May 4 or participate in its other programs.

(A version of this post appeared as the Regional Insights column in the Sunday, May 1, 2011 Pittsburgh Post-Gazette.)

Getting More for Our Money in Education and Health Care

2011-04-06T19:13:00.004-04:00

The recession has forced consumers and businesses to pursue greater value – lower cost and higher quality – in everything they do. With less discretionary income, consumers have had to seek out higher-value products and services. This, in turn, has forced businesses to find more efficient methods of production while maintaining or improving the quality of their products and services.

The public sector is now facing the same kinds of challenges the private sector has faced – how to deliver effective public services with dramatically lower revenues. Facing a $4.1 billion budget deficit – a 14% shortfall –Governor Corbett has proposed significant cuts in many state programs, particularly education.

Although the Governor’s proposal would increase the amount of state tax revenues for K-12 education by nearly a quarter billion dollars (2.6%), the net effect on public schools is a $1.3 billion cut because schools will no longer receive $1.5 billion in federal stimulus funds that Governor Rendell had used to substitute for state funds. Although that sounds like a big cut, it represents less than a 6% reduction in total school spending, just slightly more than the increase which had occurred over the past two years.

Many education advocates would like to see more state funds allocated to offset these cuts, but their energies would be better spent helping schools do what hundreds of manufacturing businesses and other firms have done over the past two years – reinventing themselves to deliver greater value at lower cost.

Pennsylvania’s public school systems are hardly models of efficiency or high value. Public schools in Pennsylvania spend nearly $13,000 per pupil per year, 17% more than the national average. Yet they don’t deliver above-average results; the National Assessment of Education Progress found that fewer than 1/3 of students in Pennsylvania’s schools are proficient in basic skills, barely above the national average, and Pennsylvania high school students have the 9th worst college placement test scores in the country. While it is commonly believed that more spending on education leads to better results, the opposite is true in many cases. Indeed, some of the best performing schools in the Pittsburgh Region spend significantly below-average amounts of money.

A 6% reduction in total school spending would still leave schools spending well above the national average. The quality of education could be preserved or improved if the state revises the funding formula so that poor schools don’t face disproportionately large cuts, and if schools eliminate inefficiencies rather than cutting important programs like kindergarten. Only 75% of current school expenditures are actually used for instruction; the other $5 billion goes to administrative overhead, sports, and other non-instructional programs. In this year’s school board elections, voters should seek out candidates who are committed to make these kinds of changes.

In contrast, it’s harder to justify the Governor’s more than 40% cuts in higher education funding, particularly since Pennsylvania provides less support for higher education than most states. Although our colleges and universities could undoubtedly improve their efficiency, they already deliver higher value than those in most states. For example, Pennsylvania’s higher education institutions have the second highest graduation rates of any state in the country, and its public universities rank 10th in freshmen retention rates. Pennsylvania’s universities are also net importers of young talent into the state.

It will be increasingly hard to find money to avoid these kinds of cuts if we don’t solve what has been one the fundamental drivers of the state budget deficit – rising health care costs. One-fifth of the proposed state budget ($5.2 billion in state funds) is dedicated to the Medicaid program, a 22% increase in just three years, and this will increase in the future as federal health reforms bring more uninsured Pennsylvanians into Medicaid. Millions more in state funds go to provide health insurance for state workers and retirees.

Controlling health care costs doesn’t mean cutting physician fees or denying patients important services. It can be done by delivering higher-value care. A previous post identified maternity care as one major opportunity for higher-value care; others are helping patients with chronic diseases stay well and out of the hospital, and reducing hospital-acquired infections and other complications.

We know how to do these things; indeed, the Pittsburgh Regional Health Initiative has been a national leader in helping physicians and hospitals improve quality and reduce costs. The problem is the way we pay for health care. Today, health plans will pay for a chronic disease patient to be hospitalized, but won’t pay doctors to hire nurse care managers who can help patients stay well. Health plans pay hospitals more when patients get infections and other complications, and often financially penalize them for providing higher-quality care.

Fortunately, there are better ways to pay for health care. Episode-of-care and comprehensive care payment systems give doctors and hospitals more flexibility to deliver the care patients need and reward them for controlling costs and improving patient outcomes. The state, as one of the largest purchasers of healthcare services, should only use health plans that implement these new payment approaches. Consumers and private sector businesses also need to demand these changes.

Let’s use the state budget crisis as a wake-up call to catalyze the creation of higher-value healthcare and education systems. Lower health insurance premiums, lower taxes, and better educated students will help our businesses be more competitive and create new jobs, and put more money in every family’s bank account.

(A version of this post appeared as the Regional Insights column in the Sunday, April 3, 2011 Pittsburgh Post-Gazette.)

Better Maternity Care Can Reduce Healthcare Costs

2011-03-06T07:59:00.004-05:00

Although many people blame federal and state government deficits on wasteful spending, one of the biggest factors driving deficits is rapidly growing health care costs. High healthcare costs not only cause higher government expenditures on Medicare and Medicaid, they also increase the costs of providing health benefits to government employees.

Moreover, during a time when we’re trying to recover from the recession, high and growing healthcare costs make it more expensive for businesses to hire new workers, and big increases in healthcare costs make tight family budgets even tighter.

The good news is that there are many ways to reduce spending on health care that actually benefit patients. For example, preventing the thousands of hospital-acquired infections that occur every year in our region would not only save millions of dollars but save hundreds of lives.

One of the biggest opportunities for reducing healthcare costs is improving the quality of maternity care. For most businesses, childbirth and newborn care is the largest or second largest (after heart care) category of hospital expenditures, and it’s by far the largest category of hospital expenditures for state Medicaid programs, so even small improvements can result in large savings.

The place to start is with the most common hospital procedure in America – the Cesarean section. A C-Section is a surgical delivery of a baby, rather than a normal, vaginal delivery. Not only does a C-section typically cost twice as much as a vaginal delivery, it is more likely to result in infections, injuries, and other complications for both mothers and babies.

Yet today, nearly one-third of all babies in the country are delivered by C-Section. Fifteen years ago, only 20% of babies were delivered by C-Section, and in the 1960s, the C-Section rate was under 5%. In southwestern Pennsylvania, rates of C-Sections vary widely. In 2008, the rate of C-Sections for low-risk first-time mothers in Allegheny County was 28.5%, but in Armstrong County it was 36.7%, while in Indiana County, it was only 19.8%.

A major reason that the rate of C-Sections is high and growing is not because they’re necessary, but because they’re convenient. Babies often take longer to arrive than their mothers or doctors might like, and C-Sections often are used to shorten labor or to make babies adapt to the busy schedules that their mothers and doctors have. Yet that temporary convenience can harm both babies and mothers, sometimes permanently.

C-Sections are particularly problematic when they’re used to deliver babies too early. The desire for convenience has resulted in a growing number of cases where doctors use drugs or procedures to induce labor rather than let the pregnancy take its natural course. About one-fourth of deliveries are now electively induced before the baby has reached full term (39 weeks). Yet research has shown that even babies born a few days too early are more likely to have problems such as developmental delays. Moreover, labor inductions before 39 weeks are more likely to result in expensive and risky C-Sections, and the baby is more likely to spend time in an expensive neonatal intensive care unit (NICU).

These unfortunate trends can be reversed. For example, a team of physicians and nurses at Pittsburgh’s Magee Womens Hospital, using “Perfecting Patient Care” training they received from the Pittsburgh Regional Health Initiative, reduced the rate of early elective inductions by 64% and reduced the frequency of C-Sections in elective inductions by 60%. They won the Fine Award from the Jewish Healthcare Foundation in recognition of their cutting-edge work.

There are additional opportunities for even greater savings in maternity care. For example:

•Birth centers are a safe option for healthy women with normal pregnancies who would rather deliver babies outside of a hospital setting, and they typically cost one-fourth as much as a hospital delivery. Pittsburgh is fortunate to have a nationally-accredited, free-standing birth center (The Midwife Center for Birth & Women’s Health) that provides this kind of choice.

•Fewer pregnancy complications and better birth outcomes could be achieved if more women received early and adequate prenatal care. Unfortunately, one in every five mothers (20%) in our region does not get adequate prenatal care, and the rate is shockingly poor in some parts of the region (more than 1/3 of mothers in Fayette, Greene, Indiana, Washington, and Westmoreland Counties did not receive appropriate prenatal care) and for minority populations (1/3 of African American mothers did not receive appropriate prenatal care).

A major contributor to all of these problems is the way health plans and Medicaid typically pay for maternity care. Hospitals are paid more for C-Sections than for vaginal deliveries, creating an incentive to do more C-Sections, and doctors are often paid similar amounts for both types of delivery, even though vaginal deliveries typically take longer and occur at inconvenient times. Doctors and hospitals make more money when mothers and babies have complications or when babies spend time in NICUs, rather than being rewarded for achieving better outcomes and reducing costs.

Some health plans and hospitals are changing this; for example, the Geisinger Health Plan in Central Pennsylvania pays for maternity care based on outcomes, and the Geisinger Health System has significantly reduced C-Sections and improved the quality of maternity care as a result. Health plans in southwestern Pennsylvania should also begin paying for maternity care in ways that enable physicians to deliver higher quality, lower cost care. We’ll not only save money, but have healthier babies and mothers as a result.

(To learn more about strategies for improving the quality and reducing the cost of maternity care, see the 2020 Vision Report and Blueprint for Action from Childbirth Connection, and the presentation on alternative methods of paying for maternity care on their website.

(A version of this post appeared as the Regional Insights column in the Sunday, March 6, 2011 Pittsburgh Post-Gazette.)

Industrial Sites Needed Now for the Manufacturing Jobs of Tomorrow

2011-02-06T06:17:00.002-05:00

Imagine for a moment that the Pittsburgh Region gets some good news early this year – several manufacturing firms are seriously considering building new assembly plants in southwestern Pennsylvania, each of which would employ hundreds of workers with high wages and good benefits. But a few months later it turns out that the celebration was premature – the companies can’t find an industrial site here that will accommodate their plants, and they are forced to take their jobs elsewhere.

Think it couldn’t happen?

Think again. A decade ago, the Pittsburgh Regional Alliance reported that Southwestern Pennsylvania had lost over 4,000 jobs and over $800 million in investment by a dozen manufacturing firms and other business prospects in a two-year period due to a lack of suitable industrial sites.

Why would industrial sites be in such short supply?

The reason is our topography. The same rolling hills and rivers that make Pittsburgh one of the most scenic regions in the country also make it one of the most difficult and expensive in which to develop land, particularly the kind of large flat sites that manufacturing firms and distribution facilities need. Nearly 70% of the land in Southwestern Pennsylvania has a slope greater than 8%, whereas in Columbus, only 200 miles to the west, less than 20% of the land is that steep. Turning land with steep slopes into industrial sites can cost twice as much or more than using land that is flat to begin with.

Because of that, it’s not surprising that virtually all of the limited supply of flat land we have has already been used for something. Even when a site becomes available for reuse, existing facilities have to be demolished, any environmental contamination has to be cleaned up, and the infrastructure has to be modernized, again making it far more expensive than a flat, unused piece of property in another region. And many of the flat sites we have are along the rivers, which we increasingly want to use for recreational amenities.

This is not a new problem for Pittsburgh. Over a half century ago, the Regional Industrial Development Corporation (RIDC) was formed because of a realization that the region didn’t have enough modern industrial sites to support new business growth. Today, two of the three largest industrial parks in the region are here thanks to the efforts of RIDC starting in the 1960s and 1970s.

In fact, planning and development of industrial sites and buildings has to begin years in advance of when they are needed. Many businesses can’t afford to wait for a site or building to be created, so they’ll favor the region with available space that enables their plant to get up and running the fastest.

By the mid-1990s, when manufacturing jobs were growing in the Pittsburgh region, it became increasingly difficult for firms to find suitable, ready-to-go space here. A study done at the time by a national site selection firm found there were only four sites and three buildings in the entire 10-county region that had the potential to be competitive for a major manufacturing facility. Moreover, there were no sites at all that could accommodate very large projects, and no high-quality sites near Pittsburgh International Airport.

The region mobilized to address this growing crisis. The Southwestern Pennsylvania Growth Alliance assembled the first-ever regional priority list of industrial site projects, elected officials and business executives from all 10 counties presented it to Governor Ridge, and over the course of the next 4 years he provided nearly $40 million in grants for industrial site projects in all 10 counties. The counties provided matching funds, and RIDC and county economic development agencies did the hard work of building the necessary infrastructure to create ready-to-use industrial sites and buildings.

How important was this effort? Most of the new and expanded manufacturing and technology plants the region celebrates today are located on industrial sites developed over the past decade using funding provided by the state. For example, Medrad’s medical device manufacturing plant, Flabeg’s solar manufacturing plant, U.S. Steel’s R&D facility, and many Marcellus Shale businesses are located on industrial sites for which planning started over a decade ago.

The good news is that those industrial sites have been filling up with job-creating businesses. The bad news is that as a result, the space available for new firms and expansions is dwindling. Industrial market research from Grubb & Ellis shows that less than 6% of the Class A space in the Pittsburgh region was vacant at the end of 2010. That puts us at a competitive disadvantage with regions like Cleveland, which has three times as much available industrial and R&D/flex space as Pittsburgh.

No municipality or county can address this on its own. Investing in new industrial sites must be a regional effort because the jobs at industrial sites will be filled by the residents of many different municipalities and counties. Moreover, state grant assistance is critical, not only because of the high cost of site preparation and infrastructure, but because the majority of the tax revenues paid by the businesses and employees on the sites will go to the state, not local government.

Although there has been considerable criticism of the large number of Redevelopment Assistance Capital Program grants made by Governor Rendell as he was leaving office, more than one-third of the grants he awarded in Southwestern Pennsylvania were for much-needed industrial site development.

Our region needs more of these kinds of investments if we’re going to grow. RIDC and our county economic development agencies need to continue to plan new industrial site and building projects, and Governor Corbett should continue to provide the state support needed to make them a reality.

(A version of this post appeared as the Regional Insights column in the Sunday, February 6, 2011 Pittsburgh Post-Gazette.)

New Year’s Resolutions to Create a Stronger Region

2011-01-02T07:45:00.005-05:00

As we enter 2011, the shadow of the recession still hangs over the Pittsburgh Region’s economy. Although a surge of job growth last spring restored about 8,000 of the 38,000 jobs lost in 2009 and gave hope for a strong recovery, job growth in the summer and fall was disappointing. As of November, our region still had 26,000 fewer jobs and 40,000 more unemployed workers than in November 2007, the year before the recession started.

News stories about how well Pittsburgh did in the recession have lulled many people into believing that the region’s economy will automatically do well during the recovery. While it’s true we had the 5th smallest loss of jobs among the top 40 regions between 2007 and 2010, that was in large measure because other regions were losing tens of thousands of jobs that we had never created in the first place. Prior to the recession (2003-2007), Pittsburgh had the 5th worst rate of job creation in the country. Indeed, we were one of only 10 large regions which failed to restore all the jobs lost in the 2002 recession before the 2008 recession hit.

This is hardly evidence of a high-performance economic engine we can count on to drive our region in the future. If we repeat the lackluster performance of the past decade, it will be at least 2015 until we get back to the job levels we had in 2001, much less see net growth in jobs.

There are several areas where actions we take in 2011 could determine our future for decades. What should our region’s New Year’s Resolutions be?

Resolution #1: Rebuild Our Manufacturing Sector. Over half of the jobs we lost during the recession were in manufacturing, so manufacturing growth has to be a priority if we’re going to lower unemployment. Contrary to popular belief, the Pittsburgh Region still has more jobs in manufacturing than most of the major regions in the country. And there are hopeful signs of a recovery: 1200 manufacturing jobs were added here in the last six months of 2010, the 10th highest growth rate in the nation.

There are three key ways in which we can support robust job growth in manufacturing to get our economy back on track:

•Provide capital for growth. Banks need to be willing to lend to firms when they have new business opportunities, and investors need to provide early-stage capital to help entrepreneurs start new manufacturing firms.

•Invest in infrastructure. State and local governments need to make the investments in industrial sites, roads, bridges, and water and sewer systems that manufacturing firms need to locate and expand here. This will also create thousands of needed construction jobs.

•Create a well-educated workforce. It does little good for manufacturers to create jobs if they can’t find qualified workers to fill them. See Resolution #3 below.

(For more information about how to grow manufacturing jobs, see Saving Manufacturing in the Pittsburgh Region.)

Resolution #2: Create a Higher-Value Healthcare System. One of our few sources of job growth over the past decade has been the health care sector. As a result, one-tenth of all of the region’s jobs are now in health care, a bigger share of our economy than the steel industry represented 40 years ago.

Unfortunately, all of those jobs and the most advanced healthcare technology in the world haven’t resulted in better health outcomes for Pittsburgh region residents. For example, we have the third highest rate of preventable hospitalizations among the largest regions in the country, and each year, thousands of people who are hospitalized get infections that could have been prevented. Poor quality care is one reason why the cost of health insurance in our region is higher than it needs to be, which in turn makes the region’s businesses less competitive in the global marketplace.

We can’t count on job growth in healthcare to continue at the same pace because we won’t be able to afford the costs involved. Moreover, if our region is going to attract and retain businesses and residents in the future, it will need to offer much higher-quality, more affordable healthcare. To achieve that, health plans need to dramatically change the way they pay for health care, rewarding good outcomes instead of the number of procedures performed, and citizens need to choose doctors and hospitals based on both the quality and cost of the care they provide.

(For more information about how to reform healthcare payment systems to support lower-cost, high-quality healthcare, see Paying for Value in Healthcare, Not Volume.)

Resolution #3: Create a High-Performing Public School System. Although one of our region’s historic strengths has been a high-quality workforce, over one-fourth of the region’s current high school students can’t read adequately and more than one-third aren’t proficient in mathematics.
No business could survive if one-third of its products were defective, and our region won’t succeed in a knowledge-based economy if 30% of our workforce lacks basic skills. Our particularly poor performance in educating African American students is likely a major reason we have the highest rate of poverty among working age African Americans in the nation.

It’s locally-elected school boards that need to be held accountable for this lackluster performance, and in 2011, half of the school board seats in each of our 124 school districts will be up for election. The choices citizens make at the polls this year could have a major impact on both their children and the region’s economy for decades to come. (For more information about the problems with the region's education system and the role of school boards, see Our Children Aren’t Ready for Jobs of the Future).

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

Losing Ground Before the Holidays

2010-12-19T18:52:00.002-05:00

The more than 90,000 unemployed workers in the Pittsburgh Region aren’t getting much of a holiday gift from the economy this year. We actually lost private sector jobs in the region between October and November, only the sixth time in the past two decades that private sector jobs declined in November. As a result, the region has now gone over six months without making any significant headway in restoring the more than 26,000 jobs we’ve lost over the past 3 years.

Although there were 1,300 more total jobs in the region in November than in October, that was due to the 1,600 net new jobs in local school districts, one of the largest increases in government jobs from October to November in the past two decades. In contrast, there were 300 fewer private sector jobs in November than October, whereas in many previous years, the economy added between 800 and 4,000 private sector jobs in November. If it hadn’t been for the 2,500 seasonal jobs added in the retail sector (a smaller increase than the typical seasonal growth), things would have been even worse, because the small growth in most other sectors would have been inadequate to offset the loss of 5,000 jobs in construction and in the leisure and hospitality industry (which had a slightly higher loss of jobs than the typical seasonal decrease).

This makes six straight months in which the region has failed to regain any of the ground it lost during the recession. Compared to three years ago (2007), before the recession began, we had 26,100 fewer jobs in November, only 600 better than the same shortfall in May (26,700 jobs). The primary reason that the unemployment rate is lower now than it was in the spring is that fewer people are searching for work, not that unemployed workers have found jobs.

Pittsburgh is not unique in this stagnation. The U.S. as a whole had only 600,000 more jobs in November than it did in May, a long way from restoring the more than 7 million jobs it has lost since November, 2007. However, our region ranked only 26th among the top 40 regions – well below average – in the rate of private sector job growth between May and November.

There’s one bit of good news in this otherwise gloomy report, though. The biggest progress we’ve made in the past six months has been in the place we’ve most needed it – manufacturing. In November, there were 1,200 more manufacturing jobs in the Pittsburgh Region than in May, a 1.4% increase. In fact, we’ve had the 10th fastest growth in manufacturing jobs among the top 40 regions between May and November. We still have 13,900 fewer manufacturing jobs than we did 3 years ago, but the fact that manufacturing has been slowly adding jobs throughout the summer and fall is very good news.

Thank Seniors for Helping Us Get Through the Recession

2010-12-05T08:17:00.003-05:00

The next time you see a senior citizen, thank them for being one of the primary forces supporting our economy through the recent recession. Had it not been for our seniors, unemployment rates in the Pittsburgh Region would likely be much higher today than they actually are.

How have seniors played such a key economic role? More than 1 out of every 6 residents (17.3%) of the Pittsburgh Region is over 65 years old, the largest proportion of any major region in the country. Social Security payments for retired seniors were increased in 2009 while salaries for workers were being reduced or eliminated, and seniors retained generous health benefits through Medicare while many private businesses were reducing health insurance coverage for workers. When our seniors spend their retirement income in stores, in restaurants, on entertainment, etc. they support thousands of jobs in our region, and providing health and personal care services to seniors creates jobs for thousands of additional workers here.

Spending by and for seniors is a big part of our economy. More than one out of every five dollars (21.2%) of personal income in the Pittsburgh Region now comes from “transfer payments,” two-thirds of which are Social Security and Medicare. (Other transfer payments include private pensions, veterans’ benefits, Medicaid payments, and unemployment compensation.)

Due largely to the many seniors who live here, the Pittsburgh region derives more of its income from transfer payments than any other major region in the country. That made a big difference during the recession – while total personal income in most large regions dropped by at least a billion dollars from 2008 to 2009, Pittsburgh was one of only 5 major regions that actually saw a small increase in personal income in 2009. Workplace earnings and investment income in the Pittsburgh region decreased in 2009, so if it hadn’t been for our high and growing level of senior-driven transfer payments, there would likely have been even more job losses here.

On top of that, the extensive medical and personal care benefits provided to seniors helped make health care one of the few economic sectors which actually added jobs in southwestern Pennsylvania during the recession. Many hospitals in our region receive more than half of their revenues from Medicare, most nursing home revenues come from seniors, and at least one-fourth of physician revenues come from Medicare patients.

Although seniors have helped reduce the impact of the recession here compared to other regions, we can’t lean on them too heavily to keep supporting our economy in the future. Seniors are receiving no increase in Social Security benefits for either 2010 or 2011, and private retirement plans have become far less generous than in the past. As a result, it’s likely that a growing number of seniors will be keeping or competing for the jobs that younger workers want.

We also can’t keep relying on the healthcare system as our primary source of new jobs, because we simply can’t afford to keep paying the insurance premiums and taxes that are supporting all of those jobs. A growing number of public and private sector initiatives are being implemented to keep people healthier, provide care in less expensive settings, and improve the quality and efficiency of healthcare services. Although these initiatives will improve the quality of life for both seniors and younger individuals and will help make businesses in other sectors more competitive, they will also result in major changes in both the number and types of jobs in health care.

Thirty years ago, Pittsburgh learned the hard way what happens when a region ignores the fact that its economy is highly concentrated in a single sector, particularly when there are signs that the engines which drove its success in the past are weakening. Today, over 116,000 jobs – one-tenth of all jobs in the Pittsburgh region – are in hospitals, outpatient clinics, and doctors’ offices. That’s both more jobs and a higher share of the region’s total employment than the steel industry represented in the 1970s. Consequently, even a small percentage reduction in healthcare jobs resulting from healthcare reform initiatives could have a significant impact on the region’s unemployment rate.

What should we do?

First, physicians, hospitals, and other healthcare providers need to be far more aggressive about redesigning their operations in order to deliver care as efficiently and effectively as possible. The Pittsburgh Regional Health Initiative (http://www.prhi.org/) has been working with a number of forward-thinking hospitals and physician practices to help them become leaders in the new era of accountable health care, but far more support is needed from health plans, businesses, and government.

Second, we need to focus on encouraging growth in the rest of our economy, particularly manufacturing, which has been the hardest hit during the recession. Creating a more competitive business climate, assisting entrepreneurs, and ensuring our schools produce an educated workforce should be top priorities for state and local leaders in 2011.

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

In the Doldrums

2010-11-27T10:55:00.003-05:00

No news is bad news when you’re hoping for a strong recovery from the recession, and there was essentially no news in the job growth data for Pittsburgh in October. At first glance, the news might appear good, because there were 5,000 more jobs in the region in October compared to September. But jobs always increase from September to October due to seasonal factors, and this year’s September-to-October growth was actually somewhat weak compared to prior years. Indeed, last year, in the depths of the recession, 6,200 jobs were added in the region in October, 20% more than this year.

In fact, throughout the summer of 2010, jobs in the Pittsburgh Region have been growing and declining in a fairly typical seasonal fashion, with no net growth to restore what we lost during the recession. Compared to three years ago (2007), before the recession began, we had 26,500 fewer jobs in October, almost exactly the same shortfall we had in May (26,700 jobs). We need to do better than that – a lot better – if we’re going to help the 90,000 individuals in the region who are still unemployed get back to a more normal life.

The challenge we face is even more starkly demonstrated by comparing job counts today to job counts over a decade ago. In October 2010, we had over 6,000 fewer jobs than in October 1999, and that shortfall has actually gotten worse, rather than better, over the course of 2010.

Over half of the jobs we’ve lost over the past three years have been in manufacturing. That’s a bigger share than most of the major regions in the country, where only a third or fewer of the jobs losses were in manufacturing.

This means that even if our other economic sectors begin growing at above-average rates, it will be years before we can return to pre-recession job levels if we don’t find a way to restore many of the 14,100 manufacturing jobs we’ve lost since October 2007. Moreover, job losses in manufacturing have a disproportionate impact on our economy because they are some of the highest-paid jobs in the region. Consequently, supporting the manufacturing sector needs to be a top priority for the new Administration in Harrisburg as well as for local leaders.

Our Children Aren’t Ready for the Jobs of the Future

2010-11-06T22:35:00.004-04:00

As the nation’s economy struggles to recover from the recession, how is our region doing in preparing children to compete for the jobs of the future?

Not very well, unfortunately. State test scores for 2010 show that over one-fourth (28%) of our 11th graders can’t read adequately and more than one-third (37%) aren’t proficient in mathematics. That means southwestern Pennsylvania schools are sending nearly 10,000 young people into the workforce every year without the minimum skills they need to compete for the jobs of the future.

It’s not just the high schools that are failing. The problem starts all the way back in elementary school. Nearly one-third (32%) of the fifth graders in the region can’t read at grade level, and nearly one-fourth (22%) aren’t proficient in math.

No business could survive if a third of its products were defective. Our region can’t expect to succeed, either, if 30% of our workforce lacks basic skills.

If you think this isn’t a problem in your local schools, think again. Only one high school in the entire region (Upper St. Clair) had 90% or more of its 11th graders proficient in both mathematics and reading, and only 11 of the region’s 319 elementary/middle schools had 90% or more of their 5th graders proficient in both mathematics and reading.

In fact, if we graded schools the way they grade kids, more than half of the elementary schools in the region would get a “D,” “E,” or “F,” and nearly three-fourths of the high schools would get a “D” or worse. (If you’d like to see your local schools’ grades, go to www.pittsburghfuture.com/schoolgrades.html.)

Although news media tend to focus on the Pittsburgh Public Schools because of its size, fewer than 10% of the non-proficient students in the region are from the City of Pittsburgh. Most of the problem is in the other 123 school districts, and we won’t have a competitive workforce unless every school district improves.

The problem is getting worse, not better. Fewer than one-fourth of the elementary schools in the region improved student proficiency in both reading and math between 2009 and 2010, while one-third did worse on both reading and math proficiency.

Wait a minute, though – didn’t the state Department of Education say that most schools were making “adequate yearly progress” (AYP) according to federal standards? Yes, but AYP is not a standard that any school should be proud to achieve. A school can have over a third of its students (37%) failing in reading and nearly half (44%) failing in math and still be labeled as making “adequate yearly progress” under federal standards. (See http://paayp.emetric.net/ for more information.)

As bad as the overall performance of our education system is, it’s far worse for African-American students. In 2010, over half (59%) of the African-American 11th graders couldn’t read adequately, and more than two-thirds (70%) weren’t proficient in math. Here again, this is not just a City of Pittsburgh problem – two-thirds of the non-proficient African American students are in high schools outside of the City of Pittsburgh.

Educators often claim that low proficiency scores should be excused in schools that have large numbers of economically disadvantaged students or disabled children. But in the majority of schools, 25% or more of the non-disadvantaged, non-disabled 5th graders can’t read adequately, and 20% or more aren’t proficient in math.

The problem isn’t lack of money. Some of the best performing schools in the region are in districts that spend below-average amounts. For example, in the Beaver Area School District, more than 90% of the fifth graders were proficient in both reading and mathematics (the best performance in the region), but the district spent only $6,260 per student in 2008-09, 16% below the regional average. In contrast, in the Quaker Valley School District, which spent $10,734 per student (the highest spending in the region and 44% higher than the regional average), only 78% of the 5th graders were proficient in reading.

It’s time to declare that “adequate yearly progress” isn’t adequate, and to demand that schools dramatically improve their students’ proficiency with the resources they already have. Although Presidents, Congressmen, Governors, and State Legislators all talk about improving education, it’s the more than 1,110 elected school board members in the region who actually control how nearly $5 billion in tax monies are spent to educate the 350,000 children in the region. Half of these school board members are up for election next year (2011). Typically, there is little competition for these positions, and most incumbents are re-elected. If you’re unhappy with your school district’s performance, now is the time to think about recruiting new candidates who are committed to dramatically improving performance. Information on how to run for a school board seat is available at www.psba.org/parents-public/board-candidates/how-to-run.asp.

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

Dead Calm

2010-11-01T17:28:00.003-04:00

Job growth in the Pittsburgh region appears to have been on hiatus over the summer. After a couple of months of strong job growth in the spring, no real progress was made in rebuilding the region’s job base over the summer. In September, we had 2.5% fewer jobs than two years earlier (before the recessionary job losses began to hit here), exactly the same shortfall as we had in June.

Compared to other regions (using seasonally adjusted figures), our lackluster job performance over the summer is about average. Atlanta, Denver, Indianapolis, Milwaukee, Phoenix, and St. Louis added net jobs over the summer compared to seasonal norms, whereas Pittsburgh lost a little ground on that measure, although not as much as a number of regions in California did.

The net result of the job growth we experienced in the spring and the lack of significant change over the summer is that we had 7,000 more jobs in September than a year earlier (September, 2009). About half of the region’s industries added net jobs over the past twelve months, but the other half lost jobs, meaning that significant dislocations have continued to occur for many workers. The biggest job generator over the past year has been in the broad category of “administrative, support, waste management, and remediation,” which includes everything from janitorial services to temporary employment. There has also been a significant recovery in the retail sector; Pittsburgh has seen higher job growth in retail over the past year than most regions in the country, which is likely due to the fact that the region did not have the retail overbuilding that occurred in many areas of the country.

Although having 7,000 more jobs in the Pittsburgh Region than a year ago is progress, it’s far short of what we need to recover from the recession. There are still over 29,000 fewer jobs here than two years ago, so it’s not surprising that there are still over 30,000 more people unemployed than two years ago. Most of our industries continue to employ several thousand fewer workers than before the recession; the only exceptions are health care, higher education, mining, and the leisure and hospitality industries. Manufacturing remains the hardest hit, with 13,600 fewer jobs than two years ago. The only good news about manufacturing is that employment has been steady throughout 2010 – no gains, but no more losses. It will be extremely difficult for the region to recover if it cannot regain many of those manufacturing jobs.

Jumpstart Job Creation Through Startup Businesses

2010-10-03T06:26:00.002-04:00

After some very positive signs of recovery in the spring, job growth in the Pittsburgh Region has been stagnant during the summer. In August, we still had over 31,000 fewer jobs than we did in 2008, and 14,000 fewer jobs than we did in 1999. That’s bad news for the nearly 100,000 workers in the region who are unemployed.

Where should we look to jumpstart job growth here? Although conventional wisdom has held that small businesses are the principal engine of job growth in the U.S. economy, a recent study from the National Bureau of Economic Research indicates that the biggest contributor to net job growth isn’t small businesses, but new businesses, i.e., entrepreneurial startup firms. Business startups accounted for all of the net new jobs created in the U.S. between 1980 and 2005.

That doesn’t mean that older and larger firms don’t create new jobs – they do, but they also eliminate jobs through layoffs, plant closings, bankruptcies, etc. The study says that in the absence of startup firms, job creation and job destruction by other firms would result in no net job growth.

Although Pittsburgh was once one of the most entrepreneurial places in the country, in recent years it has become one of the least. Data from PittsburghToday show that the Pittsburgh region has one of the lowest rates of startup businesses compared to other regions, and a smaller percentage of our jobs are in young firms than other comparable regions. This may also explain why, as described in a previous post, Pittsburgh has fewer jobs in key technology sectors than most regions in the country.

Pittsburgh also has a weak reputation as a home for entrepreneurs. Pittsburgh ranked 60th in Fortune Small Business magazine’s 2008 “Best Places to Live and Launch a Business” and ranked 48th out of 50 large cities on Entrepreneur magazine’s “2006 Hot Cities for Entrepreneurs” list.

What is needed to make Pittsburgh one of the top regions in the country for startup companies, and how can you help?

First, we need to encourage cutting-edge research and development, since every successful startup starts with a good idea. We already have a wealth of innovative ideas being generated at our universities, thanks to nearly a billion dollars in research each year. But the universities need your help to build their endowments so they have adequate facilities and personnel to support that research.

Second, we need to encourage talented university students and faculty to turn that research into commercializable products. For example, Project Olympus at Carnegie Mellon helps students and faculty explore the commercial potential of their research. However, this innovative and valuable program has no long-term source of funding and could have a much bigger impact with more resources. You could help by making a contribution to support it.

Third, we need to provide technical assistance and seed funding to entrepreneurs, particularly those with products and services in high-growth sectors like advanced materials, energy, information technology, and medical devices. Thanks to Innovation Works, we already have one of the best overall programs in the country for supporting technology-based startups. But it is overly dependent on state government funding, and it’s currently facing significant cutbacks due to the state budget deficit. You could help sustain it by making a tax-deductible contribution to its operating budget.

Fourth, we need to invest in the startup firms themselves so they have adequate capital to grow. The most critical need is “angel investors” – high net-worth individuals making investments of $25,000 to $250,000 early in a startup company’s growth. The Pittsburgh Region is fortunate to have BlueTree Allied Angels, a professionally-managed angel network, but BlueTree needs more angel investors to join its ranks, The next governor could help by creating a tax credit program for angel investors in Pennsylvania similar to what Ohio and a number of other states have.

Finally, we need to buy the products and services those startup firms produce. A company can’t be successful without customers, and many local startups have been forced to go outside the region to find their first customer. You can help by looking at the BlueTree and Innovation Works websites to identify startup companies with products or services you could use.

We have a good foundation to be one of the most startup-friendly regions in the country. But current programs need to be significantly expanded, and we need a more aggressive effort by public officials and regional economic development agencies to tell prospective entrepreneurs that Pittsburgh is committed to helping their companies be successful here.

(A version of this post appeared as the Regional Insights column in the Sunday, October 3, 2010 Pittsburgh Post Gazette.)

Tech Businesses Are a Small But Important Piece of the Region’s Economy

2010-09-05T08:09:00.003-04:00

For many years, the Pittsburgh Region has been working to grow technology businesses and jobs here, and we’ve had a number of major successes to celebrate. But how big a role do technology businesses actually play in our economy now, and how does our technology sector compare to other regions?

It’s actually quite hard to define and measure the “technology sector.” Some people use very broad definitions which include almost any business that uses sophisticated technologies to deliver products and services, ranging from steel mills to hospitals. But when most people think of “technology businesses,” they’re thinking of businesses that primarily deliver cutting-edge products or services such as new drugs, medical devices, or sophisticated computer equipment and software.

Although it’s difficult to obtain job creation data for many of these more narrowly defined technology businesses, data from the U.S. Bureau of Labor Statistics are available on four types of technology industries which the region has been working to grow for some time. Two represent the core of the life sciences sector: pharmaceutical and medicine manufacturing, and medical equipment and supplies manufacturing; two represent the core of the information technology (IT) area: computer and electronic product manufacturing, and computer systems design.

In 2009, these four industries employed just over 20,000 workers in the Pittsburgh metro area. That’s a lot of jobs, but a relatively small part of the economy – only about 2% of the total private sector jobs in the region. They are, however, very high-paying jobs; average annual pay is around $60,000 in the first three industries, and it’s around $77,000 in the computer systems design industry. That’s significantly higher than the $44,000 that the average private sector worker in the region makes.

These businesses are typically quite small. Those 20,000 workers are employed by over 1,150 separate businesses, i.e., there are fewer than 20 workers per firm on average. The computer services businesses are the smallest – an average of 10 employees per firm – while the medical equipment and supplies firms have an average of over 30 employees per firm. The small size of the firms is partly a result of the relative youth of these sectors in the Pittsburgh region, but also reflects the fact that cutting-edge products are most often developed by entrepreneurs in small startup firms.

Despite two decades of regional efforts to grow the information technology and life sciences sectors, Pittsburgh is still not among the top 10 regions in the country in employment in any of these four industries.

The largest of the four is computer systems design; our region had over 800 firms employing over 8,400 workers in 2009, but 28 of the 36 large regions for which data are available had more jobs in that sector than Pittsburgh did, including both Columbus and Cleveland.

Close behind in terms of jobs is computer and electronic product manufacturing; we had 150 firms employing over 8,100 workers in 2009, but half of the 32 large regions for which data are available had more jobs in that sector than we did, including places like Baltimore and Milwaukee.

The medical equipment and supplies industry is smaller than the others – 108 firms employing over 3,400 workers in 2009 – and at least 13 regions have more jobs than that, including Denver and Indianapolis.

The pharmaceutical industry is extremely small here – only 7 firms employing about 300 people, fewer than most regions in the country.

How did the technology sector fare during the recession? The computer systems design industry actually added over 700 jobs, a 10% increase. However, the other three sectors lost a combined total of over 1,600 jobs between the end of 2007 and the end of 2009, more than offsetting the gains in computer systems design jobs. In addition to losing jobs, we also lost 5 medical equipment companies and 3 computer and electronic product manufacturing companies, which will make it particularly difficult to get those jobs back during the recovery.

The relatively small size of our IT and life sciences sectors means that we need to focus more attention on them, not less. In the future, opportunities for job creation will increasingly come from businesses in these and other technology sectors. In fact, the medical equipment and computer products sectors now represent more than one out of every 8 jobs (13%) in our region’s shrinking manufacturing sector.

We have a rich resource of cutting-edge ideas in both IT and life sciences at Carnegie Mellon, Pitt, and UPMC, but we need to work harder to ensure adequate startup capital, technical assistance, facilities, workers, and ongoing financing to enable entrepreneurs to turn those ideas into successful and growing companies.

(A version of this post appeared as the Regional Insights column in the Sunday, September 5, 2010 Pittsburgh Post-Gazette.)

Slipping into Mediocrity

2010-08-21T16:22:00.002-04:00

After hopeful signs earlier in the spring that Pittsburgh’s economy was recovering better than other regions, the most recent data suggest that we may be slipping into the type of mediocre growth we experienced in the years prior to the recession. Over the past 3 months, jobs in the Pittsburgh Region have been growing more slowly than many of our competitor regions in key sectors of the economy.

In July, there were 15,300 fewer jobs in the Pittsburgh region than a month earlier. Losing jobs in July is not itself a cause for concern; we experience a similar seasonal change every year due to summer layoffs in public and private schools and colleges. In fact, even losing 15,000 jobs in July is not unusual; we’ve seen reductions of 14,000 to 17,000 jobs every July for the past decade. But therein lies the problem – if we had been experiencing a significant recovery from the recession this year, we would have seen smaller job losses this July than what we typically see, because growth in other sectors would have offset the losses in the education sector.

To see this more clearly, take a look at Cleveland. In each of the years from 2006 and 2008, Cleveland lost 12,000 to 15,000 jobs between June and July, similar to the seasonal reductions in the Pittsburgh Region. But this year, Cleveland lost only 5,000 jobs in July, one-third as many as Pittsburgh lost, because of the growth it has been experiencing in sectors such as construction and manufacturing.

You can see what’s going on in terms of economic recovery more clearly if you just look at private sector jobs, since most of the seasonal losses occur in the public sector (local school districts). Looking at our neighbors on Lake Erie again, the number of private sector jobs in Cleveland increased by 500 in July, whereas the Pittsburgh Region had over 4,000 fewer private sector jobs in July.

In fact, Pittsburgh had the eleventh worst rate of private sector job growth between June and July among the largest 40 regions in the country. Cleveland and twelve other regions had a net increase in private sector jobs between June and July, whereas Pittsburgh lost private sector jobs during July.

The region has been experiencing more and more mediocre economic performance over the past several months. After having best-in-the-nation job growth in April, the region slipped backward in May, regained a bit of ground in June, but then slipped again in July. Cumulatively, between April and July, we’ve added 14,200 private sector jobs. That’s a higher rate of growth than the majority of large regions in the country have experienced, but it’s behind what a number of our competitor regions have achieved. Cleveland, which has a smaller economy than Pittsburgh, added 24,000 private sector jobs over the past 3 months, and Denver, with the same total number of jobs as Pittsburgh, added 28,000 private sector jobs during that time period.

Looking at individual sectors, job growth here has been above average among our benchmark regions in Leisure and Hospitality, Professional and Business Services, Retail Trade, and Other Services. However, we’ve lost jobs in Manufacturing and Transportation while most regions have added jobs.

The fact that we lost fewer jobs during the recession means that even if we continue to have only modest growth for several months, we’ll still be better off than most regions in terms of total jobs lost since the recession began. However, with over 100,000 people still unemployed in the region, we need better than average job growth if we’re going to significantly reduce unemployment. And if other regions continue to add significantly more jobs than we do over a longer period of time, ultimately workers may conclude there are more and better opportunities elsewhere than here.

Should We Really Care About Manufacturing?

2010-08-07T08:55:00.004-04:00

At Pittsblog, Mike Madison opines as follows on the importance of supporting manufacturing growth during the recovery:

"For a couple of reasons, I remain unpersuaded. One, I usually detect the aroma of nostalgia in almost any discussion of manufacturing in Pittsburgh. Not necessarily nostalgia for steel or for industrial manufacturing, but nostalgia for the idea that Pittsburgh is a place where people make things, and that making things is the right and best route to prosperity and security. That's an important story, but it's a story, rooted in a particular history.

Turn that story around (turn around the causal arrow, in other words), and that leads to the second reason. The idea that the service sector needs the manufacturing sector -- that the former is in some respects servient to the latter -- carries a hint of the nostalgic story, but that idea is also questionable on the merits. So, two, I wonder about the extent to which the regional services economy is really dependent on a flourishing local manufacturing economy. By employment and (I believe) by economic impact, the two largest sectors of the local services economy are medicine and higher education. I can't suggest that these have no dependency with respect to local manufacturing, but I have to suspect that the relationship is weak - and more important, that local manufacturing is now more dependent on eds and meds than the other way around.

Moreover, the services sector that I know best -- legal services -- is increasingly not dependent on demand from locally-based clients. Even in Pittsburgh, and perhaps especially for a regional market like Pittsburgh, the largest law firms are looking nationally and globally for legal work. And large law firms in other urban markets are starting to locate significant parts of their back office work in the broader Pittsburgh region -- in Wheeling and in southeastern Ohio. I find it difficult to escape the impression that measuring Pittsburgh's economy and economic recovery is complicated by its diminishing regional isolation.

I'm not down on manufacturing; a mixed economy is a strong economy. And an attractive climate for new and for growing businesses of all kinds should be a key feature of Pennsylvania's and Pittsburgh's public policy. But making things takes many forms, and increasingly Pittsburgh makes things of the intangible kind -- new ideas, inventions, arts, and technologies that make their ways into medical therapies and motion pictures, among other things. If the Commonwealth is going to design public policy to subsidize growth -- and that's where Harold Miller's argument is meant to take us -- how much of our policy resources should be weighted toward manufacturing, including high-tech manufacturing, and how much should be weighted toward other things?"

Mike's right in the sense that neither manufacturing nor anything else is a silver bullet for the region’s economy, nor should growing manufacturing be a single-minded focus for regional policy. However, the single biggest loss of jobs here during the recession was in manufacturing, so getting back to where we were means either (1) growing manufacturing jobs, or (2) growing jobs in other sectors to replace them.

The challenge in strategy #2 is that it’s not easy to grow jobs in the service sector that are equivalent to those in manufacturing. Most jobs in the service sector have much lower wage rates and benefit levels than those in manufacturing, so it’s not a one-for-one substitute. Moreover, the jobs in the service sector that do have high wages and benefits tend to require a lot more education than those in manufacturing. Manufacturing provides a lot of high-paying jobs for people who don’t have college degrees; in fact, one of the impediments to growing manufacturing nationally is the misimpression many parents and young people have is that the only way to get a really good job is to go to college. This doesn’t mean that manufacturing jobs are low-skill. Quite the contrary. What it means is that the skills are developed primarily through on-the-job-training, building on a solid ability to read and do math, rather than college degrees.

Another key advantage of manufacturing jobs is that they import revenue into the region. Most service sector jobs don’t do that. We are fortunate in the region to have a service sector that is far more national/global than most, but there is a limit to how much growth one can expect from these sectors that is truly export oriented. We have world-class higher education institutions that bring students (and their tuition payments) from all over the world, but does anybody really expect that Carnegie Mellon or Pitt are going to double in size in the near future? We have cutting-edge health care that attracts patients from other parts of the country and other parts of the world, but the vast majority of health care services are delivered to people who live here, and growing national attention to healthcare cost containment will fundamentally constrain growth in this sector. We’re almost as dependent today on health care as we were on steel 30 years ago. These sectors are wonderful to have during economic downturns, but we shouldn’t bet on dramatic growth from them during the recovery.

We do have law firms and architectural firms and other professional services firms that sell their services around the world, and in theory, their growth potential is unlimited. They aren’t heavily dependent on local manufacturing firms for their success today, but it’s important to note that many of these firms built their strength originally by serving manufacturing firms here, and their connection to the region weakens over time as less and less of their business originates here. Pittsburgh was once an ideal headquarters location for international service firms, due to its high quality of life and good transportation connections to the rest of the world. However, the loss of hub status for our airport has significantly diminished Pittsburgh’s advantages for headquarters operations of international professional service firms. So without a solid base of business here, what exactly will stop those firms from deciding they’ve had enough of multi-stop flights with inconvenient schedules, and shifting personnel to other cities that have better access to the rest of the world?

There’s an even stronger, hidden connection between manufacturing and service, though, that most people don’t appreciate. U.S. Steel employs a lot of people in its headquarters operations here, but they aren’t called “manufacturing” jobs in the official statistics anymore, they’re called “management of companies” jobs and they show up in the service sector. U.S. Steel’s research facilities are called “scientific and technical” jobs and they show up in the service sector. Ditto with manufacturing firms like Allegheny Technologies, Medrad, Mine Safety Appliances, etc. How long will all of those jobs stay in the region if the actual manufacturing jobs leave? Most companies want to keep their R&D facilities close to their manufacturing plants, and it’s much easier for a company to move its headquarters if it no longer has manufacturing plants nearby. We’ve been lucky to keep the headquarters and R&D facilities for companies like Alcoa, Heinz, and PPG despite the loss of their manufacturing facilities, but they wouldn’t be here in the first place if they hadn’t been manufacturing things here at some point, and our chances of attracting the headquarters and R&D operations of firms that do their manufacturing in other regions is much lower than our chances of growing new ones by starting successful manufacturing firms here.

It would be one thing if the region were not well suited for manufacturing, and efforts to maintain or grow manufacturing were fundamentally counter to the business interests of those firms. But when you talk to manufacturing firms, you will find that they generally feel the region has many strengths for manufacturing – a good workforce, proximity to markets, etc. The biggest weakness of the region is its business climate – high taxes and an unfriendly regulatory climate, both at the state and local level. If you’re a manufacturing firm, you can locate anywhere you want, and there are other places that have the same strengths as we do, but dramatically lower weaknesses. The business climate can be changed, but only if the public demands that its elected officials do so.

So retaining and growing manufacturing isn’t a nostalgic fantasy, it’s a real opportunity that we’re choosing to lose due to lack of understanding and poor public leadership. Could the Pittsburgh Region survive as a manufacturing-free professional services economy? Perhaps, but that’s a little like saying, let’s put all of our money in the mutual fund that did the best over the past 5 years, and forget about diversifying our economy. Remember that while Pittsburgh had one of the smallest rates of job loss during the recession, it also had one of the smallest rates of job growth prior to the recession, and that’s because we haven’t created an environment that attracts and retains growth-oriented businesses like manufacturing.

How is Pittsburgh Faring in the Recovery?

2010-08-01T09:30:00.004-04:00

Now that the U.S. economy is slowly beginning to add jobs again, how is the Pittsburgh Region faring?

Although it’s still early in the recovery process, the signs so far indicate that we are doing better than most regions. However, we still have a long way to go, particularly in one key sector of our economy, and we need to work hard to make sure that unemployed residents of the region aren’t left behind.

Between February 2010 (when jobs nationally bottomed out) and June, the Pittsburgh Region has added 46,700 jobs. Although tens of thousands of jobs are added every spring due to normal seasonal hiring, the growth rate this spring was the highest the region has seen in the past 20 years. Moreover, the rate of job growth here was 60% higher than the U.S. as a whole, and it was the fourth highest among the top 40 regions. Because the Pittsburgh Region lost fewer jobs during the recession than other regions, even average growth during the recovery will keep us ahead of them, and the above average growth we’ve been experiencing will further widen our lead.

What has contributed to our strong recovery? The Leisure and Hospitality sector contributed over one-third of the new jobs this spring (16,100) and the Construction sector added almost one-fourth of the jobs (11,500); both of those increases are typical seasonal increases experienced in previous years, but are welcome nonetheless. The third largest contributor was Administrative and Support Services (which includes a diversity of jobs ranging from telemarketing to janitorial services and landscaping to temporary employment), which added over 6,000 jobs. And fourth was the Retail sector, which added 5,500 jobs, the biggest spring growth in the past two decades. The Pittsburgh Region’s growth in all four of those sectors ranked between 3rd and 7th best among the 40 largest regions in the country. Another strong performer was the Natural Resources and Mining sector; although it only added 500 jobs, that was more than any region other than Houston, likely reflecting the impact of Marcellus Shale drilling.

The biggest area of concern is the manufacturing sector. Manufacturers in the Pittsburgh region added only 500 jobs in the spring; although that’s good news after almost two straight years of job losses, it’s only a small fraction of the 14,000 manufacturing jobs we lost during the recession. Moreover, the rate of job growth in manufacturing here this spring was the 15th worst among the top 40 regions. In contrast, Cleveland added over 5,000 manufacturing jobs this spring, and both Cincinnati and St. Louis added nearly 4,000 manufacturing jobs.

Despite the job gains this spring, we still have a long way to go to recover all of the jobs we lost during the recession. As of June, we’ve recovered about one-fourth of the 37,600 jobs we had lost between February 2008 and February 2010; we still have over 28,000 fewer jobs than we did two years ago, and perhaps even more sobering, we have 5,000 fewer jobs today than we did over a decade ago in 1999.

Moreover, despite the growth in jobs in the spring, there were still over 105,000 people unemployed in the Pittsburgh Region in June. That’s 12,000 fewer than in February, but 40,000 more than two years ago. There are more people unemployed today than the number of jobs we’ve lost because some of the new jobs have been filled by people moving here from other parts of the country, and that in turn is because job creation has occurred in different sectors and in different companies within a sector than where jobs were lost.

What should we do to accelerate the region’s economic recovery?

• Because manufacturing jobs are among the highest-paid in the region and because manufacturing firms are a major source of income for many service firms, the slow growth we’re experiencing in the manufacturing sector is a serious concern. It is critical that state and local government leaders create a more competitive business climate to help existing manufacturers recover, and that private investors and economic development agencies provide the capital and technical assistance that entrepreneurs need to start and grow new manufacturing firms.

• Just because new jobs are created here does not mean that unemployed residents of the region will have the skills to fill them. Consequently, it is essential that job training programs focus on helping unemployed individuals develop the skills that employers in growth sectors need. Fortunately, regional organizations such as Three Rivers Clean Energy (www.3RiversCleanEnergy.org) have had major successes this year in attracting federal funding for training in energy-related occupations, and this type of aggressive action needs to continue.

(A version of this post appeared as the Regional Insights column in the Sunday, August 1, 2010 Pittsburgh Post-Gazette.)

A #1 Ranking We Should Be Ashamed Of

2010-07-04T08:33:00.003-04:00

The Pittsburgh Region has received many accolades over the past year for its high quality of life and the resilience of its economy. But our community is also #1 in the nation on an issue that should be a source of shame, not pride.

According to the U.S. Census Bureau, the Pittsburgh Region has the highest rate of poverty among working-age African Americans of any of the 40 largest metropolitan regions in the country. More than 1/4 (28%) of the region’s African Americans aged 18-64 lived in poverty in 2008. That’s twice as high as in regions such as Baltimore and Charlotte.

If you think that African American poverty is just a City of Pittsburgh problem, you’re wrong; fewer than half (46%) of the poor African Americans in the region live in the City; 37% of them live in the rest of Allegheny County, and 17% live in other counties in the region. In fact, the highest rate of poverty among African Americans in the region isn’t in the City of Pittsburgh, it’s in Lawrence County, where almost half (49%) of the African American residents are poor.

Even more shocking is that the Pittsburgh Region is #1 in the country in the rate of poverty among African American children under age 5. Nearly 2/3 (62%) of these youngsters lived in poverty here in 2008, more than double the percentage in regions as diverse as Atlanta and Boston, and quadruple the poverty rate for white children under age 5 in the Pittsburgh Region (14.6%).

A key reason that so many African American children here are poor is that over 80% of African American women who have babies are unmarried (compared to only 26% of white mothers). This is the highest rate among any of the 40 largest metro regions. Families headed by unmarried women (regardless of race), particularly those with preschool children, are far more likely to be poor because of the difficulty of working or finishing school while raising a small child. In fact, the poverty rate for children under age 5 (of any race) living with single mothers is 10 times as high as for those living in two-parent families (61% vs. 6%). The fact that more than three times as many African American children as white children are born to single parents here is a major reason that they are four times as likely to be poor. The high rate of single parenthood is also likely one of the reasons why nearly 2/3 (64%) of poor African Americans in southwestern Pennsylvania are women, a higher proportion than in most regions.

Not surprisingly, a major cause of high rates of poverty is unemployment, and even before the recession started in the Pittsburgh Region, 38% of working-age African Americans were either unemployed or out of the labor force, the second highest rate among major regions (Detroit is #1). But even the African Americans who are employed are disproportionately working in lower-wage jobs; in the Pittsburgh Region, 20% of African Americans working in full time positions make less than $20,000 per year, compared to only 11% of whites.

These high rates of poverty, unemployment, and underemployment existed here in 2008, before the economic recession hit. It’s likely that they’re even worse now, and the slow recovery from the recession will make it particularly challenging to lower them.

What can you do to help change the Pittsburgh Region’s worst-in-the-nation status on this issue?

Demand that your school district improve the skills of African American children. Pennsylvania System of School Assessment (PSSA) tests show that only 38% of the African American 11th graders in the region can read proficiently, and only 28% are proficient in math. Is it any wonder that young African Americans have trouble finding good jobs? This is not just a City of Pittsburgh problem; more than half of the non-proficient African American students in the region are in school districts outside of the City of Pittsburgh. For example, in suburban districts like Penn Hills and Gateway (Monroeville), only one-third of African American high school students were proficient in reading and math in 2009.

Support adequate, affordable public transit service to job centers. Census data show that over one-fourth (26%) of the African American workers in the Pittsburgh Region rely on public transportation to get to work. That’s the second highest proportion of any major region in the country (only New York is higher), and six times higher than the proportion of whites in our region who use public transit. Cutbacks in Port Authority transit service in Allegheny County and increased fares will likely have disproportionately negative impacts on the ability of African Americans to obtain and retain jobs.

Contribute to United Way programs that help lift African Americans out of poverty. The United Way agencies in the region have innovative and aggressive programs to prevent youth violence, help single mothers, and assist unemployed workers, but they need contributions from every citizen in the community to adequately support these efforts.

(A version of this post appeared as the Regional Insights column in the Sunday, July 4, 2010 Pittsburgh Post-Gazette.)

Two Steps Forward, Then One Step Back

2010-06-19T18:03:00.005-04:00

May statistics on jobs throw a bit of cold water on hopes that a strong economic recovery is underway in the Pittsburgh Region. After two straight months of improvement in March and April, including #1-in-the-nation growth in April, job creation in the Pittsburgh Region retreated in May.

The fact that May represented bad economic news for the region won’t be immediately obvious from the way the state releases job information or the way that the news media typically report statistics. What you’ll likely hear trumpeted is the fact that there were 10,000 more jobs in the region in May than there were in April. However, there are always about that many more jobs in May than in April due to seasonal factors, particularly hiring in the construction and leisure and hospitality sectors. Even last year, in the depths of the recession, the Pittsburgh region added 9,000 jobs in May.

So even though the Pittsburgh region added 10,000 jobs this year between April and May, compared to pre-recession job levels, the region was actually worse off in May than in April. In March 2010, our region had 35,600 fewer jobs (3.1%) than in March 2008; in April 2010, we had 32,200 fewer jobs (2.8%) than in April 2008 (i.e., an improvement); but in May 2010, we fell back to having 33,800 fewer jobs (2.9%) than in May 2008.

You might think this was just a minor setback until you learn that over 25% of the jobs added in May were 2,800 temporary Federal jobs with the Census. In fact, the last time the region saw a large increase in Federal jobs in the spring was in May, 2000, i.e., during the last Census.

If you take out government jobs and just look at private sector jobs, 2010 had the smallest increase in private sector jobs between April and May since 2001, and the fifth smallest May job growth in the last 20 years. In percentage terms, we’re further behind 2008 than we were in January.

Why compare jobs in 2010 to 2008 rather than 2009? Because what we really want to know is the extent to which we’ve recovered the jobs we lost during the recession (which started in 2008), not just whether we’re doing better than we were in the depths of the recession (in 2009). If you compare the 12 month change in jobs in May vs. April, it looks like we’re doing better – in May 2010, we had 0.7% fewer private sector jobs than in May 2009, compared to 1.4% fewer private sector jobs in March 2010 vs. March 2009. But that doesn’t mean job growth was twice as high in May as in March; most of that difference is due to the fact that we were losing jobs between March 2008 and May 2010, i.e., the denominator decreased, rather than the numerator improving. You can always make yourself look better if you compare yourself to a point when you were doing particularly badly.

So how does Pittsburgh’s weak performance in May compare to other regions? In April, we were #1 in the country in month-to-month job growth. In May, we were only 14th among the top 40 regions. We weren't alone in that; many regions with high rates of job growth in April relative to their peers slowed down considerably in May, and many of those with low job growth rates in April improved considerably. In part, this demonstrates that month-to-month changes can be highly volatile and very dependent on local conditions.

If one looks over a multi-month period, Pittsburgh is doing above average among other regions. Between January and May, total jobs in the Pittsburgh Region increased by 3.35%, the fifth highest growth among the top 40 regions, and private sector jobs in the Pittsburgh Region increased by 3.1%, the sixth highest growth among the top 40 regions.

In fact, in almost all subsectors of the economy, the Pittsburgh Region has outperformed other regions on average so far this year. The only exceptions are manufacturing, the information sector (which consists of businesses such as newspapers, television and radio stations, internet providers, etc.), education and health services, and “other services.”

The biggest gap in terms of absolute numbers of jobs is in education and health services. Jobs in these sectors increased by only 0.2% (one-fifth of one percent) in the Pittsburgh Region between January and May, whereas they grew by an average of 1.6% -- 8 times as fast – in the other top 40 regions. If these sectors had grown here at the average rate they grew in other regions, we would have had over 3,000 more jobs here in May than we actually did.

This gap is a combination of two things. First, job growth in the health care sector here was modest compared to other regions – an 0.8% increase in jobs, compared to job growth that was more than twice as large in regions as diverse as Cincinnati, Dallas, and Denver. Second, the Pittsburgh Region actually lost jobs in the private education sector between January and May, one of only 3 regions to do so among the 21 regions that report job counts for this sector. This included a loss of 1800 jobs in colleges, universities, and professional schools.

These gaps help to make clear that some of the economic characteristics that helped the region lose fewer jobs during the recession could actually slow its recovery. The health care sector was the only sector that consistently added significant numbers of jobs nationally during the recession, and because so many of our region’s jobs are in health care, that “recession-proof” quality meant that we lost a smaller proportion of our total jobs than other regions. However, growth in the national economy after the recession does not automatically translate into larger growth in healthcare, particularly in a region that is not adding new residents.

Significant job creation in the post-recession economy is more likely to occur through growth in other sectors, particularly manufacturing. Consequently, supporting the manufacturing sector should remain a top priority for the region and the state if we are to going to recover all of the jobs we lost during the recession and add net new jobs to attract new residents.

Good Questions, Bad Analysis

2010-06-10T20:59:00.002-04:00

The Keystone Research Center released a report this week entitled Making Smarter State Investments: The Geographic Distribution of Business Subsidies in Pennsylvania, which purports to measure whether state economic development programs invest in the “right places.” The report has a remarkably simplistic definition of what “the right places” are – according to the report, if the money went to a business located in any city, borough, or first class township, it went to “the right place,” but if it went to a second class township, it went to the wrong place.

You might ask: “What is it that second class townships did to deserve being discriminated against in this way?”

For that matter, you might well ask, “what in the world is a second class township, anyway?”

What the report claims to be doing is measuring whether money went to “older Pennsylvania” vs. “outer townships.” It concludes that from 2003-2008, more business subsidies went to “older Pennsylvania” than between 1998 to 2003; the report declares this to be progress.

Unfortunately, rather than doing the careful and tedious work of trying to determine which communities are really older and which are newer, the authors used the same shortcut as the Brookings Institution did in an earlier report, namely, labeling all second class townships as “new” and everything else as “old.”

As a result, Seven Fields Borough, which was incorporated less than 30 years ago in 1983, is considered an “older area,” while Moon Township (one of the infamous second class townships), founded 220 years ago in 1788, is listed as a “newer” area.

So what exactly is a second class township? Is it inferior in some way to a first class township? No; the only real difference is that under state law, a township has to have a population density of at least 300 persons per square mile to be designated as a first class township. However, even if a township has more than 300 people per square mile, it can choose to remain a second class township, and many have. So, for example, South Fayette Township in Allegheny County, a first class township, had a population density of 603 people per square mile in 2000. Moon Township, a second class township, had a population density of 939 people per square mile in 2000. Yet the Keystone Research Center report claims that second class townships are the “less dense” townships in the state.

Even if the report had actually figured out what was really an “older” municipality, however, its basic approach is still fundamentally flawed in multiple ways:

What the report is presumably trying to get at is whether the state is reinvesting in already developed areas vs. contributing to sprawl. The fact that money was spent in a municipality that is older or denser than another tells you little or nothing about that, though. There are greenfield sites in older communities, and brownfield sites in newer communities (including many second class townships). The report doesn’t look at that, though; it implicitly assumes that everything in an “older” community is a brownfield site, but nothing in a “newer” municipality is.
The report looks only at three of the state’s many economic development programs (the Opportunity Grant Program, the Infrastructure Development Program, and the Pennsylvania Industrial Development Authority). In a footnote, the report acknowledges that these programs represent only 30% of the $300 million the state spends each year for “traditional subsidies” and only 10% of the state’s $1billion annual spending on economic and community development programs. It’s an even smaller share when you consider other state programs for highway construction and maintenance, transit construction and maintenance, water and sewer system construction and maintenance, etc. that aren’t considered “economic development.” The fact is, the report is only looking at a very small slice of where the state is spending money that affects business and community development, and it makes no more sense to draw conclusions about how “smart” the state’s investments are based on that than it would be to evaluate someone’s overall investment portfolio based on how much they have in their bank savings account.
The three programs that the report does look at are specifically designed to assist businesses in locating or expanding in the state. The report implies that somehow the state could decide where to spend the money, and businesses would have to follow. In fact, it’s exactly the opposite – a business is not going to locate in a community where it’s not economically viable to do so. In most cases, the state money that’s provided merely helps to offset the serious competitive disadvantages that the state has in terms of business climate (e.g., the second highest corporate net income tax rate in the country), topography (the near impossibility of finding flat land for a large business facility), or infrastructure (poor quality bridges, sewer systems, and water systems). It is rare that the 3 state programs examined in this report provide enough money to convince a business to locate in a completely different community. And if the money were restricted to being spent in “older” areas, it’s more likely that many of the businesses wouldn’t be in the state at all rather than relocating to the older areas that have inadequate infrastructure.

What the report should really be asking is two questions:

1. To what extent does the state’s investment in a project leverage existing infrastructure and past investments that state or local government have made? For example, it clearly makes economic sense to take advantage of the hundreds of millions of dollars that have been invested in Pittsburgh International Airport and the highways around it. One of the best examples of industrial reuse in the region is the Airside Business Park, which enabled new businesses to locate on the site of the old airport terminal. Yet any state assistance that was used to help businesses locate there would be viewed as a bad investment because Findlay and Moon Townships – where the airport is located – are both the second class townships that the report implicitly disparages.

2. Is the state helping businesses to locate at sites where the state’s workers can easily access them? Here again, the airport area is a perfect example – it sits at the crossroads of I-79 and I-376, enabling workers from Allegheny, Beaver, Butler, Greene, Lawrence, Mercer, and Washington Counties to easily access jobs. In fact, Allegheny, Beaver, and Washington Counties formed the Tri-County Airport Partnership in 2003 to jointly promote development of businesses in the airport area because it was such a strategic location for the region. Yet state investments in that area are viewed by the Keystone Research Center as being in the “wrong place.” The airport is not the only example – beginning in 1998, the region began working to develop new industrial sites and buildings to attract and retain manufacturing plants, and in most cases, the only locations with sufficient flat land and good transportation access for such plants are in so-called “outer” townships.

The above critique does not mean that the state’s investments have, in fact, been in the “right” places. Some have clearly not been, but poor state investments have been made in older communities as well as newer communities. Unfortunately, this flawed analysis wasn’t done smartly enough to provide any useful guidance as to what should be done differently to make investments “smarter” in the future.

Competing With Others, Rather Than Ourselves

2010-06-06T08:30:00.004-04:00

At long last, there are signs that our region is beginning to recover from the long recession. Thanks to over two decades of economic diversification, the Pittsburgh Region lost fewer jobs than most major regions last year, and the early signs of recovery are very positive: in April, we had the largest monthly job growth of any major region in the country.

However, we can’t take a strong recovery for granted. The fact that other regions suffered so much more than we did means they’ll be competing aggressively to attract new jobs. Despite the many accolades our region has received, we have a number of significant competitive weaknesses compared to other communities, such as high state business taxes, crumbling infrastructure, and a proliferation of municipalities and civic agencies.

Indeed, fragmentation and lack of coordination among governments and civic agencies is one of the major impediments to solving our other problems. We have over 1,000 different governmental entities in the region – more units of government per person than any region in the country. We have at least a dozen separate organizations focused on technology businesses, nine tourist promotion agencies, five workforce investment boards, and dozens of other agencies working on infrastructure issues. All too often, instead of working together to compete with other regions, we’ve fought among ourselves over who will get the biggest slice of a stagnant economic pie.

Yet this is fundamentally one economic region – 20-30% of the jobs in each county are filled by people who live in a different county in the region. We are only diversified on a regional basis; for example, most of the high-paying manufacturing jobs in the region are located outside of Allegheny County, but most of the higher education and health care jobs are in Allegheny County. Our communities have far less clout in Harrisburg and Washington speaking on their own than working together; the City of Pittsburgh is only the 60th largest municipality in the country, and Allegheny County is only the 30th largest county, but the Pittsburgh Region is the 22nd largest region in the nation.

Is it possible for such a fragmented region to work together? One of the best examples of multi-county, public-private partnerships that has existed here was the Southwestern Pennsylvania Growth Alliance, which was created in 1989. Through the Growth Alliance, county commissioners and business CEOs from each of the 10 counties in the region worked together to get state legislation to facilitate cleanup of old industrial sites and to have the federal Environmental Protection Agency force upwind states to stop sending air pollution to southwestern Pennsylvania.

In 1998, under the leadership of Armstrong County Commissioner James Scahill and Dietrich Industries Chairman William Dietrich, the Growth Alliance assembled the first-ever regional priority list of economic development projects. Most of the projects were for industrial site and building development, since a study commissioned by the Growth Alliance showed that the region did not have the infrastructure needed for business expansion. Elected officials and business executives from all 10 counties traveled to Harrisburg together to present the region’s priorities to Governor Ridge, and three months later, he provided over $60 million for capital projects in all 10 counties, 50% more funding than any other region of the state received that year. Subsequent rounds of public-private regional priority-setting more than tripled the funding coming to the region for major economic development projects. Those projects became homes for many of the manufacturing and technology jobs the region celebrates today.

Another outstanding example of regional cooperation was the creation of the Regional Enterprise Tower in 1998 when, under the leadership of Paul O’Neill, Alcoa generously donated its historic former headquarters building to the Southwestern Pennsylvania Commission (SPC) for use by non-profit agencies. The Regional Enterprise Tower has provided the opportunity for dozens of regional economic development and civic agencies to come together in the same building, facilitating informal coordination meetings, enabling small agencies to gain access to meeting rooms and high-speed internet access that they couldn’t otherwise afford, and creating a “one-stop” location for businesses and citizens seeking help.

Unfortunately, the Southwestern Pennsylvania Growth Alliance ceased to exist several years ago, even though our region’s needs for federal and state support have continued to grow. Some civic agencies have left the Regional Enterprise Tower, preferring to find “better” office space than to foster civic collaboration, and now SPC is putting the building up for sale.

If we’re going to address the major challenges facing our region – fixing our roads and bridges, keeping our rivers clean, growing new businesses, and training our children for the jobs those businesses create – our elected officials, business leaders, and civic agencies all need to work together. No one municipality, county, or agency can do it alone.

And if we’re going to get state and federal help in addressing our challenges, the public and private leaders from the entire region need to once again create a regional list of investment priorities and advocate for them together. One of those priorities should be preserving and strengthening the Regional Enterprise Tower; another should be preparing a regional network of high-quality sites and buildings for business location and expansion; a third should be ensuring adequate capital for new startup businesses. Investing strategically now will ensure the region can successfully compete for job creation projects in the years ahead.

(A version of this post appeared as the Regional Insights column in the Sunday, June 6 Pittsburgh Post-Gazette.)

Pittsburgh Region is #1 in the Nation in Job Growth in April

2010-05-22T19:25:00.002-04:00

The Pittsburgh Region just achieved a new #1 national ranking: it had the largest percentage growth in private sector jobs of any large region in the country in April. The region added 17,800 total jobs, including 16,700 jobs in the private sector, between March and April. That’s a 1.6% increase, higher than any of the largest 40 regions in the country, higher than the state as a whole, and nearly twice as high as the nation.

Seasonal hiring in the spring means that jobs always increase from March to April; even in the midst of last year’s recession, there were more jobs in the Pittsburgh Region and the U.S. in April than in March. What is significant this year was how big the March-April increase was –more jobs were added in the Pittsburgh Region in April, both in absolute and percentage terms, than in any April in the past 15 years. Seasonal changes alone would have resulted in over 7,000 fewer jobs than we actually had.

Where did these jobs come from? The leading job creator by far was the construction industry, which had 5,600 more workers in April than in March. Construction jobs typically increase in the spring, but that has not been a foregone conclusion by any means this year. What is remarkable is that construction jobs increased here by 12% in April, a bigger increase than any region where construction jobs are measured separately, and triple the growth rate nationally in construction. Part of this is likely due to stimulus spending, but some of it is also likely due to a housing market that didn’t crash here the way it did in most other regions.

The second biggest job creator was the leisure and hospitality sector, which added 4,300 jobs in April. This, however, was just a normal seasonal change – the leisure and hospitality sector adds about 4,000 jobs every April.

The third biggest contributor was professional and business services, which added 3,700 jobs in April. This was an above average increase in this sector, but most of the increase came from the “administrative and support services” subsector, which includes a wide range of jobs, from telemarketing to janitorial services and landscaping to temporary employment. Detailed data aren’t available for Pittsburgh, but national data suggest that the biggest sources of hiring have been in building-related services such as janitorial and landscaping services.

The primary explanation for our unusually high growth compared to other regions was simply that almost every economic sector in the region added jobs. Only two major sectors lost jobs in March – financial services and transportation and warehousing.

Even our manufacturing sector added 100 jobs, the second month in nearly two years that it has added, instead of cutting, jobs. Compared to other regions, our manufacturing performance was in the middle; 19 of the top 40 regions had bigger percentage increases in manufacturing jobs than we did, but 16 regions lost manufacturing jobs between March and April.

Does the large growth in April mean the region is finally on its way out of the recession? It’s still too early to say for sure, but April represented the first time in two years that the region has seen two consecutive months of job growth above seasonal norms. Two months does not make much of a trend, but it’s certainly better than we’ve seen so far.

However, it’s important to recognize that the jobs created in April, while large in historical terms and large relative to other regions, added back only a small portion of the jobs that were lost during the recession. The Pittsburgh Region still has 32,500 fewer jobs than it did two years ago, and 7,000 fewer jobs than it did over a decade ago in 1999. We’ll need many more Aprils before every worker who lost their job over the past two years can find stable employment here again.

Paying for Value in Health Care, Not Volume

2010-05-02T07:28:00.005-04:00

The new federal health reform law will address many of the most serious problems people have in obtaining health insurance. However, we may not be able to afford the law in the long run if we don’t solve the problem of high and growing healthcare costs. Controlling health care costs can't be done through federal policy -- it has to be done at the local level, where health care is delivered.

Although many people have been led to believe that the only way to reduce health care costs is through rationing care, there are at least three major ways to reduce health care spending without any rationing at all:

1. Keeping People Well. The best way to reduce health care costs is to prevent health problems from occurring in the first place. Unfortunately, regional indicators on PittsburghToday (www.pittsburghtoday.org) show that Southwestern Pennsylvanians have worse than average rates of diabetes, obesity, smoking, and other problematic conditions which will lead to higher-than-average healthcare costs here in the future.

2. Preventing Unnecessary Hospitalizations. Once people develop a chronic disease such as asthma, diabetes, congestive heart failure, or emphysema, effective healthcare services can help them manage their condition and stay out of the hospital. Yet the Pittsburgh Region has the third highest rate of preventable hospitalizations in the country, more than twice as many as in some regions, dramatically increasing healthcare spending here.

3. Improving Hospital Outcomes. Nearly 1 out of every 50 people who are hospitalized in the Pittsburgh Region gets an infection while in the hospital, and nearly 1 out of every 5 patients has to be readmitted to the hospital within 30 days after discharge. Most of these infections and readmissions are preventable, and not only are they hurting patients, they’re costing businesses and taxpayers hundreds of millions of dollars in unnecessary spending each year.

The single biggest barrier to improving health, reducing hospitalizations, and improving outcomes is the way we pay for healthcare services today:

• Physicians, hospitals, and other healthcare providers are paid based on how many services they deliver, not on the quality of those services or their effectiveness in improving a patient’s health. Under today’s payment systems, doctors lose money if their patients stay healthy.

• Physicians and hospitals make more money if their patients get infections or are readmitted after discharge. Under today’s payment systems, reducing infections, complications, and readmissions can actually make it harder for a hospital to balance its budget.

• Many valuable preventive care and care coordination services are not paid for adequately (or at all), which can result in unnecessary illnesses and treatments. Today, health plans pay any time someone needs to be hospitalized, but don’t pay for many things that will help people avoid the need for hospital care, such as nurse care managers in primary care practices, or phone calls with physicians when patients are having problems.

• Primary care physicians – the doctors that can help you stay well and out of the hospital – are paid far less than any of the specialists who treat illnesses after they’ve occurred.

Fortunately, there are better ways to pay for health care (you can learn more about them at www.paymentreform.org). Two major types of payment reforms are being used in other parts of the country:

1. Episode-of-Care Payment, i.e., paying a single price for all of the services needed by a patient when they enter the hospital. In effect, the hospital and doctors are providing a “limited warranty” on their services, the way every other industry does. Impossible? The Geisinger Health System in Central Pennsylvania now offers “ProvenCare,” a 90-day warranty on heart surgery, orthopedic surgery, maternity care, and other services, and it has dramatically improved the quality and efficiency of its services as a result.

2. Comprehensive Care Payment (sometimes called “global payment”), i.e., paying a single price for all of the care that a patient with a specific healthcare condition needs during the course of a year, with bonuses/penalties based on the quality of care that’s delivered. This rewards doctors for keeping their patients well and out of the hospital, rather than penalizing them as today’s payment systems do. Blue Cross Blue Shield of Massachusetts is paying a growing number of healthcare providers this way as part of its “Alternative Quality Contract.”

Increasingly, those communities which can offer health care that is both high-quality and affordable will become magnets for job creation and new residents. If the Pittsburgh Region is going to be economically competitive in the future, it needs to take bold action to change the way it pays for and delivers health care.

Employers and citizens can help by choosing health plans that pay doctors and hospitals based on value, not volume, and by supporting the efforts of the Pittsburgh Regional Health Initiative (www.PRHI.org) to improve the quality and efficiency of healthcare services in the region.

(A version of this post appeared as the Regional Insights column in the Sunday, May 2, 2010 Pittsburgh Post-Gazette.)

An Idling Economy

2010-04-18T20:20:00.004-04:00

New data on the number of jobs in March suggest that the Pittsburgh Region’s economy is still traveling in the slow lane, while some other regions have started to accelerate on the road to recovery. After a significant dip from January to February, jobs increased here in March by almost 10,000, but that's not really good news -- jobs always increase in March due to seasonal factors. Although 10,000 jobs is a lot, that was fairly typical of the seasonal increase in jobs we experience in most years between February and March. And experiencing a typical seasonal change means that there is little sign of a strong recovery pushing through.

In fact, for five straight months, the number of jobs here has been consistently between 34,000 and 37,000 lower than in the same month two years earlier (before the effects of the national recession began to kick in). It now seems clear that the small bit of non-seasonal job growth that appeared in a couple of those months was more likely random variation than any true indication that a significant recovery was getting underway, since the job gains one month disappeared the following month. Similarly, the job losses in other months, such as February, also seem to be just temporary fluctuations.

Compared to the rest of the country, our performance over the past few months has been about average. The country as a whole is also still idling in terms of job creation. We’re doing a little worse than average on private sector jobs, however – our economy is being disproportionately supported by growth in government jobs. A number of major regions have started to see more significant acceleration in private sector job creation than we have.

Although our overall 34,000-37,000 job loss isn’t improving the way we’d like, it’s still the envy of most other major regions. In percentage terms, we’re 3.1% below where we were 2 years ago, while 36 of the top 40 regions lost a bigger share of their jobs during that period. So even if other regions start growing significantly faster than we do, it will take them a long time just to get back to the lower level of losses that we’ve experienced.

Nonetheless, we have to be concerned about how to get job creation underway here if we’re going to reduce the unemployment rate, which was almost 10% in February. Some of our industry sectors are doing better than other regions, while others are doing worse. For example, we had over 2,000 more construction jobs here in March than in January, the largest increase of any region that reports construction jobs separately. Conversely, we were one of only 5 of the top 40 regions to actually lose jobs in the healthcare and social assistance sector between January and March. Although the loss was relatively small (100 jobs), other regions added hundreds or even thousands of jobs in healthcare over the past few months, which has helped offset losses they’ve experienced in other sectors. What was at one point our only growing sector has now also fallen into the loss side of the ledger.

Our biggest focus needs to be on manufacturing, since over the past two years, our region has lost twice as many manufacturing jobs as in any other sector, and 40% of all the jobs we lost in the past two years were in the manufacturing sector. Moreover, the loss of high wage jobs in manufacturing has likely contributed to job losses and slow recovery in other sectors. Here, March brought a little good news – after 20 straight months of job losses in manufacturing, the preliminary data suggest that we added 200 manufacturing jobs between January and March, while 14 of the top 40 regions lost manufacturing jobs during that period. However, that 200 jobs is only 1% of the 13,900 manufacturing jobs we’ve lost in the past two years, so we have a long way to go to rebuild our manufacturing base.

Saving Manufacturing in the Pittsburgh Region

2010-04-04T08:53:00.004-04:00

As a result of the national recession, the Pittsburgh Region lost 28,600 jobs between 2008 and 2009. Although that’s terrible news, what’s even worse is that more than a third (35%) of all the jobs we lost were in the manufacturing sector. In fact, manufacturing accounted for a bigger share of total job losses here than in all but three of the top 40 regions in the country. (Even in Detroit, only 32% of the lost jobs were in manufacturing.)

Our region lost nearly 10,000 manufacturing jobs in a single year, or more than 10% of the 98,400 manufacturing jobs that were here in 2008. Because manufacturing jobs are among the highest paid in the region, the impact on regional income was even bigger: 50% of the wage income that Pittsburgh region families lost between 2008 and 2009 was due to manufacturing job losses.

The impact of losing manufacturing jobs goes well beyond the production workers who are directly affected. Many of the region’s professional and business services jobs are in firms which provide services to manufacturing firms, and a lot of health care, retail, arts, and other jobs in the region depend on the spending by manufacturing employees. This means that our loss of manufacturing jobs has probably contributed to many of the job losses we’ve experienced in non-manufacturing sectors.

What kinds of manufacturing jobs did we lose? Two-thirds (6,800) of all manufacturing job losses, and nearly one-fourth of all the jobs we lost in the recession, were in five traditional manufacturing subsectors – primary metals (i.e., the steel industry), fabricated metal products (e.g., machine shops), machinery manufacturing (e.g., tool and die manufacturers), chemicals, and “non-metallic minerals” (i.e., glass and cement/concrete).

It’s not that these industries were unusually hard hit in Pittsburgh; in fact, they lost a smaller proportion of their jobs here than in many other regions. Rather, those five traditional sectors still represent 46,000 jobs, more than half (54%) of all the manufacturing employment here, so the job losses they did experience had a disproportionate impact on our overall economy. Pittsburgh has a higher concentration of manufacturing jobs in these five sectors than any large region in the country except for Houston. (If you thought the steel industry was gone from southwestern Pennsylvania, think again: 1 of every 7 manufacturing jobs in southwestern Pennsylvania is still in the steel industry, with many more in businesses that supply the steel industry.) In contrast, 50% of the manufacturing jobs in Seattle are in the transportation equipment industry, and 68% of the manufacturing workers in Silicon Valley produce computer and electronic products.

What about manufacturers of high-technology products? In our region, companies that make computer and electronic products, electrical equipment, and medical equipment and supplies employ over 14,000 people, or 17% of all manufacturing jobs in the region. These businesses lost over 700 jobs (5%) between 2008 and 2009, but this was less than half the rate of job loss in other manufacturing sectors, demonstrating the value of diversifying our manufacturing sector into information technology and life sciences.

Fortunately, although we lost a lot of manufacturing jobs, we didn’t lose nearly as many manufacturing businesses. Although 76 manufacturing plants closed between 2008 and 2009, that was fewer than 3% of the nearly 3,000 manufacturing facilities that were here in 2008.

The fact that most of our manufacturing businesses are still here provides hope that we can recover many of the manufacturing jobs we lost when the economy turns around. We can’t take that for granted, however. If we want to remain a major manufacturing center, public and private sector leaders need to help existing manufacturing businesses grow and also work to further diversify our manufacturing sector by encouraging more new technology startups. Here are five areas for priority attention:

•More investors are needed to provide early-stage capital and technical assistance so that entrepreneurs can start and grow new manufacturing firms;

•Banks need to increase lending to existing firms so they can recall workers and take advantage of business opportunities as the national economy improves;

•High school students need to pursue manufacturing as a career choice so that manufacturers can find skilled workers when they need them;

•Citizens need to support local government investments in the roads, water and sewer systems, industrial sites, and other infrastructure needed by existing and new manufacturers; and

•The Governor and General Assembly need to cut the state’s Corporate Net Income tax and resist expanding the sales tax, so manufacturers here can be as competitive as possible with businesses in other parts of the country.

(A shorter version of this post appeared as the Regional Insights column in the April 4, 2010 Pittsburgh Post-Gazette.)

Potholes on the Road to Economic Recovery

2010-03-28T09:07:00.005-04:00

Like Pittsburgh drivers dodging potholes on their way to work, occasionally hitting one that causes some damage, the Pittsburgh Region’s economy hit a pretty big pothole last month on its road to economic recovery. The region lost 5,200 private sector jobs between January and February, which is the second biggest private sector job loss between those two months in the past two decades.

The job loss was so big that it gave Pittsburgh the second worst private sector job performance in the past month among the top 40 regions, losing jobs when the majority of regions and the U.S. as a whole actually added net new jobs.

Total jobs in the region declined, but not quite as badly, however, because of the addition of nearly 3,000 government jobs in February, two-thirds of which were state government jobs (which includes state universities). Some of this is likely a result of the federal stimulus spending, although the Pittsburgh Region saw the third highest increase in state government employment among the top 40 regions.

Combining both private and public sector jobs, the region had 2,300 fewer jobs in February than in January, making Pittsburgh one of only 8 regions among the top 40 that had a net loss in total non-farm jobs between the two months. Moreover, revised figures for January show that we lost 700 more jobs that month than the preliminary data released a couple of weeks ago had indicated.

Although it had appeared that regional job losses had peaked in December at 36,700, February now holds the record – we had 38,800 fewer jobs in February 2010 than two years earlier (February 2008), just before the national recession hit. The loss of jobs was so big that it wiped out more than a decade of job growth here – the region now has 10,000 fewer jobs than it did in February 1999.

What caused the big job loss here in February? Although the biggest contributor was the loss of 2,700 retail jobs, that’s a typical seasonal change between January and February. What was far from typical was the loss of 900 jobs in the health care and social services sector, one of the few times in the past 20 years that health care jobs haven’t increased and one of the largest monthly losses during that period. An even bigger negative was the leisure and hospitality sector, which lost 1,300 jobs, the largest January-February job loss in two decades, and the second-largest decrease among the top 40 regions.

At the other end of the spectrum, higher education was the only non-governmental sector that added jobs. Although the number was large – 2,300 jobs – that’s actually a pretty typical seasonal change for February, and the increase was below average compared to other regions around the country.

The total number of manufacturing jobs in the region didn’t increase or decline in February, but that’s actually pretty good news after 19 consecutive months of job losses. Some manufacturing subsectors grew slightly, but others declined.

So unfortunately, despite hopes that the Pittsburgh Region was finally on the road to economic recovery, the road is pretty rough and at the moment, we’re losing ground rather than making progress. We’re still better off than many other regions – although 38,800 jobs lost is a lot, it represents 3.4% of the jobs that were here two years ago, and that’s the fifth smallest loss among the top 40 regions. But unless we start to see more private sector job creation here soon, the regions that have begun growing again will keep narrowing that gap and ultimately leave us behind, as they have in the past.

Thirty Years Later, the Steel Industry Still Has a Major Impact on Our Economy

2010-03-14T09:41:00.002-04:00

Revised data issued last week on the number of jobs in the region reveal that the recession hit the Pittsburgh Region somewhat harder than originally thought. Instead of a peak job loss from December 2007 to December 2009 of 33,600, the number was actually almost 10% higher – 36,700. The health care sector added fewer jobs than earlier estimates indicated, while higher education added more, but it remained the case that those two sectors were the only major job generators during the year. Professional and business services lost significantly more jobs than originally believed as did both construction and manufacturing. Leisure and hospitality lost significantly fewer jobs than earlier data indicated, as did the financial sector.

One thing that didn’t change was the fact that the biggest loss of jobs by far occurred in the manufacturing sector. Nearly half (46%) of the jobs lost here between 2007 and 2009 were in the manufacturing sector. In fact, manufacturing represented a bigger share of private sector job losses in the Pittsburgh Region than any major region in the country other than Austin, Texas.

Why have we lost so many manufacturing jobs? A key reason is the kind of manufacturing jobs we have in the region. Although many people believe that the steel industry is “gone,” the fact is that the steel industry is still a major part of the region’s economy. In 2007, over 14,000 jobs in the Pittsburgh Region were in primary metals manufacturing, which includes steel mills and steel manufacturing. That’s one of out every seven manufacturing jobs (14%), the highest percentage of any major region in the country.

An even larger number of manufacturing jobs in Pittsburgh have been in fabricated metal manufacturing – 16,000 jobs in 2007, or nearly 16% of all manufacturing jobs in the region. Another 11,400 jobs in 2007 were in machinery manufacturing. And finally, another 7,000 jobs were in “nonmetallic mineral product manufacturing,” which includes glass, bricks, and cement. The Pittsburgh Region has a higher concentration of its manufacturing jobs in each of these sectors than most regions in the country.

These four sectors, totaling nearly 50,000 jobs, represented almost half of all of the manufacturing jobs in the region in 2007. In fact, Pittsburgh has the highest concentration of manufacturing jobs in these sectors of any large region in the country. But nationally, most of these sectors suffered more than others during the recession. The Pittsburgh Region lost one-seventh of its jobs in these four sectors between 2007 and 2009, a total of 7,000 jobs, representing more than half of the region’s manufacturing job losses and more than a quarter of all the jobs lost in the Pittsburgh Region during the recession. How these four sectors fare during 2010 will have a major impact on the speed of recovery for the region as a whole.

Is there any good news on the horizon? Preliminary data for January indicate that jobs are finally starting to increase again in most industries. Although there were nearly 28,000 fewer jobs in the region in January than in December, that’s a seasonal phenomenon. There are significantly fewer jobs in January than December every year, even when the economy is growing. The good news is that the decrease from December to January this year was smaller than in prior years, which means that jobs are beginning to be added. Every industry sector improved or was stable with four exceptions: construction, manufacturing, utilities, and transportation and warehousing. Pittsburgh’s improvement was about average among major regions, but any improvement is a good way to start 2010 after the continuous stream of bad economic news throughout 2009.

State Tax Changes Would Hurt Economic Development

2010-03-07T07:07:00.003-05:00

Governor Rendell has proposed dramatic changes in two of the state’s primary sources of tax revenue – the sales tax and the corporate net income tax. Both changes are touted as making the tax system fairer, which is certainly a desirable goal. But would the Governor’s proposals make Pennsylvania more or less competitive with other states for attracting and retaining businesses and jobs?

The Governor has proposed cutting the sales tax rate by one-third, from 6% to 4%, and expanding the tax to 74 categories of products and services that are currently exempt. These categories are so large that taxing them would not only offset what would otherwise be a $3 billion loss from the lower tax rate, but increase total revenues from the sales tax by 10%.

A number of examples have been given to illustrate the unfairness of the current sales tax exemptions, such as the fact that laundry detergent is taxed, while dry cleaning is not, and popcorn at a movie theater is taxed, while candy is not. However, these are not the exemptions that affect revenues the most. The majority of the new sales tax revenues would come from extending the sales tax to business and professional services such as accounting, architecture, computer programming, law, and public relations. Those industries would be subject to over $2 billion in new sales taxes.

Only five other states (Delaware, Hawaii, New Mexico, South Dakota, and Washington) have a sales tax on major business and professional services, and only three of those have taxes of the magnitude the Governor is proposing. (A few additional states tax advertising agency fees and testing laboratories.) Although the Governor suggests that these exemptions exist because of the influence of powerful lobbyists, the fact is that most states don’t tax these services because it’s viewed as double taxation on consumers, who will pay tax again on the final product the services were used to create. For example, if a manufacturer pays tax on legal services, it has to increase the price of its product to cover the cost of that tax, and then consumers pay more sales tax when they buy the product at the higher price.

Only 13 states tax custom computer programming services as the Governor is proposing to do. In fact, Pennsylvania’s exemption was enacted in 1997 specifically to make the state more competitive in attracting and retaining businesses in the information technology industry.

Consequently, expanding the sales tax to business services, computer services, and professional services would make the Pittsburgh Region dramatically less competitive in attracting and retaining businesses and jobs. Moreover, lowering the sales tax rate on currently taxable items seems to give up revenue unnecessarily; only 5 states that exempt food from sales tax as Pennsylvania does have a tax rate as low as the 4% rate the Governor has proposed (an additional 5 states have no sales tax at all). (It’s worth noting that although the Governor wants to close loopholes for accountants and lawyers, he doesn’t want to close them for doctors, hospitals, and universities; taxing health care and college tuition would raise $2 billion, almost as much as taxing business and professional services.)

The Governor has also proposed several significant and desirable changes in the corporate net income tax, including lowering the 9.99% rate (currently the second highest in the country) to 8.99% (still leaving the state with the 7th highest rate) and eliminating the cap on net operating loss carryforwards (which would help startup businesses and manufacturing firms).

To pay for this, the Governor has proposed to institute “combined reporting,” which would force national companies to pay Pennsylvania’s high taxes on all of their businesses, not just the ones located in Pennsylvania. As evidence that many large corporations are escaping Pennsylvania taxes by shifting profits to businesses located in other states, the Governor cites the fact that 71% of corporations in the state don’t pay any state corporate income tax. However, he fails to point out that the reason most corporations don’t pay corporate taxes is that they have no income to tax. In fact, a study by the U.S. General Accountability Office showed that 67% of corporations in the country had no federal tax liability, so the 71% figure in Pennsylvania does not suggest a major tax avoidance problem in the state. Moreover, there is no evidence that states which have instituted combined reporting or used other methods of closing tax loopholes have a higher percentage of their businesses paying taxes than Pennsylvania currently does.

Most worrisome is the fact that combined reporting would dramatically increase taxes on the sector the state needs to compete for most aggressively – manufacturing. A study done by the Pennsylvania Department of Revenue showed that even with the other changes proposed by the Governor, combined reporting would increase taxes on manufacturers by over 21%, which could well result in thousands of high-paying manufacturing jobs leaving the state.

Balancing the state budget is clearly a challenging task in these difficult economic times. However, the best way to increase state revenues is not to increase taxes, but to stimulate economic growth. National studies have shown that Pennsylvania spends more and taxes more than the majority of states, so the first priority should be to reduce expenditures. Any tax changes should be evaluated not by how much money they raise, but how they affect the state’s competitiveness.

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

Has Our Region Lost Businesses as Well as Jobs?

2010-02-07T07:06:00.002-05:00

Over the past two years, the Pittsburgh Region has lost over 33,000 jobs, or nearly 3% of our employment base. There were fewer jobs in the region in December 2009 than in December 1998, which means the recession has wiped out more than a decade of job growth. The only good news is that things were much better here than in most other regions. Detroit has lost nearly a quarter-million jobs over the past two years, or 12% of its employment base; Charlotte has lost 68,000 jobs (7.7%), and Cleveland has lost 78,000 jobs (7.2%).

The questions facing our region now are: how soon will we start adding jobs again, and what can we do to accelerate job growth?

The answer depends in part on whether we’ve lost businesses as well as jobs. During any recession, some businesses lay off workers because of low demand, but continue to operate until they have enough orders to hire again. Others are forced to close permanently due to insufficient revenues to support even minimal operating costs. Restrictions on bank lending have made it doubly difficult for many firms to stay in business during the current recession.

The biggest impact of the recession in the Pittsburgh Region has been in the manufacturing sector. Over 12,000 manufacturing jobs – 12% of the 100,000 jobs that were here in 2007 – were cut over the past two years. As of the second quarter of 2009 (the most recent data available from the Bureau of Labor Statistics, but a time when the biggest job impacts of the recession had already occurred), the 7-county metro area had lost 110 manufacturing plants, about 3.8% of the total facilities that were here in 2007. Among the top 40 metro areas in the country; 21 lost a smaller percentage of their manufacturing businesses, and 18 lost more. The fact that we retained 96% of our manufacturing plants through the worst part of the recession provides some hope that we will be able to recover many manufacturing jobs if the economy turns around quickly enough.

The financial sector has lost almost twice as many businesses and job sites than manufacturing. Due to bank consolidations, closures of firms in the mortgage business, etc., there were 212 fewer establishments in the finance sector last summer than two years earlier, a 3.7% decrease. However, because of the strength of our largest banks and investment firms, the impact on jobs was much smaller than in manufacturing; the finance sector lost 2,400 jobs, only 3.6% of the jobs that were here in 2007.

Other sectors that lost businesses or employment locations in the Pittsburgh Region over the past two years were construction, retail, arts & entertainment, and wholesale trade. On the other hand, despite the recession, a number of sectors saw a net increase in businesses and job sites, including mining, hotels and restaurants, professional and technical services, and social services agencies.

Business closings have hurt some counties more than others. Most businesses and jobs in the financial sector are in Allegheny County, so business and job losses in that sector have been concentrated in Allegheny County. In contrast, more than half of the manufacturing businesses in the region are located in the counties outside of Allegheny County and represent a much larger share of employment in the outer counties, so many of those counties have suffered more from manufacturing losses than Allegheny County. For example, Washington County lost 23 manufacturing plants between 2007 and 2009, more than twice as many in percentage terms as the region as a whole. In contrast, while Lawrence County has lost an above-average number of manufacturing jobs, it only lost one manufacturing firm. Fayette County actually added manufacturing businesses over the past 2 years, which helped keep its manufacturing job loss below the regional average. Although Greene County lost 3 manufacturing businesses and 39% of its manufacturing jobs between 2007 and 2009, it offset that through an 11% increase in mining jobs, and as a result, there are more jobs today in Greene County than two years ago.

In order for the more than 90,000 unemployed people in the region to find work, we need to accelerate efforts to help entrepreneurs start new businesses and help existing businesses create new jobs. We’re lucky to still have so many manufacturing firms located here, but they need capital from banks and investors in order to take advantage of sales opportunities when they appear, and they need a competitive business climate in which to operate.

The new state budget will play an important role in determining how well the region's businesses will fare during the recovery. The state made significant cuts this year in funding for entrepreneurial assistance agencies, and restoration of these cuts will be important to the region's ability to create and grow new firms. For established firms, the state needs to continue the phase-out of the Capital Stock & Franchise Tax and make at least modest cuts in the Corporate Net Income Tax (which is the second highest in the nation). Although proposals for "combined reporting" have been promoted as a way of making business taxes more fair or even reducing them, it will actually increase taxes on manufacturing firms, which is the worst possible thing to do when these firms are struggling to recover in the face of intense global competition. Instead, the state should be making every effort to reduce tax and regulatory burdens on our highest-wage job-generating firms.

(A shorter version of this post appeared as the Regional Insights column in the Sunday, February 7 Pittsburgh Post-Gazette.

Not Out of the Woods Yet

2010-01-22T21:42:00.003-05:00

The preliminary jobs figures for December show that while the Pittsburgh Region is still doing better than most major regions in the country, the recession continues to have a downward pull on the local economy. The region had fewer jobs in December 2009 than it did in December 1998, the first time that the region has ever fallen below 1998 levels.

There were 5,200 fewer jobs here in December than November, but over half of that decrease is a typical seasonal change – over the past 20 years, jobs have almost always decreased between November and December. What is significant is that the job loss this year was the fourth highest during those 20 years, exceeded only by the drops during the recession years of 2008, 2002, and 1992.

Until recently, a simple way of controlling for these kinds of seasonal effects from one month to the next was to compare the change in jobs over a 12 month period, i.e., by comparing December 2009 to December 2008, rather than to November 2009. However, that is no longer a good way to measure how much the recession is impacting our region, because 12 months ago, we were already losing jobs due to the recession. A better measure now is the 24-month job change between 2007 and 2009, since 2007 was the last year when the U.S. and regional economies were stable or growing through the whole year. The 24-month measure confirms that job losses worsened slightly in Pittsburgh between November and December. Jobs were down 2.9% (33,600) from December 2007 to December 2009, whereas they were only down 2.7% (31,400) from November 2007 to November 2009.

The bottom line is that the persistence of the recession cost us 2,200 jobs in December. Although this is bad news for local workers and job-seekers, things were worse in most other parts of the country. Our 24-month job loss between December 2007 and December 2009 was the 9th smallest among the top 40 regions, and even though jobs declined here between November and December, the declines were even bigger in 29 of the top 40 regions. For example, Milwaukee lost a whopping 10,000 jobs between November and December, five times as many as we did; they’ve lost a total of 70,000 jobs over the past two years, wiping out of all of the job gains they’ve made since 1993.

Which industries caused things to get worse here between November and December? The good news is that it wasn’t manufacturing. Although our manufacturing sector has lost over 12,000 jobs in the past two years, manufacturing jobs held steady between November and December. The biggest contributor to job losses was government, with significant reductions in federal, state, and local government jobs, followed by job losses in the professional and business services sector and the leisure and hospitality sector. Construction job losses decreased by 1,400 between November and December, offsetting some of the losses in other sectors.

It’s important to realize that these numbers are preliminary; the U.S. Bureau of Labor Statistics will revise all of the 2009 figures this spring, which will give us a more accurate picture of where we stand. However, it’s likely that the basic conclusion won’t have changed – we’ve lost a lot of jobs, but we’ve lost fewer than most regions – nor will the prescription for action: we need to continue working to support our local businesses to help them preserve and create as many jobs as possible.

Is Money from Universities and Hospitals the Solution to Pittsburgh’s Fiscal Woes?

2010-01-17T07:27:00.002-05:00

Although the short-lived proposal for a tuition tax in the City of Pittsburgh was ostensibly aimed at having students pay their “fair share” of City services, in reality it was just the latest attempt to get tax-exempt colleges and universities to help support the City’s budget, nearly a third of which comes from property taxes. Whether that makes sense depends on whether you feel that tax-exempt facilities are burdens or assets for the City.

No one really knows for sure what proportion of Pittsburgh’s or any municipality’s property is tax-exempt, since there is little incentive to ensure that assessed values are accurate for properties that do not pay taxes. It’s not even clear how to assess the value of many exempt properties, since they’ve never been sold and there aren’t always clear comparables. (Try naming a building that you think is comparable to the Cathedral of Learning, i.e., similar neighborhood, size, construction, etc.) However, the best estimates available indicate that about one-third of the property value in the City of Pittsburgh is tax-exempt.

Although that sounds like a lot, it’s actually not unusual in Pennsylvania or other states. It’s not even that unusual in Allegheny County. The municipality in Allegheny County that is most burdened by tax-exempt property isn’t Pittsburgh, but Findlay Township, where over 80% of the property is tax-exempt. The cause there isn’t universities and hospitals, it’s Pittsburgh International Airport.

In fact, nationally, the largest owners of tax-exempt property aren’t colleges, hospitals, or any type of non-profit, but governments themselves. In Pittsburgh, about 50% of the tax-exempt property value is owned by federal, state, and local government agencies and authorities. A little over 20% is owned by colleges, universities, and private schools, a little under 20% is owned by hospitals, nursing homes and other social services institutions, and about 5% is owned by churches, synagogues, and other religious facilities.

Indeed, in many ways, the City of Pittsburgh may be more disadvantaged by being the county seat for Allegheny County than it is by being home to colleges and universities. For example, should Allegheny County be paying the City for using prime Downtown riverfront property for a jail that houses criminals from every municipality, when the City could be using it to attract new businesses or residents that would pay property taxes and income taxes?

In contrast, even though the universities and medical centers don’t pay taxes on their own property, it’s likely that there would be a lot fewer taxable office buildings, stores, hotels, and restaurants in Oakland if it weren’t for the presence of Carnegie Mellon, Pitt, and UPMC. Moreover, research at the universities and medical center have resulted in hundreds of for-profit startup companies that were or are located in the City. Similarly, it’s unlikely that Google would be moving to East Liberty if Carnegie Mellon were located somewhere in the suburbs, or in some other state.

Every dollar that the universities and medical center contribute to the City’s budget is one less dollar that they can invest in maintaining their status as cutting-edge centers of research, education, and treatment, and that’s what attracts students, researchers, and entrepreneurs from around the world to live and work in Pittsburgh. Although the universities might seem wealthy relative to the City, they’re not wealthy relative to their competitor institutions. Despite extraordinarily successful capital campaigns and generosity from local foundations, Pitt’s endowment still ranked only 29th among universities nationally in 2008, and Carnegie Mellon’s ranked 69th. In fact, one could argue that the City should be helping get more money to the universities, rather than trying to take it away from them.

The combination of the unusually small size of Pennsylvania’s municipalities and their high dependence on property taxes means that communities which happen to have a large number of regional tax-exempt facilities, whether they be colleges, hospitals, airports, or jails, will have lower property tax revenues than those which do not.

Other states have implemented programs to address this; for example, the state of Connecticut makes over $200 million in payments in lieu of taxes to those municipalities where hospitals, universities, and state facilities are located.

Rather than pitting our cities and colleges against each other, Pennsylvania’s Governor and General Assembly should follow the lead of other states and create a more effective tax-base sharing program that can help promote municipal fiscal health and a competitive non-profit sector.

(A version of this post appeared as the "Regional Insights" column in the Sunday, January 17, 2010 Pittsburgh Post-Gazette.)

The Regional Economy Finally Turns the Corner

2009-12-20T19:21:00.003-05:00

After several months of small ups and downs in regional job growth, November showed the first sign of a significant recovery in jobs for the region. Job losses declined by 5,600 between October and November. (This does not mean that total jobs increased in the region, but simply that the losses were smaller; in October, we had lost 32,200 jobs over the prior 12 months, but in November, we had only lost 26,600 jobs, comparable to where we were back in April.) The improvement parallels a similar turnaround in job losses nationally.

Improvements occurred in virtually every economic sector. Only two sectors did worse in November than in October – one was the health care sector, the other was wholesale trade. Healthcare and Social Assistance is still the only sector that has more jobs today than it did a year ago, so “doing worse” simply means smaller job growth, whereas in the other sectors, “doing better” means fewer job losses than in prior months.

Another piece of good news is that the improvement in jobs in the Pittsburgh Region was as good or better than the improvement nationally. In past recessions, our regional economy recovered more slowly than the U.S. as a whole; so far, that is not happening this time, but it’s still very early to make that judgment.

Moreover, our recovery in November was stronger than most of the large regions in the country. We had the 12th smallest loss of jobs between November 2008 and November 2009 among the top 40 regions in the country, and the 12th best improvement between October and November.

But simply comparing November 2009 to November 2008 is misleading, because we first started to lose jobs last November, when most regions had been losing them for six months prior to that. If you compare November 2009 to November 2007 (a 24 month period), the Pittsburgh Region had the 10th smallest job loss among the top 40 regions. We lost 32,300 jobs over the past two years, whereas Detroit has lost 228,000 jobs, Phoenix has lost 211,000 jobs, Cleveland has lost 71,000 jobs, and Charlotte has lost 63,000 jobs.

Nonetheless, despite the improvements over the past two months. we have a long way to go to recover the 32,000 jobs we’ve lost over the past two years and get back on track for economic growth. How long will that take?

One way to look at it is in comparison to the 2001-2003 recession. It took almost three years for our region to stop losing jobs and five years to begin growing jobs at even a modest rate; in fact, our rate of job growth in the post-recession period was so slow, we never recovered all of the jobs we lost before the current recession hit. The current recession hit us with job losses twice as great as the last recession, so it could take even longer for us to recover than last time.

Another way to look at it is that the fastest job growth the region has experienced in recent years was between 1999 and 2000, when jobs increased by 1.8%. Even if we could match that rate beginning immediately, it would take us nearly 2 years to get back to where we were before the current recession hit. If we grow at the average growth rate we experienced in the 1990s (about 1.3%), it will take us over 2 years to get back to where we were. And if we grow at the growth rate we experienced between 2005 and 2007 (only 0.5%), it will take us five years just to get back to where we were in 2007.

All of this makes it clear that we can’t take economic recovery for granted; aggressive efforts to attract entrepreneurs, create new businesses, provide investment capital for those businesses, and help existing businesses grow are critical to the region’s future.

Making the City Solvent Requires State Support, Not Taxes on Students

2009-12-06T08:13:00.002-05:00

At a time when our highest priority should be an aggressive regional effort to create new businesses and jobs, our university leaders and government officials are instead spending time, energy, and money battling over whether students in the City of Pittsburgh should pay taxes on their tuition bills. Mayor Ravenstahl has dubbed it a “Fair Share Tax,” claiming that students need to do more to help with the costs of City services.

Issues of “fairness” arise because the City of Pittsburgh plays a unique role in the economy and quality of life of the Pittsburgh Region. One out of every four jobs in the region is located in the City of Pittsburgh, making the City by far the largest employment center in southwestern Pennsylvania, as well as home to the cutting-edge research that will likely create many of the jobs of the future. The City is also home to the majority of the region’s arts, education, and sports facilities and events, making it the center of culture and entertainment for the region’s residents and an attractive destination for tourists and visitors from around the world.

As a result, hundreds of thousands of people come in to the City of Pittsburgh each year for jobs, shopping, education, and entertainment. They depend on City police, fire, and emergency medical services to keep them safe, and they use streets and highways maintained by the City to get to and from their destinations. Yet those City services are supported primarily by property taxes and income taxes paid by the residents of the City, not by the commuters and visitors who benefit from the City’s jobs and entertainment attractions.

In fact, over 70% of the people who work at a job located in the City of Pittsburgh don’t live in the City. That’s one of the highest percentages of any major city in the country. In Philadelphia, only 42% of the people who work in the City don’t live there. In cities like Charlotte, Chicago, Indianapolis, Milwaukee, and San Francisco, fewer than 60% of the jobs are filled by suburban commuters.

The reason so many people who work in the City of Pittsburgh live somewhere else is because Pittsburgh, with only 55.6 square miles of land area, is one of the smallest major cities in the nation. In most regions, places as close as Ben Avon, Edgewood, Fox Chapel, Mt. Lebanon, and Upper St. Clair would be part of the City, not separate municipalities.

What’s unfair is that the City of Pittsburgh provides public services for nearly 200,000 non-resident workers every weekday, but these commuters pay all of their property and income taxes to their home municipalities. Although other municipalities in the region appear to be fiscally stronger than the City of Pittsburgh, many would likely have trouble balancing their own budgets without the income their residents earn at jobs in the City of Pittsburgh. For example, over 50% of the employed residents of Fox Chapel work at a job in the City of Pittsburgh, and over 40% of those living in Mt. Lebanon work in Pittsburgh.

In contrast, most college students aren’t commuters, but residents of the City of Pittsburgh. In fact, more than 1 out of every 7 residents of the City of Pittsburgh is in college or graduate school. Many of them own homes and pay property taxes to the City, while others rent apartments and enable their landlords to pay property taxes. Many of them work while attending school to help pay tuition as well as living expenses, and as residents, they pay income taxes to the City on their earnings. Pittsburgh would be a much smaller City and economically worse off if the students weren’t here, and increasing the cost of attending school in the City won’t encourage them to stay.

The City is proposing a tax on students not because it’s a good idea, but because the Commonwealth of Pennsylvania has forced it to try and support public services that benefit a region of over 2.4 million people with a tax base dependent on 310,000 residents. If we’re going to continue to have a region composed of over 500 small municipalities and a small central city, we need a different way of funding them.

The only way to avoid things like City tuition taxes and County drink taxes is for the Governor and Pennsylvania General Assembly to modernize local government tax structures and create revenue-sharing programs that enable regional public services to be supported by everyone who benefits from them. When gubernatorial and legislative candidates come to you asking for support in next year’s elections, ask them for a commitment to fix a badly broken system of funding local government.

(A shorter version of this post appeared as the Regional Insights column in the Sunday, December 6 Pittsburgh Post-Gazette.)

Faint Signs of a Recovery

2009-11-22T21:15:00.004-05:00

Preliminary data suggest that the downward trend in jobs that the Pittsburgh Region has experienced all year may have finally reversed in October. The improvement was very slight – jobs were down by 2.85% in October compared to 2.98% in September – but that means that there were 1,500 jobs here in October that the region wouldn’t have had otherwise.

Caution is in order, though: the improvement might be ephemeral when this preliminary figure is revised over the next month. Although it appeared that job losses had bottomed out here in July, revised figures showed that the bottom sagged by another 2,500 jobs in August and September, so it’s possible that the October jobs estimate will also be revised downward. But the fact that job losses nationally have also reversed over the past few months suggests that things probably are getting better here and will continue to do so in the months ahead.

The real question now will be – will Pittsburgh recover as rapidly as the rest of the country, or will it lag behind as it has in past recoveries? Already, there are signs that the recovery here will be slower than in other regions – job losses reversed nationally before they did in Pittsburgh, and most regions have seen a bigger reversal than we have. Of course, the Pittsburgh Region lost fewer jobs than most regions, so we have less to recover than they do, but we were also growing more slowly than most regions before the recession began.

Even with the slight improvement in October, the Pittsburgh Region still has over 33,000 fewer jobs now than it did a year ago. What’s worse, the region has fewer jobs today than it did a decade ago. The recession was so severe that almost every industry in the region has lost jobs over the past year, including some sectors like higher education that seemed recession-proof for a long time. As of October, the only three sectors of our economy that have more jobs today than a year ago are doctor’s offices and other outpatient care facilities, nursing homes, and social services.

The biggest loss of jobs by far has been in the manufacturing sector. There are 10,500 fewer manufacturing jobs today than a year ago, representing almost 1/3 of the total job losses in the region. When you realize that fewer than 10% of the jobs in the region were in manufacturing to begin with, that means that manufacturing was hit four times as hard as other sectors. And since manufacturing jobs have the best wages and benefits of any sector in the economy, the impacts of the losses are magnified even more.

Moreover, many of those manufacturing jobs may be gone forever. Preliminary data indicate that in the first quarter of the year, not only did the region lose manufacturing jobs, but we also lost almost 3% of our manufacturing establishments, one of the highest rates of loss of manufacturing plants of any region in the country. It’s a lot harder to get the jobs back when the company is no longer there. And severe cuts in state economic development funding mean that many of the startup firms that might create new manufacturing jobs won’t have the opportunity to do so.

Better School Performance Needed to Grow the Economy

2009-11-01T09:21:00.004-05:00

The recession has taken a huge toll on the national and regional economy over the past year. Many of the tens of thousands of jobs that have been lost won’t be coming back, and when job openings do appear, the competition for them will be more intense than ever.

Unfortunately, the Pittsburgh Region isn’t doing well enough in preparing its children to succeed in an increasingly competitive, knowledge-based economy. More than 30% of the 11th graders in the 10-county region can’t read adequately, and over 40% can’t do math properly. In other words, 1 out of every 3 high school graduates in southwestern Pennsylvania isn’t proficient in the most basic skills.

We wouldn’t expect a business to survive if one-third of its products were defective. How can we accept the fact that a third of our public schools’ graduates don’t have the skills the schools are supposed to teach them?

If the percentages don’t frighten you, the numbers should: our region’s schools are graduating over 11,000 students every year who don’t have the minimum skills needed to compete in the economy. Over the past four years, more than 40,000 southwestern Pennsylvania teenagers have entered the workforce without an adequate ability to read, do math, or both.

What’s worse, school performance in the region isn’t improving. There was essentially no change in 11th grade math and reading proficiency rates between 2006 and 2009.

It’s not just a problem with our high schools. The problem starts much earlier. Nearly 1/3 of the fifth graders in our elementary schools can’t read properly either, and nearly 1/4 of them aren’t proficient in math.

You might think that the biggest problems are in the City of Pittsburgh, since media coverage of schools tends to focus almost exclusively on the Pittsburgh Public Schools. But the fact is that 90% of the 11th graders in the region who aren’t meeting proficiency standards are in school districts outside of Pittsburgh, and more than half of them are in schools in the 9 counties outside of Allegheny County. In other words, we can only blame Pittsburgh for 1,000 of the region’s non-proficient graduates each year; the other 10,000 are coming from the other 124 school districts in the region.

If you think poor performance isn’t a problem in your own school district, you’re probably wrong. Only 4 of the 148 high schools in the entire region had 90% or more of their 11th graders proficient in reading, and only 1 had 90% of its 11th graders proficient in mathematics. Proficiency levels in over half of the region’s high schools were worse this year than last year.

If we graded our high schools the way they grade students, only one high school in the entire region would receive an "A," only 7 would receive a "B" (the best of which is CAPA in the Pittsburgh Public Schools), 19 would receive a "C," 33 would receive a "D," 40 would receive an "E," and the remaining 48 would receive an "F." (Click here for a complete list of the high schools in the region and their "grades.")

The problem isn’t lack of money. For example, the Shenango Junior Senior High School in Lawrence County was one of only eight high schools in the region where more than 80% of the 11th graders were proficient in both math and science, yet the school district’s instructional expenses per child in 2007-08 were only $6,200, 13% below the regional average.

The problem also isn’t the difficulties of educating low-income children. Although 79% of the 5th graders in the Propel Charter School in McKeesport were economically disadvantaged last year (one of the highest percentages of any school in the region), 100% of them became proficient in math and 92% achieved proficiency in reading, the second best performance of any elementary school in the region.

The problem is that parent, taxpayers, and businesses aren’t demanding better performance. What can you do?

1. Ask your local school board to publicize both the proficiency ratings for the district’s students and the board’s plans for improving proficiency. (Try going to your school district’s website to find out how it’s performing; you probably won’t find the information, or at least not easily.)

2. Hold the school board accountable for the district’s performance. Your first chance comes this Tuesday, when over 500 school board seats across the region are up for election.

If our region is going to grow in the future, it needs a high quality workforce that can attract and retain businesses. Creating that workforce starts with high-performance schools in every district in the region.

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

What's Next, Pittsburgh?

2009-10-04T08:40:00.004-04:00

The G-20 Summit is over, and the world finally knows Pittsburgh is no longer the dirty, smoky steel town pictured in the history books. Now it’s time to stop talking about how we recovered from job losses 30 years ago and start talking about how we can accelerate job growth over the next 30 years.

The fact that we’ve lost fewer jobs than most regions during the recession doesn’t mean we’ll grow more jobs than other regions when the recovery begins. In the years following the end of the last recession, the Pittsburgh Region’s economy had the 4th worst job growth among the top 40 regions. In fact, the region never recovered all of the jobs it lost in 2002-2003 before the current recession hit.

As a result, the Pittsburgh Region has fewer jobs now than in 1999, whereas most major regions still have more, even after losing thousands of jobs this year.

The real lesson for our future doesn’t come from the past several decades, but from what happened here a century ago. Pittsburgh was once a place where entrepreneurs came to start companies, find investors, and produce products sold worldwide. Companies like Alcoa, Heinz, PPG, U.S. Steel, and Westinghouse didn’t move here because of economic development recruitment efforts. They were started here by entrepreneurs and they grew to become not only major employers themselves, but to spawn thousands of jobs in supply firms, too. The companies’ decisions about expansion and hiring were made in headquarters located in Pittsburgh, not in other cities.

There’s an important difference between attracting facilities of companies headequartered elsewhere and starting companies that will be headquartered here. The former tend to look better on the economic development scorecard in the short run, because they bring lots of jobs all at once and make bigger newspaper headlines. But the companies founded and headquartered here may be more loyal to their home region when the going gets tough.

For example, in 1996, one of the region’s biggest manufacturing firms, Mine Safety Appliances, experienced a cutback in orders for protective helmets (hard hats), and needed to close one of its plants because of overcapacity. The logical choice was the plant with the highest costs and lowest productivity. At the time, that was the Murrysville plant (just east of Pittsburgh). But thanks to CEO John Ryan's commitment to his and the company's hometown, he gave the Murrysville plant a chance to improve itself before the final decision was made. The workers themselves took on the challenge to improve productivity. Within six months, productivity had jumped from 75% to 86%. As a result of the improvement, Mine Safety closed a plant in Rhode Island rather than the Murrysville plant. The Murrysville plant continued to improve, and by 2000, it was named one of the Best Plants in North America by Industry Week magazine. It might never have had the chance if Mine Safety Appliances had been headquartered somewhere else.

A century ago, our economic assets were natural resources like rivers and minerals. Today, Pittsburgh’s biggest assets are technology and innovation. The transformation of Carnegie Mellon, Pitt, and UPMC over the past three decades into some of the leading centers for research in the world has given our region one of the key ingredients for successful economic development in the future.

But innovations don’t turn into jobs without a second ingredient: the entrepreneurs. Although we have some great entrepreneurs in the region today, we don’t have nearly enough modern-day Andrew Carnegies and George Westinghouses who take big risks and devote themselves to bringing an idea to life. Over time, Pittsburghers came to define success as working for someone else, rather than starting and growing a business. As a result, our region now has some of the lowest rates of entrepreneurship and new business formation in the country.

A third key ingredient is investment capital. No matter how good the idea or talented the entrepreneur, if a startup business can’t get the money it needs to grow, it will be forced to close or move elsewhere. Alcoa, for example, is here today because 120 years ago, inventor Charles Martin Hall couldn’t find capital in his home state of Ohio, but received the $20,000 in seed capital he needed from Alfred E. Hunt and a small group of investors in Pittsburgh. Similarly, many of our rapidly growing technology firms are here today because of the early stage investment they’ve received through individuals and organizations such as Blue Tree Allied Angels and Innovation Works.

Unfortunately, we don’t have nearly enough angel investors in our region to support the levels of entrepreneurship we need for the future. Here again, Pittsburgh is a victim of its own success. Most angel investors in other regions are successful entrepreneurs who have profited from the growth or sale of their companies and are looking to get involved in new entrepreneurial ventures. In contrast, many of the people in Pittsburgh today with the kinds of assets needed to make such investments have experience running large established companies, not entrepreneurial ventures. So organizations like Blue Tree, Innovation Works, and the new Pittsburgh Equity Partners provide mechanisms for individuals, corporations, and foundations in Pittsburgh to support angel investment even if they don’t have the skills or interest to become angel investors themselves. The challenge will be even harder in the year ahead if the state budget (whenever it finally is enacted) includes the 50% cuts in funding for entrepreneurship and technology development programs that have been proposed by the Governor and state legislators.

Although Pittsburghers can be justifiably proud of our high rankings on quality of life, we should be embarrassed that we rank near the bottom on lists of places to start a business. Attracting entrepreneurs and helping them find investors should be a central and visible piece of our region’s economic development strategy. It’s not enough to have our technology-based organizations working on it; it has to be a priority for all of our elected officials and civic leaders, as well as the average citizen.

There is no better time to focus on entrepreneurship than now – there are likely hundreds of potential entrepreneurs among those who’ve lost their jobs here over the past year, and thousands more across the country, as well as dozens of budding entrepreneurs each year at our colleges and universities. Let’s encourage them to start a business here as enthusiastically as we welcomed our G-20 visitors.

(A shorter version of this post was published as the Regional Insights column in the Sunday, October 4, 2009 Pittsburgh Post-Gazette.)

Holding Steady

2009-09-20T11:25:00.004-04:00

Jobs held steady in the region in August for the third straight month, giving even greater evidence that the recession has finally bottomed out here. The Pittsburgh Region has lost just over 32,000 jobs in the past year, or about 2.8% of our job base, and there has been essentially no change in those figures from June through August. (Although the total number of jobs in the region decreased by almost 3,000 between July and August, the number of jobs always decreases in August by a similar amount due to seasonal factors. On a seasonally adjusted basis, the number of jobs has been constant throughout the summer.)

The Pittsburgh Region continues to perform better than the U.S. as a whole; while job losses nationwide have slowed dramatically over the past several months, U.S. job losses continued to creep upward by a tenth of a percent per month over the past two months, in contrast to the stability here.

Similarly, the Pittsburgh Region continues to do better than most regions in the country; the rate of job loss here was the 12th lowest among the top 40 regions.

However, this is not true in all sectors. Workers in mining, construction, wholesale and retail trade, information, finance, and professional and business services have been less likely to lose their jobs here than their counterparts in most regions. But workers in manufacturing, higher education, hospitals, leisure and hospitality, and government have been more likely to lose their jobs here than elsewhere.

Wait a minute – we’re losing jobs in higher education and hospitals? Aren’t health care and higher education growth sectors? Not exactly – they’re recession-resistant sectors, which is different. Although jobs in higher education had been growing slightly until earlier this year, that has changed in the last two months, and we had 600 fewer jobs in colleges, universities, and professional schools in August than a year ago; in fact, we were one of the only regions with a significant higher education sector to report job losses. Whether this is a temporary phenomenon remains to be seen.

Similarly, after adding jobs for 17 straight months, hospital employment has declined slightly since June, and we were one of only a few regions to see job losses in hospitals. Ambulatory health care (e.g., doctor’s offices) continued to add jobs in August, as did nursing homes, so on the whole, health care has continued to add jobs, but that doesn’t mean that no one in healthcare has been affected.

Our biggest job losses continue to be in manufacturing, and we continue to lose additional manufacturing jobs every month. As of August, we’ve lost 11,000 manufacturing jobs in the past year, over 11% of the manufacturing jobs that were here a year ago. That’s the 10th biggest loss of manufacturing jobs among the top 40 regions. While that’s only half as bad as Detroit, which has lost 22% of its manufacturing jobs in the past year, it’s twice as bad as Boston, which has lost fewer than 5% of its manufacturing jobs in the past year.

Another group that’s been disproportionately affected here are temporary workers. Employment services businesses have cut 3,400 jobs over the past year, or 17.1% of employment a year ago. That’s the biggest percentage reduction of any sector in the region. Many businesses cut temporary jobs first when a recession hits, so it’s not surprising that we’ve lost jobs in that sector; almost every region in the country has. But it’s not clear why we’ve lost more temporary employment jobs than so many other regions.

Overall, while it’s very good news that total job losses here seem to have come to a halt, there are still problems in many important sectors, particularly manufacturing, that could create ripple effects in the months to come and slow our region’s recovery.

Pittsburgh: The Steel City Transformed

2009-09-07T18:40:00.008-04:00

The eyes of the world will be on Pittsburgh this month, and those expecting to see a dirty, smoky steel town will be amazed to see clear skies and people fishing in the rivers while the world’s leaders meet in one of the largest green buildings on the planet. They’ll also likely hear that the region has weathered the recession better than most places in America.

The obvious question will be: How did Pittsburgh do that?

Unfortunately, even many Pittsburghers won’t get the story quite right. They’ll say that Pittsburgh is no longer the Steel City; that manufacturing is gone; that most of our Fortune 500 companies have left; and that the region now has a “service economy.” But the truth is very different.

First of all, we’re still a Steel City. The 10th largest steel company in the world – United States Steel – is not only headquartered in Pittsburgh, it still makes steel here. Allegheny Technologies, one of the top specialty steel makers in the world, has eight manufacturing plants in the region, and several other specialty steel companies have facilities here. As a result, we still have 7,000 steel jobs in the region, and over 12,000 in the primary metals sector.

Manufacturing? Although we lost 100,000 manufacturing jobs in the 1980s, 90,000 are still here, and manufacturing is still the biggest contributor to the region’s income, providing nearly $10 billion of the $75 billion in earnings workers in the region received in 2008. What’s changed in 30 years is how diversified our manufacturing sector is, with cutting-edge companies in life sciences, robotics, information technology, and energy joining leading firms in traditional industries like steel and chemicals.

Fortune 500 companies? After years of hand-wringing about the companies that left, few people have noticed that today, 8 of the Fortune 500 are located in our region, almost as many as in 1980. The City of Pittsburgh has more Fortune 500 headquarters today than all but eight cities in America.

A service economy? Sure, but we’re not talking about barber shops and laundromats. Our economy is being powered by global service businesses like K&L Gates, Reed Smith, and Burt Hill, and by leading financial services firms like PNC and Federated Investors.

But the most dramatic change in the region’s economy in the past 30 years can be summed up in three words – CMU, Pitt, and UPMC. Few remember that in 1980, UPMC didn’t even exist, and Carnegie Mellon and Pitt were merely good regional universities.

Today, UPMC is the one of the largest academic medical centers in the world, and the largest employer in the region with 50,000 employees. A $7 billion corporation, it would be on the Fortune 500 list if it were publicly traded. It’s not just big, it’s global – people from all over the world come to Pittsburgh for cutting-edge treatment, and UPMC now has facilities in several overseas locations.

Today, the University of Pittsburgh has 40% more students, but what’s really different is their higher caliber – half of the freshmen are in the top 10% of their class, more than twice as many as in the mid-90s.

Pitt conducts over $650 million in research each year, a ten-fold increase over 1980, and it ranks 5th in the country in attracting federal health research funding.

Today, Carnegie Mellon University not only has 60% more students, it’s become a global university, with 1/3 of its students coming from other countries, campuses in Australia and Qatar, and programs in Europe and Asia.

More than $300 million in sponsored research is conducted at Carnegie Mellon, a 10-fold increase since 1980.

The nearly one billion dollars in research at CMU, Pitt, and UPMC each year not only attracts some of the best students and faculty in the world to the region, it makes Pittsburgh a hotbed for technology growth. Over 200 companies have been spun out of Carnegie Mellon over the past 30 years, and Pitt research has spawned 42 start-up companies just in the past 5 years.

Thanks to the outstanding leadership of all of these companies and organizations, Pittsburgh has been able to retain many of its historic strengths as well as create the engines of growth for the future. That’s the story world leaders need to hear.

(A variant of this post appeared as the Regional Insights column in the Sunday, September 6, 2009 Pittsburgh Post-Gazette.)

Have We Finally Hit Bottom?

2009-08-23T20:05:00.002-04:00

There are growing signs that the recession in the Pittsburgh Region is finally hitting bottom. After four straight months of accelerating job losses between January and May, the rate of job losses in the Pittsburgh Region increased by only one-tenth of a percent in the two months between May and July and total job losses in the region now stand at 32,800, compared to 32,000 in May. (Although the preliminary figures for June that were reported last month showed a slight improvement in jobs between May and June, the revised figures showed that there was actually no net change in the net number of jobs lost in June; the preliminary figures for July show a slight increase in job losses when comparing the July 2008 – July 2009 change to the June 2008 – June 2009 change.)

It’s important to note that while the total number of jobs in the region decreased by almost 15,000 between June and July, the number of jobs always decreases in July by a similar amount due to seasonal factors. In percentage terms, the decrease this year was similar and even slightly less than it has been in each of the past 8 years, which is why the numbers indicate that the rate of job losses has flattened out.

This stabilization is not unique to Pittsburgh. Job losses nationwide also flattened out in July, and 14 of the top 40 regions saw slight reductions in job losses between May and June. On the other hand, 13 regions saw increases in job losses that were 2-8 times as big in percentage terms as what we saw in the Pittsburgh Region. As a result, the overall rate of job loss in the Pittsburgh Region over the past year remains the 12th smallest (i.e., 12th best) among the top 40 regions.

What has not hit bottom in Pittsburgh is our manufacturing job losses. We lost an additional 1,200 manufacturing jobs between May and June – more than 1% of the total manufacturing jobs in the region – and 800 of those jobs were lost in June. That was the fifth biggest increase in loss of manufacturing jobs among the top 40 regions during that period of time. A few regions actually saw small increases in manufacturing jobs over the past two months. The Pittsburgh Region’s manufacturing sector has now lost almost twice as many jobs as any other sector of our economy.

As in previous months, the only sector of our economy that has seen any significant net job growth is health care and social services, which is now 2,900 jobs ahead of last year at this time. The mining sector has also seen a small amount of job growth – 200 jobs – much of which is likely a result of the boom in drilling for gas from the Marcellus Shale.

In addition, however, several sectors of the economy have improved significantly over the past couple of months; although they have many fewer jobs than they did a year ago, the leisure and hospitality sector, construction, and information sector account for fewer job losses now than earlier this year. Job losses in other sectors have continued to worsen slightly, however, including the financial services sector and the professional and business services sector. The biggest losses over the past few months have been in government jobs, particularly public education jobs, but this may be a temporary problem due to the state budget crisis.

So is the worst over? Although there are many positive signs, it’s still too early to say that there won’t be more bad news coming. The continuing losses in manufacturing jobs are particularly troubling, because they may be harbingers of additional job losses in supplier firms in the months ahead and they may slow the recovery in other sectors such as retail. However, the stabilization of the U.S. economy, and positive reports on many other economic indicators here and abroad, give us reason to hope that we may soon be on our way to recovery.

A Hundred Billion Dollar Region

2009-08-12T13:04:00.003-04:00

Total personal income in the Pittsburgh Region crossed the $100 Billion mark last year for the first time in the region’s history, according to data released last week by the U.S. Department of Commerce. Personal income here grew by 3.8% between 2007 and 2008, more than the 3.4% growth in the U.S. as a whole, and the 10th biggest rate of growth among the top 40 regions in the country.

These data provide further evidence of the relative strength of the Pittsburgh economy in the midst of the national recession. They’re an important complement to data about job changes in the region, because they give us a sense of how we’re doing (a) in the types of jobs that are growing and declining (even if we lose fewer jobs than other regions, if we lose higher-paying jobs, it could affect families’ spending power more significantly), and (b) in non-wage income, such as interest earnings, health benefits, etc. One of the reasons this recession has been particularly problematic is the combination of a dramatic loss of jobs and a dramatic loss of investment income, but these data tell us that on balance, Pittsburgh was doing better than most places on all of these counts, at least as of last year.

Moreover, as noted in previous posts, our region’s high percentage of seniors helps to keep income growing here through both Social Security payments and Medicare benefits. Although seniors’ Social Security is often referred to as a “fixed income,” the automatic cost-of-living adjustment every year in Social Security makes it more reliable for supporting a household than many jobs or investments have been.

On a per capita basis, Pittsburgh looks even better – it had the 2nd biggest growth in per capita personal income of any of the top 40 regions in the country. Pittsburgh’s per capita income growth is high relative to other regions because the Census estimates that its population (the denominator in per capita income) declined in 2008. However, one needs to be a little cautious about using changes in per capita measures because population estimates become increasingly inaccurate as one gets farther away from the last census year (i.e., 2000). Although Census estimates indicate that our region’s population has continued to decline, labor market data suggest that it may actually be growing given the relative strength of the economy here. We won’t know for sure until after the 2010 Census results are tabulated.

The region with the slowest income growth may surprise you. It’s not Detroit, but Silicon Valley. Although Detroit lost more jobs last year than any other region, many of those workers were receiving unemployment benefits, and so income in the region still increased between 2007 and 2008. On the other hand, entrepreneurs and the employees at startup businesses in Silicon Valley may still be working, but earning a lot less than before. Silicon Valley actually saw its per capita income decrease in 2008, as did Atlanta, Charlotte, Phoenix, and New Orleans.

Although the Pittsburgh Region is doing well, you may also be surprised to learn that our immediate neighbors are doing even better. Whereas per capita income in Pittsburgh increased by 3.9% between 2007 and 2008, it increased by 6.6% in the Weirton-Steubenville area, by 6.2% in the Wheeling area, by 5.5% in Morgantown, and by 4.5% in Johnstown.

The Pittsburgh Region’s relatively high growth in personal income is good news for retailers, arts and cultural facilities, and charities, which rely on the residents of the region to have income to spend or contribute. Although each of these sectors has suffered over the past year, the impacts could have been much greater had we experienced the kinds of reductions in jobs and income that other regions have.

Whether this same success will continue this year remains to be seen. We've seen much greater losses in manufacturing jobs -- our highest-paying sector -- in 2009 than in 2008, but even so, we haven't seen the kinds of losses many other regions have, and we've had continuing growth in our strong health care and higher education sectors.

Parts of Our Region Are Suffering More Than Others

2009-08-02T08:06:00.003-04:00

The national recession has taken a severe toll on our region over the past year. As of June, the 7-county Pittsburgh metropolitan area had lost over 31,000 jobs, 2.7% of our employment base, wiping out all of the net job gains the region had made over the previous decade.

There has been some comfort in the fact that as large as our job losses have been, they’ve been smaller than most parts of the country. Detroit has lost 175,000 jobs – more than triple the rate of job loss we’ve seen here. Cleveland has lost 63,000 jobs and Charlotte has lost 54,000, both more than twice as many in percentage terms as our region. As a result, the Pittsburgh Region’s 7.7% (unadjusted) unemployment rate in June was well below the national rate of 9.7%.

Some parts of our region, however, have been suffering much more than others. Between June 2008 and June 2009, the unemployment rate in Armstrong County jumped from 5.6% to 9.7%, the biggest increase in the region, and it’s the only county in the region with unemployment as high as the national rate. The second biggest increase was in Butler County, which went from having the lowest unemployment rate in the region in 2008 (4.6%) to 7.5% in June 2009. At the other end of the spectrum, Allegheny County now has the lowest unemployment rate in the region (7%).

Why is the recession affecting different parts of the region differently? A big reason is that some industries are being impacted more than others, and our counties have different mixes of industries.

For example, over the past year, the biggest loss of jobs in the region as a whole has been in manufacturing. There were 10% fewer manufacturing jobs here in June than a year ago, the 12th biggest drop in manufacturing jobs among the top 40 regions. The majority (60%) of the manufacturing jobs in the region are located outside of Allegheny County. At the end of 2008, manufacturing jobs represented nearly 17% of private sector jobs in Butler County, and between 12-14% of private sector jobs in Armstrong, Beaver, Lawrence, Washington, and Westmoreland Counties, whereas only 6% of the private sector jobs in Allegheny County were in manufacturing. That means the outer counties are being hurt more by the losses of manufacturing jobs than is Allegheny County.

Another industry that’s been hit hard in the past year in our region is leisure and hospitality. Here, the geographic pattern is the opposite of manufacturing. Over 60% of the Pittsburgh Region’s jobs in the leisure and hospitality industry are in Allegheny County, so job losses in this sector disproportionately affect Allegheny County.

The only industries in the region which have experienced significant job growth in the past year are higher education and health care. Allegheny County contains over 80% of the region’s higher education jobs and nearly two-thirds of the health care jobs, and the growth in these sectors has primarily occurred in Allegheny County.

Not everything is bad outside of Allegheny County. In Indiana County, the number of jobs was the same in June 2009 as in June 2008, the only county in our region that had no change in jobs in the midst of the recession. So why did its unemployment rate increase from 5.7% to 8% during the same period? Because the number of jobs is a net figure – Indiana County lost a total of 600 jobs in manufacturing, construction, and professional and other services, but it gained 600 jobs in trade, transportation, utilities, education, health services, leisure and hospitality, and government. Many of those who lost their jobs became unemployed, while some of the new jobs were likely filled by new residents of the county.

This complex mix of job growth and job loss across the region makes it imperative that the region’s five separate Workforce Investment Boards, four community colleges, and numerous job training and employment assistance programs work together on a regional basis to help unemployed individuals obtain new skills and find job opportunities as efficiently and successfully as possible, no matter where in the region they live.

(A version of this post was published as the Regional Insights column in the Sunday, August 2, 2009 Pittsburgh Post-Gazette.)

A Little Good News, At Last

2009-07-19T09:16:00.004-04:00

If you’ve been wishing for a little good economic news, the Pittsburgh Region got some in June. After four straight months of accelerating job losses from January through May, jobs actually improved by a small amount in June. The metro area’s 12 month job losses now stand at 31,200 (a 2.7% loss between June 2008 and June 2009) vs. 32,000 last month (a 2.8% loss from May 2008 and May 2009). (Note that these are twelve-month changes, not one-month changes. Due to seasonal factors, the number of jobs ALWAYS increases from May to June. However, if that May-to-June increase is smaller than in other years, it means that jobs have been lost, and if it’s bigger, it means that jobs have been gained. This year, the increase in jobs from May to June was bigger than it was last year, both in absolute and percentage terms, which means that job losses measured on an annual basis were smaller.)

The small uptick here appears to be a function of the unique structure of our region’s economy, not improvement in the national economy, since the U.S. economy did not improve in June. In fact, the twelve month rate of job loss nationally worsened from just under 4.0% in May to just over 4.2% in June, while it improved from 2.8% to 2.7% in our region.

Moreover, among the top 40 regions, Pittsburgh was one of only 13 which did better in June than in May. A number of other regions did much worse, including sunbelt regions like Charlotte, San Diego, and Silicon Valley, as well as Cleveland and Detroit.

Overall, our region remains well below average in job losses during the recession. The Pittsburgh Region has the 12th lowest rate of job loss among the top 40 regions. Detroit has the worst rate of job loss – it has now lost 175,000 jobs in the past year – 1 out of every 11 jobs. Cleveland has lost 63,000 jobs, more than twice as many as Pittsburgh. Charlotte has lost 54,000 jobs, which is twice as many in percentage terms as our region.

Although the news in Pittsburgh overall is good, it’s still bad in some important economic sectors in the region. The region’s manufacturing sector continued to lose jobs at an accelerating rate in June. We have now lost over 10% of the region’s manufacturing jobs in the past year. That’s the 12th biggest drop in manufacturing jobs among the top 40 regions. Job losses in both the financial sector and in wholesale trade also increased in June, and while the healthcare sector continued to add jobs, the rate of job creation slowed, which reduced its ability to offset losses in other sectors. The rate of job creation in the natural resources and mining sector also slowed significantly in June, although this represents only about a hundred jobs.

On the other hand, jobs in the leisure and hospitality sector, which had been a major contributor to overall job losses in the region, recovered slightly in June. Although jobs in this sector always increase in June, the growth between May and June was actually larger here than in the previous two years, whereas nationally, it was smaller. However, even with this small improvement, our leisure and hospitality workers have experienced the 8th worst loss of jobs among the top 40 regions over the past year.

Jobs in Pittsburgh’s retail sector also improved in June. Retail workers here have not suffered nearly as much as those in other parts of the country in the past year. We’ve lost 2.2% of our retail jobs (2,800 out of 130,000 a year ago), compared to losses of 5% or more in places like Milwaukee, Charlotte, Denver, and Baltimore.

It’s too early to call this the beginning of a recovery for the region. It’s only a small improvement – one-tenth of a percent. It’s only one month, which is not enough to declare a trend; in fact, job losses also reversed slightly back in January before they headed downward in the following four months. And the data are still preliminary and subject to revision next month. However, there’s a possibility that the revisions may make things look even better -- the revised data for May were slightly better than the preliminary data reported for May a month ago (the revised figures show our region lost 32,000 jobs from May 2008 to May 2009, compared to the preliminary figure of 33,600 reported previously), so hopefully any revisions to the June figure will also make things look better here, not worse. And hopefully, July will confirm that job losses have actually stabilized.

Energizing Job Growth in Pittsburgh

2009-07-05T09:05:00.003-04:00

Although a lot of jobs have been lost in our region over the past year, that doesn’t mean every company is reducing employment. We still have many businesses that are hiring now, with the potential for even more growth in the future.

Front and center among these is the energy industry. As the population of the U.S. and the world continues to grow, the demand for energy will also grow. But as concern about the environmental impacts of energy also increases, the demand for cleaner forms of energy will grow even faster.

The Pittsburgh Region is uniquely positioned to ride these trends into the future, regardless of what happens with Congressional energy legislation, because of our diversification across both renewable and traditional energy sources:

Wind. Our region’s role in wind energy isn’t limited to wind turbines on our mountaintops. For example, Converteam in O’Hara Township is a global leader in electrical systems for wind energy. One of the world’s leading wind energy companies, Gamesa, makes turbine blades in Ebensburg.

Solar. We don’t need a lot of sunny days to be a world leader in solar power. For example, Solar Power Industries in Belle Vernon is a top international supplier of solar panels. Plextronics, a Carnegie Mellon spinoff, is developing cutting-edge technologies that could revolutionize the way solar energy is generated.

Nuclear. For over half a century, the Pittsburgh region has been the center of the nuclear power industry. Westinghouse built the first commercial nuclear power plant in the world here, and it remains the global leader in the field, which has resulted in thousands of new jobs for our region.

Natural Gas. Where’s the biggest new source of natural gas? It’s right here in Western Pennsylvania in the Marcellus Shale. Companies tapping that resource have already created jobs in the region, with the potential for hundreds more.

Coal. Even the most optimistic projections about renewable and nuclear energy show that coal-generated power will still be the largest source of electricity in the U.S. and other countries for many decades. Not only is the Pittsburgh Region a major coal producer, it’s a leader in finding ways to make coal cleaner, through the research being conducted here by Carnegie Mellon, the University of Pittsburgh, West Virginia University, CONSOL Energy, and the National Energy Technology Laboratory.

Efficiency. One of the best ways to ensure the country meets its need for energy is to reduce the size of the need. The Pittsburgh Region is a leader in creating energy-efficient green buildings, and companies like Appalachian Lighting Systems in Ellwood City are developing technologies to improve energy efficiency.

Job growth isn’t limited to businesses focused on energy-related products and services; jobs are also being created in a wide range of supplier businesses in our region. For example, Ellwood Group is one of the major producers for steel components used in wind turbines, PPG provides structural composites and coatings for turbine blades, and Hamill Manufacturing supplies precision-machined components to the nuclear, solar, and wind industries.

What’s the single biggest challenge all these companies face? Finding enough workers! The good news for people who’ve lost work in other sectors is that jobs in energy-related firms pay well and most don’t require esoteric degrees in energy science. They’re jobs like machinists, welders, electricians, carpenters, manufacturing technicians, quality inspectors, and many others that require associate degrees, apprenticeships, etc.

We can’t take growth in the energy sector for granted, however. We need to actively encourage it. Just as our region supports the biotechnology, robotics, and information technology sectors through dedicated organizations, we’re fortunate to have a “greenhouse” dedicated to the energy sector – it’s called 3 Rivers Clean Energy, and it’s working to help energy companies address workforce shortages and obtain the resources they need to grow. You can learn more about the opportunities in the energy sector and how you can help at www.3riverscleanenergy.org.

(A version of this post was published as the Regional Insights Column in the July 5, 2009 Pittsburgh Post-Gazette.)

More Bad News for the Region's Workers

2009-06-21T19:06:00.003-04:00

Although everyone has been looking for some good economic news, there is, unfortunately, no sign that the recession is abating locally. Indeed, May was the worst month so far in terms of job losses in the Pittsburgh Region. Between May 2008 and May 2009, the Pittsburgh metro area lost 33,600 jobs, a 2.9% drop. For the second month in a row, the region has fewer jobs than it did in 1999, i.e., an entire decade’s economic growth has been lost.

Don’t be confused if you hear reports saying that the region added jobs in May. It’s true that there were 5,700 more jobs here in May than there were in April. But there are always more jobs in May than there are in April due to seasonal hiring patterns. The key fact that is that the increase in jobs between April and May this year was smaller than in any year since 1995, and as a result of that and the losses in previous months, there are 33,600 fewer jobs in May this year than there were in May of 2008.

We’ve still lost fewer jobs than most major regions in the country, but we’ve been slowly slipping behind some regions that were previously doing worse than we were. As of May, Boston, Columbus, Kansas City, and New York had all lost fewer jobs on a percentage basis in the past year than the Pittsburgh Region did.

The most troubling news continues to be the significant and accelerating loss of manufacturing jobs in the region. In just twelve months, the Pittsburgh Region has lost over 9,000 manufacturing jobs – 1 out of every 11 manufacturing jobs that were here last year. Manufacturing jobs are among the highest paid jobs in the region and typically have some of the best health and retirement benefits, so losing a manufacturing job has a particularly large negative impact on the regional economy.

Up through the beginning of the year, Pittsburgh’s manufacturing sector was one of its strengths – even though we were losing manufacturing jobs, we were losing them at the 5th smallest rate among the top 40 regions. But in May, Pittsburgh had the 15th largest rate of manufacturing job loss among the top 40 regions. The manufacturing sector is now the biggest contributor to job losses in the region.

The second biggest contributor to job losses continues to be the leisure and hospitality industry. Over 7,000 jobs have been lost in that sector over the past year. This is not only a large jobs loss relative to other sectors here, it's the 3rd biggest percentage loss in that sector among the largest 40 regions.

Construction is the fourth largest contributor to local job losses – we have 4,900 fewer construction jobs in May than a year ago – but unlike in the manufacturing sector and the leisure and hospitality sector, construction workers have fared better here than in most regions. Although our 8.2% loss of construction jobs is high, it pales in comparison to construction job losses of 14% in Chicago, 20% in Atlanta, and 29% in Phoenix.

Health care and higher education still have more jobs than last year, but even there, the rate of growth has slowed significantly from where it was last year, particularly in higher education, which likely reflects the impacts of smaller endowment earnings at colleges and universities.

If you saw the recent news stories about a Brookings Institution report saying that Pittsburgh's economy ranked 18th best out of 100 regions, it’s important to recognize that the data used in that report were old news – they only measured employment and unemployment changes through March, whereas Pittsburgh’s job losses have accelerated rapidly in April and May. Also, little noticed was the fact that the Brookings report ranked the region only 59th (i.e, 42nd worst) over the past year in the change in gross metropolitan product, i.e., the value of goods and services produced in the region. That is probably a reflection of the accelerating job losses in high-wage sectors such as manufacturing that began here early in 2009.

It’s not likely that Pittsburgh’s economy will experience any significant turnaround before the U.S. economy recovers, and national job losses continued to worsen in May. Moreover, even when the U.S. economy turns around, Pittsburgh may lag behind as it has in past recessions.

Reducing Health Care Costs Without Rationing

2009-06-07T08:45:00.004-04:00

Most of the national debate about health care reform has been about how to provide health insurance to the millions of uninsured and underinsured individuals. But lack of insurance is just a symptom of the real problem. It’s the high cost of health care which has led many employers to drop insurance coverage and which prevents many individuals from obtaining coverage on their own.

How do you reduce health care costs? Reducing spending on hospital care has to be a big part of the solution. Hospital care has been the largest source of healthcare spending growth in recent years, and a study by McKinsey & Company found that spending on hospitals was the biggest reason that healthcare costs in the U.S. are higher than in other countries.

Reducing spending on hospitals doesn’t mean denying hospital care to people who need it. There are several ways in which hospital costs can be significantly reduced while actually making patients better off:

1. Help people with chronic disease stay well enough to avoid hospitalization. One of the largest categories of hospital expenditures is for care of people with chronic diseases. Studies have shown that as many as 50% of the hospital admissions for these individuals can be prevented through better care. Here in the Pittsburgh Region, UPMC St. Margaret Hospital, Renaissance Family Practice, Premier Medical Associates, and Medi Home Health Agency are currently working with the Pittsburgh Regional Health Initiative (PRHI) to develop the first truly comprehensive approach to reducing hospital admissions and readmissions among chronic disease patients. Their innovative efforts, which will both reduce costs and improve patient outcomes, are already gaining national attention.

2. Reduce the use of unnecessary surgeries and procedures. National studies have shown that many patients unnecessarily receive expensive procedures such as heart surgery, diagnostic imaging, and Cesarean sections, and that overuse of these procedures can result in worse outcomes for patients. One major opportunity for reducing costs and improving outcomes is in labor, delivery, and newborn care, which is the largest category of hospital spending for people under age 65. A team at Magee Womens Hospital, using “Perfecting Patient Care” training they received from PRHI, reduced the rate of induced labor by 40% by avoiding inappropriate elective inductions, which can be more expensive and result in babies spending time in costly neonatal intensive care units. They won the Fine Award from the Jewish Healthcare Foundation (JHF) last year in recognition of their cutting-edge work.

3. Reduce infections and other complications of hospitalization. Hospital-acquired infections and other complications are both bad for patients and significantly increase costs for health insurers. Although conventional wisdom held that such infections were inevitable, Allegheny General Hospital (AGH) used PRHI’s Perfecting Patient Care techniques to prove that serious hospital-acquired infections could be completely eliminated. The AGH team also received a Fine Award from JHF.

Even though these approaches can reduce costs and help patients, they aren’t being implemented more widely because of problems with the current fee-for-service payment system. For example, Medicare and commercial health plans will pay for a chronic disease patient to be hospitalized, but won’t pay doctors to hire nurse care managers who can help them stay well. Hospitals earn less when they prevent patients from getting infections and other complications, rather than being rewarded for providing good quality care.

Fortunately, there are better ways to pay for health care. Episode-of-care payment and comprehensive care payment systems give doctors and hospitals more flexibility to deliver the care patients need and reward them for controlling costs and improving patient outcomes. You can learn more about them from the Center for Healthcare Quality and Payment Reform (www.chqpr.org).

Now it’s up to Medicare and local health insurers to use these improved payment methods. If they do, we can reduce healthcare costs, make health insurance more affordable, and make our region more economically competitive.

(A slightly modified version of this post appeared as the "Regional Insights" column in the June 7 Pittsburgh Post-Gazette.)

Bad Economic News for the Holiday

2009-05-24T14:35:00.004-04:00

Unfortunately, the latest regional job numbers released just before the start of the Memorial Day Weekend aren't anything to celebrate. The Pittsburgh Region lost nearly 28,000 jobs between April 2008 and April 2009 (1 out of every 40 jobs in the region). The most depressing news is that the total number of jobs in the region has now fallen below 1999 levels for the first time since 2003; in other words, all of the job gains the region has made in the past decade have been lost.

The rate of job loss here is still lower than the U.S. as a whole and lower than most major regions; we had the 10th lowest rate of job loss among the top 40 regions. However, our rate of job loss increased significantly in April; if that keeps up, we will stop looking so good relative to other regions.

In particular, one of the reasons our economy had been doing well relative to others was that we had been losing manufacturing jobs at a much lower rate. Unfortunately, that is no longer true; in April, our rate of manufacturing job loss was higher than 23 of the top 40 regions.

Our health care and higher education sectors continue to be the only significant net job generators. In addition to manufacturing, our region is being hurt by large job losses in the leisure and hospitality sector relative to other regions (particularly among arts and entertainment organizations) and large job losses in professional and business services and construction (although those losses are still lower in percentage terms than most regions).

Since the U.S. as a whole has now been losing jobs for a full year, we're lucky that we've only been losing jobs for seven months and at much lower rates. But since the U.S. is continuing to lose jobs, it seems likely that things will get worse here before they get better.

Has the Economy Ever Been This Bad?

2009-05-03T08:41:00.004-04:00

Over the past several months, job losses in the Pittsburgh Region have accelerated rapidly as the U.S. economy has continued to slide deeper into recession. Many people wonder: Has it ever been this bad before?

This is clearly the worst recession the U.S. economy has experienced in a half-century. Over the past twelve months, nearly 5 million jobs have been lost in the U.S., or 3.6% of national employment. That’s almost twice as many jobs in one year as in the entire 2001-2003 recession, when over two years, 2.5 million jobs (1.9% of the total) were lost nationally.

The last time the U.S. economy lost this large a percentage of jobs was over 50 years ago, when jobs dropped by 3.7% in March, 1958. Even though the percentage loss was slightly higher then, the U.S. economy was less than half as big, so the loss of 2 million jobs then still pales compared to the 5 million lost today.

So most people across the country have never experienced an economic downturn this bad. But it turns out that Pittsburghers have seen much worse, and many times.

Over the past twelve months (March 2008 to March 2009), the Pittsburgh Region has lost over 20,000 jobs, or 1.8% of our employment. Although that’s the largest one-year loss of jobs we’ve experienced in two decades, it’s still smaller than the total number of jobs we lost in the most recent recession. Between March 2001 and 2003, the Pittsburgh Region lost over 28,000 jobs, or 2.5% of its employment.

Of course, depending on how long the U.S. recession continues, job losses here could continue to grow and exceed the 2001-2003 total. But it’s hard to imagine that it could get as bad here as it was when the steel industry collapsed 25 years ago.

Between March 1980 and 1983, the Pittsburgh Region lost over 85,000 jobs – almost 1 out of every 10 jobs that existed at the time. More than half of that occurred in a single year; in March 1983, the region lost 45,000 jobs, or 5.2% of what was already a diminished job base in 1982. That was more than double the rate of job loss nationally that year.

Although you may not be surprised to hear that things were worse in the mid-1980s, it may be news that we’ve had worse economic problems than 2009 at least 4 other times in the past half-century. The Pittsburgh Region lost a higher percentage of jobs in 1971 (1.9%) than it has this year, and despite having a smaller economy, the region lost a much larger number of jobs during the 1961 recession (66,000 jobs at the peak), the 1958 recession (69,000 jobs at the peak), and the 1954 recession (76,000 jobs at the peak) than in the past year. (Although the Pittsburgh Region also lost jobs in the 1975 recession, it’s difficult to calculate the exact number because of changes in the way data were tabulated that year.)

A particularly troublesome aspect of the current recession in Pittsburgh is the significant loss of manufacturing jobs. In the past 12 months, the region has lost 7,400 manufacturing jobs, or 7.5% of our manufacturing job base. Yet even that is a smaller percentage loss of manufacturing jobs than what we experienced in 2002, 1983, 1982, 1961, 1958, and 1954.

All of this reflects a dramatic change in the Pittsburgh Region’s economy. In the past, national recessions hit the Pittsburgh Region much harder than the U.S. as a whole, but during the 2001-2003 recession, the rate of job loss in the Pittsburgh Region was just slightly higher than the U.S., and during the current recession, our rate of job loss (1.8%) is only half the national rate (3.6%).

Although losing fewer jobs than other regions in a recession is a good thing, it would be far better if we could also grow more jobs than other regions when the economy is strong. That will require a much stronger focus on encouraging business startups and expansions in the region. For more detail on what to do, see "The Road to the Economic Super Bowl."

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

Seeing Pittsburgh's Future

2009-04-30T21:27:00.008-04:00

If you missed Innovation Works' 2008 Community Meeting this evening, you missed an opportunity to see the Pittsburgh Region's future up close. The event was hosted inside the South Side facilities of Immunetrics, Inc., a small but rapidly growing company that helps in the development of new drugs using modeling based on human biology. And on the way through the building, you could visit with a number of the technology startup companies that Innovation Works has been helping to grow.

Those who attended heard some pretty exciting news:

Alpha Lab, a new program that Innovation Works started last year to accelerate the growth of software and entertainment technology startup companies, received applications from over 100 companies from 10 states to fill twelve slots in this innovative incubation program, and they're now receiving inquiries from entrepreneurs from all over the world who want to come to Pittsburgh to start or grow their businesses.

Innovation Works is now providing strategic human resources assistance to startup companies, helping them fill dozens of management and other positions. This is not only a tremendous help to the companies, all of which are too small to have their own HR departments, it's just the kind of talent attraction effort the region needs.

And Pittsburgh Equity Partners has completed their first round of fundraising on a new early stage venture capital fund for the region. They now have $5 million in the kind of investment funding that many startup companies are starving for, and hopefully additional individuals in our community will invest in this important fund.

In some ways, the most exciting thing about the meeting was that about 400 people from all across the 10-county region attended, demonstrating the kind of community interest in startup companies that is critical to our region's success. Innovation Works' Annual Meeting is beginning to rival the Allegheny Conference's Annual Meeting for attendance, and has it beat hands down in terms of both excitement and efficiency.

You can see more of the region's future in Innovation Works' 2008 Community Report, Fostering Entrepreneurial Growth. Download it and read it -- you'll be inspired about how bright the region's future is.

The Regional Economy Is Still Worsening, Particularly in Manufacturing

2009-04-19T10:31:00.003-04:00

Unfortunately, the recession’s impact on Pittsburgh worsened in March; we’ve now lost 20,200 jobs in the past 12 months. Although revised figures show that the job loss in February was lower than previously reported (17,700 vs. 19,200), the March figures (still subject to revision a month from now) indicate that the big jump in job loss that occurred from January to February was neither temporary nor an aberration, but reflective of a serious weakening in the regional economy.

This is the second month in a row where we have fewer total jobs in the region than we did in the year 2000, and we now have only 8,000 more jobs than we did in 1999. In other words, we’ve lost all of the job gains we’ve made in the past decade, and we’re at risk of dropping below the levels we achieved in the late 1990s.

The fact that things got worse in March isn’t really surprising, since things got worse nationally and in most major regions of the country. The U.S. rate of job loss over 12 months increased from 3.1% to 3.6% between February and March; the rate of job loss here increased from 1.6% to 1.8%.

Although we’re still doing better than the U.S. and most major regions, our relative position has slipped slightly; in February, we had the 9th smallest loss of jobs (in percentage terms) among the top 40 regions, but in March, we dropped a notch to 10th. – we now have a slightly larger loss of jobs than Columbus. Interestingly, while things got worse here over the past month, things got a little better in our rust belt neighbors of Cincinnati, Cleveland, Columbus, and Detroit – their rate of job loss was slightly smaller in March than in February. Although the rates of job loss in Cleveland and Detroit were so high that one might argue they had nowhere to go but up, Columbus wasn’t suffering nearly the way Cleveland and Detroit were; it was doing slightly worse than we were until March, and now it’s doing slightly better. Only time will tell what this really means.

Despite many news reports of belt-tightening in both higher education and health care, both of those sectors still had more jobs in our region in March than a year earlier, as did mining and utilities.

Perhaps the biggest area of concern for our region is manufacturing. The large jump in manufacturing job losses that occurred between January and February wasn’t a temporary thing; in fact, it got worse in March. Manufacturing job losses jumped from 5,700 in February (the loss was revised downward slightly from the 6,300 previously reported) to a loss of 7,400 jobs between March 2008 and March 2009. That loss of 1,700 additional jobs represents 2/3 of the 2,500 additional jobs we lost economy-wide between February and March.

The 7,400 manufacturing jobs we’ve lost in the past year is 1 out of every 13 manufacturing jobs (7.5%) that we had a year ago, the 18th largest loss of manufacturing jobs among the top 40 regions. Some of these job losses may just be temporary layoffs, but others are likely permanent, and the ripple effect of both the temporary and permanent layoffs could well cause further jobs losses in other sectors in the months ahead.

Losing Almost a Decade of Job Growth in a Few Short Months

2009-04-05T13:50:00.005-04:00

Until recently, the Pittsburgh Region seemed almost immune to the national recession. Although the U.S. economy started losing jobs last May, our regional economy kept adding jobs all the way through October. Even when we started losing jobs in November, the job losses here paled in comparison to the tens of thousands of jobs lost in regions as disparate as Detroit and Phoenix.

Unfortunately, our economic immunity has begun to wear off in the face of tight credit markets and weak consumer demand worldwide. The latest job statistics show that between February 2008 and February 2009, the Pittsburgh Region lost 19,200 jobs. That’s the largest loss of jobs in a 12-month period that we’ve experienced in the past 20 years. Even at the height of the last recession, in February 2002, the region had only lost 16,900 jobs over the prior year. The big job loss resulted in the biggest annual increase in the unemployment rate since 1983.

The good news is that the rate of job loss here is still well below the U.S. as a whole and most other large regions. For example, Detroit and Phoenix have each lost about 140,000 jobs in the past year, Charlotte has lost 48,000 jobs, and Cleveland lost 40,000 jobs.

The bad news is that the rate of job loss here has accelerated rapidly. Between January and February, the Pittsburgh Region had the third largest increase in the rate of job loss among the top 40 regions.

What caused the sudden jump in job losses here? The single biggest factor was manufacturing – we’ve lost over 6,000 manufacturing jobs in the past year, and over 3,000 of those were lost in the last month. We have now experienced a higher rate of loss in manufacturing jobs than 22 of the top 40 regions. Since manufacturing jobs have very high wages, these job losses will likely have negative ripple effects in the retail and service sectors in the months ahead.

The second biggest factor was in temporary employment services. After holding steady throughout 2008, it suddenly fell 2,300 jobs into the negative column in February, a faster one-month drop than any other major region in the U.S. It’s not surprising that when cutbacks have to be made, businesses will eliminate temporary employees before their permanent staff.

The region’s Leisure and Hospitality sector, which includes sports and cultural facilities, hotels, restaurants, and bars, has lost 5,300 jobs in the past year, the second highest number of job losses after manufacturing. For reasons that aren’t clear, we’ve had the 5th highest percentage loss of leisure and hospitality jobs among the top 40 regions. More than one out of every 20 jobs in that sector has disappeared in the past year.

Only a few subsectors have continued to add jobs despite the recession – health care and social services (2,600), higher education (2,000), company headquarters (700), mining (400), and local government (300). But recent news reports suggest that layoffs in health care and higher education may be coming, meaning that overall job losses for the region will likely increase.

The past few months have made it clear why the region’s “slow and steady” job growth over the past decade wasn’t good enough. The job losses of the past three months have wiped out all of the small amount of job growth our region had experienced since the last recession. The Pittsburgh Region now has fewer jobs than in the year 2000, whereas most of the major regions of the country, despite having higher job losses during the recession than we did, still have more jobs today than in the year 2000.

Although it is understandable that everyone’s primary focus now is on getting through the recession, we also need to position ourselves for job growth when the national recovery finally arrives, through actions such as expanding cutting-edge research at our universities, supporting the creation and growth of startup firms, and creating a more competitive business climate.

(A shorter version of this post appeared as the Regional Insights column in the Sunday, April 5, 2009 Pittsburgh Post-Gazette.)

The Recession Deepens in Pittsburgh

2009-03-29T14:18:00.005-04:00

The effects of the recession not only worsened significantly in the Pittsburgh Region last month, but accelerated rapidly. Between February 2008 and February 2009, the region lost 19,200 jobs, more than double the job loss as of January (when regional jobs were down by 9,400). That's the largest 12-month loss of jobs we've experienced in the past 20 years.

Although job losses here are still well below the rate of job loss in the U.S. as a whole and in most other large regions, we had a bigger increase in job losses here than most regions between January and February. In fact, over the past two months, the Pittsburgh Region had the third largest increase in the rate of job loss among the top 40 regions. The only regions that got worse faster than we did were the Dallas and Virginia Beach metro areas, both of which, like Pittsburgh, had been doing relatively well until recently.

What caused the sudden jump in job losses here? The single biggest factor was manufacturing - we lost over 6,000 manufacturing jobs in the past year, 3,000 of which were lost in the last month. Whereas the Pittsburgh region had been experiencing one of the smallest losses of manufacturing jobs of any large region throughout 2008, in February we had a higher rate of loss in manufacturing jobs than 22 of the top 40 regions. The Professional and Business Services sector, which had been growing jobs through the end of last year, suddenly fell 2,500 jobs into the negative column, although that was still a smaller loss in percentage terms than 35 of the largest 40 regions in the U.S. And the Leisure and Hospitality sector, which had already lost 4,600 jobs as of January, now has lost 5,300 jobs, making it the second largest contributor to job losses after manufacturing.

Higher education and health care continued to add jobs in the Pittsburgh Region (despite the recession, there were 4,600 more jobs in those two sectors than a year ago), which helped to offset the job losses in other sectors. But based on recent news reports, job gains will likely slow significantly in those sectors in the months ahead, meaning that overall job losses for the region will increase.

The job losses in Manufacturing and Professional and Business Services are particularly troubling, since those are relatively high wage sectors, and the loss of jobs there will likely have ripple effects in the retail and service sectors in the months ahead.

The Road to the Economic Super Bowl

2009-03-17T07:18:00.003-04:00

The Pittsburgh Region is now the undisputed world champion in professional football – six Super Bowl rings, more than any other region.

What will we do for an encore? Will the Steeler Nation focus solely on getting Ring #7, or can some of that energy be redirected to something even more important – growing our economy?

The challenge facing us is not just how to weather the recession, but how to position ourselves for solid economic growth in the post-recession economy.

Although we’ve gotten a lot of positive attention for being a “good place to ride out the recession,” our economic performance in other years has been weak. Over the last two decades, we had the fifth lowest rate of job growth among the top 40 regions, and in most years, job growth here was less than 60% of the U.S. rate.

We know the road to the Super Bowl – it goes through Baltimore, Cincinnati, Cleveland, and the rest of the AFC. We know the key players – Roethlisberger, Ward, Holmes, Harrison. We know the stats to watch for – yards rushing, passes completed, points scored.

So what’s the road to more job creation? Who are the key members of the team, and what specific goals should we be pursuing? The strategy is actually quite simple:
1. Create new ideas.
2. Turn them into new products and services at new and existing companies.
3. Help companies successfully grow and create new jobs.
4. Create a workforce capable of filling those jobs.

Goal #1. Increase Funding for Our Research Universities.

We are fortunate to have two world-class universities generating cutting-edge new ideas in many aspects of engineering and science. We are fortunate to have two outstanding university leaders in Mark Nordenberg and Jared Cohon who continue to attract top researchers, top students, and provide a solid base of good jobs that help the region resist recessionary forces.

But they need money to do it – money for researcher salaries, for laboratories, for student tuition, etc. The good news is that Pitt and CMU do extremely well in obtaining federal research and development (R&D) funding – in 2006 (the most recent data available), Pitt ranked 8th among public universities, and Carnegie Mellon ranked 10th among universities without a medical school.

The bad news is that their rankings on total R&D spending were dramatically lower (14th for Pitt and 20th for CMU) because of their small endowments and low state government support, making them dangerously dependent on the federal budget. Despite extraordinarily successful capital campaigns and generosity from local foundations, Pitt’s endowment still ranked only 29th in 2008, and Carnegie Mellon’s ranked 69th. On top of that, state support is also very low – the Commonwealth of Pennsylvania spends the 6th lowest amount on higher education relative to personal income of any state in the country.

It’s time that we see the size of our universities’ endowments and the amount of their state and federal funding as every bit a matter of civic pride as their record on the football field and basketball courts. Those dollars translate directly into both immediate jobs and into the ideas and talent needed for future growth.

Goal #2. Increase the Number of Startup Companies

Although the universities provide a stable source of high-quality jobs and a wealth of cutting-edge new ideas, the bulk of job creation will come from translating those ideas into new companies.

Our region was founded on entrepreneurship. Most of our big companies didn’t move here, they started here. But today, we have one of the lowest rates of new business formation of any region in the country, and that severely limits our potential for future growth.

We need to make startup companies and the entrepreneurs who form them as much community heroes and give them as much media coverage as we do the players for the Steelers. We should be publicly celebrating the successes of Plextronics and Andy Hannah, Renal Solutions and Pete DeComo, RedPath and Mary Del Brady, Thorley Industries and Henry Thorne, and many others, and encouraging young people to follow in their footsteps. (You can find more of our most promising startup companies at www.innovationworks.org/companies.)

Goal #3. Make Our State Business Climate Competitive

Getting more companies started is only half the battle. We need to make sure those businesses can thrive here. The bigger and more mature companies get, the more important it is for them to be competitive on costs with companies in other regions and countries.

We can help our companies in many ways – keeping tax rates low, controlling healthcare costs, providing rapid and responsive permitting, building and maintaining critical infrastructure. Although improvements are needed in all of these areas, there is no better place to start than on the most visible sign of a poor business climate – the fact that Pennsylvania has the second highest corporate net income tax rate in the country.

We’ve invested in new stadiums for our sports teams to make them competitive – we need to invest in a better business climate to make our economic team more competitive, too.

Goal #4. Achieve 100% Proficiency for Every High School Student

In order to grow here, businesses will need to find skilled workers, and in order for our children to fill those jobs, they’ll need the right skills. Whether they’re going to college or going directly to work, the critical first step is a good high school education, i.e., proficiency in basic skills like reading and mathematics.
The sad truth is that last year, over 1/3 of the high school graduates in our region weren’t proficient in mathematics, and over 1/4 weren’t proficient in reading. And if you think the problem isn’t in your district, think again: not a single school district in the entire region had over 90% of its 11th graders proficient in math.

It doesn’t take more money. Some of the best performing schools in the region spend below-average amounts of money. It takes each community demanding that their school board, superintendent, and teachers (and yes, the parents, too) focus on proficiency.

Before you name all the other goals that you think are missing – keeping crime rates low, improving air quality, etc. – think about this: if we could all agree to focus on at least these four goals, we could transform our region’s economy and give ourselves the resources to pursue additional goals. Even our social needs and cultural aspirations will be better addressed with more jobs and more employed residents.

These four goals are ones that every citizen (yes, that means you) can help achieve. What can you do?
• Contribute to the universities’ capital campaigns;
• Invest in an entrepreneur, or buy their products or services;
• Vote for legislators and governors that will create a competitive business climate; and
• Elect school board members that will focus on achieving 100% proficiency for children. (And if you have kids, make their school work a priority).

If we focus our energies and resources, we can make Pittsburgh the City of Champions, not just in sports, but in economic growth.

(A shorter version of this post appeared in the Tuesday, March 17 Pittsburgh Post-Gazette.)

Fewer Bankruptcies in Pittsburgh Than Almost Anywhere Else

2009-03-14T09:32:00.003-04:00

Further evidence that the Pittsburgh Region has been relatively immune from the kinds of recessionary impacts the rest of the country has been experiencing comes from the latest bankruptcy statistics issued by the Administrative Office of U.S. Courts. Whereas bankruptcy filings (both business and personal) increased nationally by 31% between 2007 and 2008, bankruptcy filings only increased by 5% in the Western District of Pennsylvania (which covers the Pittsburgh Region).

In fact, if one compares bankruptcy filings in the U.S. District Courts covering the top 40 regions in the country, one finds that the Pittsburgh Region had the 3rd lowest increase. The only two districts that had smaller increases were in Texas, which parallels the finding that regions in Texas were among the few regions in the country that have done better in job growth/loss than the Pittsburgh Region.

The differences among regions are huge -- bankruptcies in Arizona and California have jumped 70-90% compared to the 5% increase here. Moreover, the increases don't tell the whole story, either. There were 31,000 bankruptcy filings in the Northern District of Ohio (which covers Cleveland) last year, 2.5 times as many as the 12,874 in the Western District of Pennsylvania (which covers Pittsburgh).

Treading Water in the Shallow End of the Pool

2009-03-13T09:03:00.006-04:00

The latest data on jobs in the Pittsburgh Region were released this week, and although the news isn't good, it's a lot better than in most parts of the country.
Between January 2008 and January 2009, the Pittsburgh Region had lost a net total of 8,600 jobs, or a little less than 8/10 of 1% of the total jobs in the region. That's a lot of jobs, but far less than most regions. By way of comparison, the three major metro areas in Ohio have lost between 2 and 5 times as many jobs -- Columbus has lost almost 19,000 jobs, Cincinnati has lost over 24,000 jobs, and Cleveland has lost a whopping 44,000 jobs in the past year.

The only large regions that have done better than Pittsburgh in the past year are the metro areas in Texas (Austin, Houston, and San Antonio all actually had more jobs in January than they did a year earlier), Washington, DC, Virginia Beach, and New Orleans. (New Orleans isn't really growing, it's just slowly recovering from the devastating job losses after Hurricane Katrina.)

Underneath our relatively small total net job loss are some significant increases and decreases by industry. Thousands of jobs added in health care, higher education, and local government over the past year have been helping to offset over ten thousand jobs lost in retail, leisure and hospitality, manufacturing, and several other sectors.

In most cases, the pattern of job gains and job losses here is similar to the rest of the country, but better. For example, education and health services added jobs in every major region of the country, even regions like Detroit and Phoenix that have each experienced total net losses of over 100,000 jobs. Every region but Houston lost manufacturing jobs; Pittsburgh's loss of 3,200 manufacturing jobs was actually the 6th smallest loss in percentage terms among the top 40 regions.

The one sector that has been suffering disproportionately in Pittsburgh is leisure and hospitality; we've lost 4,600 jobs in that sector (4.6% of the total), the 5th biggest reduction among the top 40 regions. Although part of this has been in the hotel and restaurant sector, the bulk has been in arts and entertainment. Unfortunately, the data available aren't detailed enough to understand exactly which organizations and which kinds of jobs are being lost.

A Low Unemployment Rate Isn’t Always a Good Thing

2009-03-01T07:21:00.002-05:00

In the middle of a recession, one of the most closely-watched barometers of economic health is the unemployment rate.

But the unemployment rate, particularly at the regional level, can sometimes be misleading. Surprisingly, a low rate of unemployment isn’t always a sign of economic health, and the change in the unemployment rate isn’t necessarily a good measure of how well a region’s economy is doing.

The Pittsburgh Region’s unemployment rate in December was 6.0%. That’s significantly higher than the 4.4% rate a year earlier, and reflects the fact that we have over 20,000 more people unemployed than a year ago.

Although it’s little comfort to the large and growing number of unemployed workers in the region, our 6.0% unemployment rate was lower than the U.S. (7.1%) and lower than Pennsylvania as whole (6.4%); in fact, it was the 11th lowest rate among the largest 40 regions, and we had the 8th smallest increase over the past year.

But are all of the 10 regions with lower unemployment rates really doing better than we are? Milwaukee’s unemployment rate in December was only 5.8%, and its unemployment rate went up by only 1.1% over the previous twelve months, much less than the 1.6% increase in Pittsburgh. Yet from December 2007 to December 2008, the number of people working in Milwaukee decreased by over 2%. That’s faster than the decline in U.S. employment, and it was the 16th biggest decline among the top 40 regions. In contrast, employment in Pittsburgh actually increased slightly (by 0.3%) over that same time period.

How can Milwaukee have lost employment faster than Pittsburgh and the nation as a whole, but still have a lower unemployment rate and a smaller increase in the unemployment rate than either Pittsburgh or the U.S.?

The reason is Milwaukee’s labor force decreased, whereas the labor force grew in Pittsburgh. Milwaukee had over 7,000 fewer total workers (both employed and unemployed) in December than a year earlier, whereas Pittsburgh had 24,000 more workers than it did a year earlier. A decrease in a region’s unemployment rate doesn’t always mean that its residents found work – unemployment in a region can also decrease (or increase more slowly) if people get discouraged and stop looking for work or if they leave the region entirely, and that’s what appears to be happening not only in Milwaukee, but in Detroit, Cleveland, Minneapolis, and a number of other regions.

Although there’s no way to know for sure, it’s entirely possible that some people who lost their jobs in places like Milwaukee, Cleveland, and Detroit moved to Pittsburgh to look for work, since we had job growth here through most of 2008, whereas those other regions lost jobs in every month of the year. Someone can be unemployed in Pittsburgh without necessarily having lost their job here.

Similarly, some regions with bigger increases in unemployment can actually be doing better than we are. For example, Virginia Beach had a bigger increase in the unemployment rate over the past year than did the Pittsburgh Region (1.8% vs. 1.6%), but Virginia Beach also had the highest growth in employment of any large region in the country, thanks to a lot of military and government jobs. The labor force there grew faster than employment – probably due to job-seekers coming from other parts of the country – and that’s why unemployment went up.

So when Pittsburgh’s new unemployment rate comes out in mid-March, don’t assume an increase is all bad news – some of it may be new workers coming here. The only way to know for sure is to look at changes in jobs and the labor force, too, which you can find at the PittsburghToday website.

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

Which Region is Winning the Economic Competition?

2009-02-01T08:45:00.008-05:00

All eyes in Pittsburgh and in much of the rest of the country will be watching to see who wins the Super Bowl tonight – the Steelers or the (Phoenix) Arizona Cardinals. But which of the two regions is winning on the economic playing field?

Back when Pittsburgh won its first four Super Bowls, Phoenix didn’t even have an NFL team. And up until 1992, the Pittsburgh Region was bigger – in both population and jobs – than Phoenix.

Over the past 16 years, however, the Phoenix metro area has almost doubled in population, and is now the 13th largest region in the country, while the Pittsburgh metro area has fallen from 18th to 22nd. A lot of the population growth in Phoenix was fueled by the kind of immigration that Pittsburgh has failed to attract. In 2007, 58% of Phoenix residents were born in another state, compared to only 13% in Pittsburgh, and 17% of Phoenicians were foreign-born, compared to only 3% of Pittsburghers.

Between December 1992 and December 2007, Phoenix had the second highest rate of job growth among the top 40 regions – an 84% increase in jobs – while Pittsburgh had the 4th lowest rate of job growth – only 10%. Phoenix skated through the 2001-2002 U.S. recession with almost no loss of jobs, while Pittsburgh lost 20,000 jobs and didn’t fully recover until last year. The job growth in Phoenix over the past two decades was diversified across a wide range of sectors – professional services, retail, construction, health care, tourism, and manufacturing.

But while Pittsburghers may have been envious of Phoenix’s boom economy in previous years, our slow and steady job growth looks pretty good right now. Over the past year, Phoenix has had the second largest rate of job loss among the top 40 regions. Whereas Pittsburgh lost 7,100 jobs between December 2007 and December 2008, Phoenix lost 87,000 jobs, almost 1 out of every 20 jobs in that region. While Phoenix still has far more jobs than we do, that’s little comfort to the tens of thousands of people there who have lost work in the past year.

Although Detroit’s job losses have received most of the attention nationally, the magnitude and rate of job loss in Phoenix is almost identical to Detroit. The reasons for the decline are different, though. While Detroit has lost nearly 29,000 manufacturing jobs, the leading job loser in Phoenix was the construction industry, which lost 35,000 jobs. A major reason for that is the collapse in the housing market: Arizona had the third-highest number of foreclosure filings in the country in 2008, and housing prices in Phoenix dropped by almost 17% in the past year, whereas they grew by 2% here. Phoenix has also lost over 23,000 jobs in Professional and Business Services in the past year, while Pittsburgh still has more jobs in that sector than a year ago. Clearly, a lot of the growth in Phoenix was built on a very shallow foundation.

As Pittsburghers well know, if you don’t have jobs, you can’t keep your residents. Last month, while Pittsburghers were reading that Toledo is now bigger than the City of Pittsburgh, The Arizona Republic reported that for the first time in modern history, the City of Phoenix’s population may be shrinking.

Whether Pittsburgh gets its sixth Super Bowl ring or Arizona gets its first, our focus needs to quickly shift to winning in the economic arena. We need to help our manufacturing firms stay competitive and find qualified workers, and we need to help our entrepreneurs get the financing and customers they need to ride out the recession.

Everyone can help by looking to see whether there are local products and local vendors that can meet their needs at a competitive price. In an era of internet shopping, it's all too easy to buy something from a vendor someplace else when a local vendor may have a superior product at a competitive price, but with a lower page ranking on Google (or no e-commerce site at all). Moreover, many of our local entrepreneurs complain that they have to find their first customers outside of the region, even though there are businesses here that could benefit from their product or service and would ultimately use them once they have a reputation built on sales elsewhere. If local companies are given the opportunity and successfully win the business, it will support jobs here, and the workers filling those jobs will also spend their money in the region, creating an economic multiplier effect. (Giving local companies a chance to compete is different from establishing rigid anti-competitive "buy American" types of rules that raise prices and engender retaliatory regulation. The goal should be to consider the full range of options and when all else is equal, to support the local economy.)

(A shorter version of this post was also published in the Sunday, February 1 Pittsburgh Post Gazette.)

Watching from the Upper Deck of the Titanic

2009-01-27T19:02:00.003-05:00

Sad to say, the Pittsburgh Region has now joined the U.S. as a whole and most regions of the country in seeing a decline in total jobs. Our region had 7,100 fewer jobs in December than a year earlier. We first crossed into negative territory in November, and federal and state revisions in the jobs data now indicate that the losses were bigger than we first thought -- 1,600 jobs, rather than 500.

We still have some sectors that are growing: health care, higher education, professional and business services, mining, and construction all still had more jobs in December than they did a year earlier, which is good news. But the much higher growth in professional and business services that had been driving the economy earlier in the year has started to fade -- although there are still 1,100 more professional and business services jobs in the region than a year ago, we had over 3,000 more a few months ago.

All other sectors have fewer jobs than a year earlier. Three sectors are experiencing significant losses -- the region has lost 4,500 jobs in the leisure and hospitality industry, 3,600 jobs in retail, and 2,200 manufacturing jobs over the past year. Those large losses more than offset the growth in health care, higher ed, and business services, resulting in a net loss of jobs overall.

Although our economy is now starting to go underwater, it's still doing significantly better than most parts of the country. 32 of the top 40 regions now have fewer jobs than a year earlier, and our rate of job loss was the third smallest among those 32. Although it's little consolation to the thousands of Pittsburgh workers who've lost their jobs, tens of thousands have lost work in places like Detroit, Phoenix, and Atlanta, and there are over one hundred thousand fewer jobs in the New York region now than a year ago.

While our accelerating losses in manufacturing are a particular concern, 39 of the top 40 regions have lost manufacturing jobs (Houston is the only exception) and our rate of loss is the 10th smallest among those 39. Although we've lost 2,200 manufacturing jobs, Cleveland has lost 11,000 and Detroit has lost almost 29,000.

We can't expect to stay completely dry when the entire U.S. economy is sinking farther and farther underwater. But there are things we can do to keep our region from sinking too deeply. For example, the sector of our economy that's faring the worst right now is leisure and hospitality -- we've had the second largest percentage loss of jobs there of any of the top 40 regions -- so patronizing arts and cultural events and restaurants can help boost their revenues and avoid further reductions. And wherever there's a choice, buying local products and using local vendors helps keep money circulating in our region rather than somewhere else, supporting the jobs in our economy.

Picking the Best Stimulus Projects for the Region

2009-01-04T08:24:00.003-05:00

Communities across the country are gearing up to spend the infrastructure funding that President-elect Obama has promised as part of his economic stimulus plan. If anything close to the amounts being discussed nationally are actually distributed, the amount of money for our region would be enormous – even $25 billion nationwide could mean $200 million for southwestern Pennsylvania, and $500 billion nationally could mean as much as $4 billion for projects here.

Although public officials in southwestern Pennsylvania were criticized for not producing a long list of projects as fast as other communities did, most people don’t realize how hard it is to spend unexpected infrastructure money quickly, particularly when it’s of the magnitude being discussed now. Months or years of preparation are typically needed to get a major infrastructure project to the point where construction can start – it needs to be designed carefully (the 2007 bridge collapse in Minnesota shows what can happen if it’s not), the land where it will be built needs to be acquired, and necessary permits have to be approved. It would have been expensive and counterproductive for our counties and municipalities to undertake this kind of advance planning for a lot of projects, merely to have them sit on a shelf with only a hope of getting money to actually complete them.

It’s not likely that sending longer lists to Washington will result in more money. The federal government is not going to have the time to review thousands of applications and try to make judgments about which are more deserving of support. (Just imagine staff trying to justify to Congressmen and Senators why some other region's projects are better than theirs.) Funding will probably be distributed based on a formula, using factors such as population and unemployment. (The fact that our region has been doing relatively well in terms of employment and unemployment relative to other regions may mean that we will do a little less well than others in getting stimulus funding.)

As each day passes, more ideas for ways to spend the funding will come forward. Our real challenge will be building consensus about what the best projects are for whatever amount of money comes our way and then making sure they are implemented quickly and effectively. Here are some important issues to consider in setting priorities for funding:

Should we build new things or fix existing things? First of all, it will be very hard to build something new that isn’t already designed. Would there be enough money to build a light rail line from Downtown to the Airport or Oakland? Potentially. Could it be done in the next year or two? No -- there is no design, and the right-of-way that would be needed doesn't exist. Moreover, the stimulus package doesn’t include funding for long-term operating and maintenance costs. If we used the funding to build a new transit line, who would pay the costs of operating it? If we use the funding to build a new highway, who will pay to fix the potholes that develop after the first few winters? Pennsylvania hasn’t figured out how to pay for maintaining the roads, bridges, and transit systems it has, much less new ones. New parks, trails, and recreation facilities sound nice, but local governments then have the burden of maintaining them year after year. Conversely, using the funds to carry out maintenance projects that would have to be done anyway could help avoid property tax and fee increases or free up local funding for other needs. Moreover, it's easier to start quickly on fixing something that already exists than building something new. So even though building new things sounds more exciting, the reality is that most of the money will need to go to projects that improve existing facilities.

Should we emphasize quality or quantity? Although the goal is to create jobs, much of the money we receive will have to be used for construction materials, not wages. Using better quality, more energy-efficient materials could mean somewhat fewer construction jobs today, but lower maintenance costs in the future. It would be better in the long run for us to rebuild one mile of highway with long-lasting materials than to put temporary patches on a hundred miles of road. Moreover, although creating thousands of construction jobs in a short period of time may sound good, there are only so many people who have the skills and training to do construction work -- the retail worker who was laid off last month will not be welding a bridge beam anytime soon. When the stadiums and convention center were being built, the region had to bring in construction workers from other regions to fill all of those short-term jobs. And if every region of the country is building projects, there will likely not be enough construction workers to go around. Spending money on high-quality materials will help to preserve jobs in businesses that supply those materials, like our local steel industry.

Will projects create or retain permanent jobs in the future, as well as create temporary construction jobs? We could lose many of the jobs we already have in manufacturing and other sectors if we don’t maintain the roads, water and sewer lines, and locks and dams that our businesses depend on. So even the maintenance projects need to be prioritized based on their importance to the local economy. And using funds to build new industrial sites, small business incubators, and research facilities could help create new businesses and facilitate expansions of existing firms, creating permanent jobs and strengthening our tax base.

Finally, it will be important to think regionally in setting priorities. With this kind of money, we could accomplish some big goals. For example, a coordinated effort to repair and rebuild our region's sewage and storm drainage systems could reduce or eliminate sewage contamination in our rivers and flooding in many communities. Creating a carbon sequestration system to capture and store CO2 emissions from power plants could make our power plants more competitive and environmentally friendly. But we can’t do big projects like these if political pressures force the money to be spread across all 549 municipalities in the region. Just as workers cross municipal boundaries every day for jobs, our elected officials should work together across those same boundaries to achieve the greatest overall impact for the funding we receive.

(A shorter version of this post appeared in the Sunday, January 4 Pittsburgh Post-Gazette.)