Pittsburgh Is Losing Both Jobs and Population

Three years ago, when the country was struggling to recover from the recession, the Pittsburgh Region had the sixth highest job growth rate of any major region in the country. In contrast, this year, when most major metropolitan regions are experiencing job growth rates of 2% per year or more, Pittsburgh is actually losing jobs. Between February 2013 and February 2014, Southwestern Pennsylvania lost 5,200 jobs, the biggest loss in percentage terms among the top 40 regions in the country.

The loss of jobs wasn’t just something unusual that happened in February; the Pittsburgh Region has been losing jobs every month since the end of last year, and the losses have been getting bigger. Moreover, these job losses are coming on the heels of surprising news that job creation in Pittsburgh in 2013 was much smaller than what many had believed. Reports last fall indicated that the region had created over 20,000 net new jobs, but in reality, there were only 400 more jobs here in 2013 than 2012. (Each spring, the U.S. Bureau of Labor Statistics (BLS) replaces the previous year’s estimates with actual figures based on the results of a complete census of businesses. It turned out that BLS had significantly over-estimated the number of jobs in Pittsburgh in 2013.)

The combination of minuscule job growth in 2013 followed by large job losses at the beginning of 2014 means that Pittsburgh has fewer jobs today than it did two years ago, the only major region in the country with that unfortunate distinction. What’s worse, the Pittsburgh Region has 7,000 fewer jobs today than it did thirteen years ago, while most regions have added tens of thousands of jobs during that same time period.

You might be puzzled as to how Pittsburgh could be losing so many jobs when news stories have been reporting that the region’s unemployment rate has been declining. The big reduction in the unemployment rate from 8.6% in January 2013 to 6.5% in January 2014 wasn’t because a lot of unemployed workers found jobs, but because nearly 29,000 unemployed workers stopped looking for work altogether and dropped out of the labor force. In other words, a drop in the unemployment rate isn’t always good news.

The labor data don’t tell us whether the people who stopped looking for work are still living here or if they moved out of the region altogether in order to look for a job. We’ll have a better sense of that next year when the Census Bureau releases the population estimates for 2014. However, it seems likely that continued job losses could cause population losses in the region. In 2011, the year that jobs were growing faster here than in most other regions, we had more population in-migration than any other year in the past decade. Since then, our job growth has fallen behind other regions, and our rate of in-migration has also declined. Although more people moved in than moved out between 2012 and 2013, our rate of in-migration was lower than in previous years, and it was not enough to offset the fact that the region had more deaths than births. As a result, Pittsburgh was the only major metropolitan area in the country that actually lost population in 2013.

There’s no one reason we’ve been losing jobs. Most economic sectors in the region lost jobs over the past year, including manufacturing, higher education, finance, government, construction, retail, and professional and business services. However, the biggest loss by far was in manufacturing. While the majority of major regions in the country were adding manufacturing jobs over the past year, Pittsburgh lost 2,800 manufacturing jobs, the fourth highest rate of loss among the top 40 regions. Pittsburgh’s inability to attract and retain manufacturing businesses is a serious problem, not only because of the high wages paid for manufacturing jobs, but because of the large number of other businesses and jobs they support in the region’s economy.

The sector that created the largest number of new jobs over the past year is leisure and hospitality. While 1,400 more jobs in the leisure and hospitality industry are certainly welcome, those jobs have the lowest average wages of any sector, paying only one-third as much as manufacturing jobs, so they don’t come close to replacing the high-wage jobs we’ve lost in other sectors.

The latest data on jobs and population should be a wake-up call for the region. Promoting the region’s great quality of life won’t do much good if prospective residents can’t find jobs. We can’t assume that “eds and meds” will continue to create new jobs here year after year when there is growing pressure to reduce healthcare spending and growing concern about the high cost of higher education. We can’t blame federal policies for slow growth when every other major region in the country is creating more jobs than we are. 

Two of the most important ways we can encourage more job growth and population growth are:

Improving the region’s business climate. It’s hard to attract and retain businesses in a state with the second highest corporate income tax rate in the nation and a reputation for a difficult-to-navigate regulatory maze. It’s impossible to attract and retain manufacturing businesses if they can’t find the industrial sites, buildings, and skilled workers here that they can find in other regions. Both state and local government leaders need to ensure the region provides a competitive environment for all types of businesses. Improving the state’s business climate needs to be a top issue in this year’s gubernatorial campaign.

Encouraging entrepreneurship. Most new jobs are created by startups, not established firms, but our region has had one of the lowest rates of new business formation in the nation. As described in more detail in a previous post, we need more local seed and venture capital to support startups, more small business lending by banks, and greater willingness by local businesses to become customers for the products and services that local entrepreneurs produce.

(A version of this post appeared as the Regional Insights column in the Sunday, April 6, 2014 edition of the Pittsburgh Post-Gazette.)

More Industrial Sites Needed for Future Jobs

As explained in a previous post, one of the region’s highest economic development priorities should be rebuilding our struggling manufacturing sector. But if a manufacturing firm wants to locate or expand in southwestern Pennsylvania, will it be able to find the land and buildings it needs?

Site location consultants report that it’s much more difficult to find industrial land and buildings in Pittsburgh than in other regions. The fourth quarter 2013 industrial market report from commercial real estate firm Newmark Grubb Knight Frank shows that Pittsburgh had less vacant industrial space available than 38 of the 49 regions they track. While the 9 million square feet of vacant space here may sound like a lot, other regions have 2 to 4 times as much space available, in many cases at lower costs than Pittsburgh. For example, Charlotte had 38 million sq. ft. of vacant space, and average rents for industrial space there were $3.51 per square foot, compared to $5.14 here.

Pittsburgh is even less competitive than these statistics imply because many of the vacant buildings here are very old and most firms won’t even consider them. Newmark Grubb Knight Frank reports that only 14% of the vacant industrial space in Pittsburgh is “Class A” space. The vacancy rate for Class A space is only 4.2%, compared to 9.1% for lower-quality space, confirming the greater desirability of the space that’s in shortest supply. Although a number of new industrial properties were being developed in Pittsburgh at the end of last year, most other regions had an even larger amount of new space under development, so our poor ranking isn’t likely to change soon.

It’s harder to develop new industrial buildings here because there are far fewer ready-to-go industrial sites and industrial parks in Pittsburgh than in other regions. There are two major reasons for this:

Problem #1: Limited Flat Land. The scenic beauty of our hills and rivers is great for tourism but it has the unfortunate side effect of making Pittsburgh one of the most difficult and expensive regions in the country in which to develop the large flat sites that manufacturing plants and distribution facilities need. Nearly 70% of the land in Southwestern Pennsylvania has a slope greater than 8%, whereas in Columbus, for example, less than 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 land that is flat to begin with.

With a limited supply of flat land, it’s not surprising that most flat sites in our region have already been used for something. Although reusing vacant industrial sites for new businesses is a desirable goal, those sites are generally also very expensive to develop because existing facilities have to be demolished, any environmental contamination has to be cleaned up, and the infrastructure has to be modernized.

As a result, it’s almost impossible to develop industrial sites here without significant government subsidy to offset the extra costs of the land preparation and infrastructure.

Problem #2: Governmental Fragmentation. Southwestern Pennsylvania is carved up into 548 cities, boroughs, and townships, more than almost any other region in the country. Because they are so small, most of our municipalities and many of our counties don’t have the financial resources needed to offset the higher costs of developing large industrial sites. Moreover, because a large part of an industrial park needs to be vacant so that sites are available when firms or developers need them, an industrial park will contribute much less property tax revenue to its host municipality than if the property were developed and filled with housing or retail stores. As a result, small municipalities may be reluctant to host an industrial park without a way to offset their tax losses.

These are not new problems for Pittsburgh. Over a half century ago, the Regional Industrial Development Corporation (RIDC) was formed because regional leaders realized there weren’t enough modern industrial sites to support new business growth and no municipality could address the problem alone. Today, six of the ten largest business parks in the region and many of the region’s jobs are here thanks to the efforts of RIDC starting in the 1960s and 1970s. Similarly impressive work was done by the Westmoreland County Industrial Development Corporation and other county development agencies.

In the mid-1990s, a shortage of sites developed again, and a number of manufacturing businesses that wanted to locate here were turned away because there was no suitable space anywhere in the region. To address this, the Southwestern Pennsylvania Growth Alliance - a public-private partnership of elected officials and business executives from all 10 counties - worked together to assemble the first-ever regional priority list of industrial site projects. The state responded by providing nearly $40 million in grants for industrial site projects in all 10 counties. Many of the manufacturing and technology businesses providing jobs here today are located on industrial sites developed over the past two decades using funding obtained through that effort. Unfortunately, the Growth Alliance was disbanded nearly a decade ago.

It takes years to develop new industrial sites and buildings, so regional leaders need to take steps today to address the shortage of sites and buildings in the region before it gets even worse. No municipality or county can address this alone, because different businesses will need different types of sites, and because the jobs at each site will be filled by the residents of municipalities and counties throughout the region. Unfortunately, we have no regional financing mechanism for economic development infrastructure, and one needs to be created.

Help from state government is essential, not only because of the magnitude of the investment required, but because the majority of the tax revenues paid by the businesses and employees on the sites will go to the state, not to local governments. However, the region shouldn’t have to fight to get its fair share of funds from the state’s discretionary grant programs for economic development. The General Assembly and Governor should delegate decision-making authority to our region for a large portion of state economic development and infrastructure funding if the region creates an effective mechanism for infrastructure planning, decision-making, and financing.

An aggressive program for investing in industrial sites and other infrastructure should be a priority for both state and regional leaders. It will create jobs in construction, manufacturing, and other industries and help get our sluggish economy back on track.

(A version of this post appeared as the Regional Insights column in the Sunday, March 2, 2014 edition of the Pittsburgh Post-Gazette.)

More Immigration Would Help Our Region’s Economy

A previous post explained how our low rate of new business formation has been holding back the region’s job growth. One of the likely causes for our poor performance in entrepreneurship is how badly we do in attracting residents from other countries.

National data show that foreign immigrants are more likely than U.S. natives to form small businesses. A study by the Fiscal Policy Institute found that nearly one in five small business owners (18%) in the U.S. in 2007 were immigrants and immigrant-owned businesses collectively employed 4.7 million workers. Another study done for the Partnership for a New American Economy found that even though immigrants represented only 13% of the U.S. population, they started 28% of all new U.S. businesses in 2011.

Immigrants play a particularly important role in creating fast-growing technology-oriented firms. A study sponsored by the Kaufmann Foundation found that one-fourth of the engineering and technology companies formed in the U.S. between 2006 and 2012 had at least one key founder who was foreign-born.

Unfortunately, Southwestern Pennsylvania isn’t benefiting from the above-average entrepreneurial skills of immigrants because our region ranks dead last among the top 40 regions in the percentage of the population born in another country. Census data show that only 3% of the Pittsburgh Region’s residents are foreign-born, whereas in places like Atlanta, Austin, Boston, Charlotte, Denver, and Seattle, 10-20% of the residents were born abroad.

This is an ironic position for Pittsburgh given that it came to greatness a century ago thanks to the entrepreneurial energy and hard labor of immigrants. One of the region’s most famous immigrant entrepreneurs was Andrew Carnegie, who was born in Scotland to poor parents and came with them to Pittsburgh in 1848. By the turn of the century, he had formed the U.S. Steel Corporation, the first billion dollar company in the world, and his philanthropic efforts benefit Pittsburghers even today.

When the Pittsburgh Region’s immigrant population peaked in 1910, one of every four residents was foreign-born, and another 28% were children born here to parents who came from overseas. There were over 448,000 foreign-born residents in the region in 1910, more than the total population of the City of Pittsburgh today. Although many of them couldn’t speak English, read, or write, their hard work turned the region into one of the greatest manufacturing centers in the world.

In the hundred years since, the percentage of foreign-born residents increased in most major regions, but southwestern Pennsylvania had the largest decrease. Moreover, the residents of the Pittsburgh Region today are from a less diverse set of countries than other regions. One third of the foreign-born residents living here today are from Europe, the second highest percentage among large regions. Only one in five of the foreign-born residents here came from countries outside of Europe and Asia, the lowest percentage among the largest metro regions.

Today, the gap between Pittsburgh and the rest of the country in foreign-born residents is getting worse, not better, because our region ranks dead last in the country in the rate at which new international immigrants are moving here. The U.S. Census Bureau estimates that between 2010 and 2012, new immigrants represented only 0.25% of the Pittsburgh Region’s population, while most regions attracted immigrants at double that rate or higher.

While small in number, the immigrants who do live in southwestern Pennsylvania are making a positive impact on the region. For example:

• Even though the region added fewer than 6,000 foreign immigrants between 2010 and 2012, that was enough to offset the region’s losses due to other factors and result in a small increase in the region’s population for the first time in decades.

• A study by the Fiscal Policy Institute found that the foreign-born residents of the Pittsburgh Region create businesses at a 20% higher rate than our U.S.-born residents, and the economic output of foreign-born workers in the Pittsburgh Region is 47% higher than their share of the population, the highest ratio among the top 25 regions in the country.

Immigrants’ impact on our region’s population growth and job creation would be much bigger, though, if we had more of them. It’s not a coincidence that in Silicon Valley, the nation’s hotbed for technology entrepreneurship, over one-third of the residents are foreign-born, the second highest percentage among the top 40 regions, and ten times as high as Pittsburgh.

Should the many unemployed workers in our region worry that more immigrants would make it even harder for them to find jobs? National research indicates that regions with higher rates of immigration don’t have higher rates of unemployment. Not only do immigrant entrepreneurs create jobs for native workers, immigrants typically bring a different set of skills than unemployed workers have, and the more diverse workforce can actually help attract more jobs to the region for everyone. For example, 38% of the current foreign-born residents in Allegheny County have a graduate or professional degree, compared to only 13% of the native-born population.

What should we do to increase immigration into the Pittsburgh Region?

• Support Federal Immigration Reform. There are problems with current federal immigration laws that make it very difficult for skilled workers and entrepreneurs to come to the U.S. or to stay here even if they start a business and create jobs. Legislation currently being considered in Congress would increase the number of H-1B visas for foreign professionals and make it easier for entrepreneurs and people with advanced degrees in science and mathematics to become residents. The region’s Congressional delegation should support these kinds of changes.

• Help Foreign-Born Professionals and Entrepreneurs Feel Welcome. It can be more difficult to attract immigrants to a region which has few residents from their home country, so Pittsburgh needs to make special efforts to jumpstart immigration from other countries. An organization called Vibrant Pittsburgh (www.vibrantpittsburgh.org) is spearheading efforts to attract and retain immigrants and minority groups to the region, but it needs local businesses to join and work actively to support diversity initiatives.

We can’t reverse decades of low immigration overnight. However, even small improvements each year will have a positive impact on our population and economy, and the cumulative effect of long-term efforts could truly transform our region.

(A version of this post appeared as the Regional Insights column in the Sunday, February 2, 2014 edition of the Pittsburgh Post-Gazette.)

Pittsburgh Needs to Do More to Encourage Entrepreneurship

A century ago, Pittsburgh was one of the most entrepreneurial regions in the nation, perhaps even in the world. Companies like Alcoa, H.J. Heinz, Mine Safety Appliances, PPG, U.S. Steel, and Westinghouse didn’t move here because of economic development marketing efforts, they were started here from scratch by entrepreneurs. Not only did they grow to become major employers in the Pittsburgh Region themselves, they spawned thousands of local jobs in supply firms.

Unfortunately, the Pittsburgh Region has now become one of the least entrepreneurial places in the country. Data released by the U.S. Census Bureau last summer show that in 2011 (the most recent data available), southwestern Pennsylvania had the second smallest rate of new business formation among the top 40 regions. (Only firms with paid employees are counted, not sole proprietorships.)

National research shows that business startups, not established firms, accounted for all of the net new jobs created in the U.S. between 1980 and 2005. The low rate of new business creation in southwestern Pennsylvania may be one important reason why our overall rate of job growth has been below other regions.

Despite many regional efforts to encourage entrepreneurship, the number of new businesses here has actually decreased significantly over the past two decades. In the late 1980s, nearly 4,000 new businesses per year were being created here, but that dropped to only 3,400 in the late 1990s, the second biggest reduction among the top 40 regions. From 2003-2006, new business starts here decreased to only 3,200, whereas business formation increased in most regions. And while business creation slowed dramatically everywhere during the recession, business starts declined more in Pittsburgh than in most regions, with only 2,300 businesses started here in 2011.

Starting a new firm is very risky. Many don’t survive, particularly during their first year. Although a higher proportion of firms started in Pittsburgh remain in business after one year than in most regions in the country, it’s hard to know whether this is because entrepreneurs here are more capable business leaders, because we do a better job of helping new businesses succeed, or because the businesses that are started here are lower risk ventures. Regardless, even the higher survival rate here isn’t enough to offset our much lower startup rate, and so the Pittsburgh Region has the third lowest rate of one-year old firms among the top 40 regions.

Many entrepreneurs start businesses that will never be large employers. That doesn’t mean they’re not important to the local economy; nationally, more than 1 in 6 workers are employed by a business with fewer than 20 employees. However, special attention is needed for the subset of startup firms with the potential to generate hundreds or thousands of jobs for the region’s economy.

These high-growth firms are likely to be in technology-based industries. The importance of new technology firms has been recognized by Pittsburgh Region leaders for over two decades, and many programs have been established to encourage life sciences, robotics, and other technology firms to start and expand here. However, a recent study by the Kauffman Foundation indicates that while these efforts may have had some impact, they have not made the Pittsburgh Region a leader in high-tech startups. The study found that in 2010, the Pittsburgh Region ranked only 28th among the top 40 regions in the rate of new high-tech business formation. While that’s an improvement over our ranking of 35th out of 40 in 1990, it still means Pittsburgh is in the bottom tier among major regions.

With its high quality of life and low cost of living, Pittsburgh should be a magnet for entrepreneurs, and with its world-class universities and R&D facilities, it should particularly be a magnet for technology entrepreneurs. However, the region does not have a reputation for being a good place to start a business; in fact, Pittsburgh almost never shows up on lists of “best places to start a business.” For example, Pittsburgh ranked 60th in Fortune Small Business magazine’s 2008 “Best Places to Live and Launch a Business,” and a 2013 national survey of 7,000 business owners conducted by Thumbtack.com gave the Pittsburgh Region a grade of D+ on “small business friendliness.” 

What should we do to encourage more entrepreneurship here?

Cut Red Tape: New businesses face many challenges in starting and expanding, but one of their biggest frustrations is often figuring out how to navigate the regulatory mazes created by municipal, county, state, and federal governments. Local and state government officials could go a long way toward improving the region’s reputation by cutting red tape in the areas that create the biggest problems for new businesses and publicizing the positive feedback from entrepreneurs.

Improve Access to Capital: One of the most critical issues almost every new business faces is finding adequate financial capital. Alcoa, for example, started in Pittsburgh because 125 years ago, inventor Charles Martin Hall couldn’t find capital in his home state of Ohio, but he received the $20,000 in seed capital he needed from Alfred E. Hunt and a small group of investors in Pittsburgh, and then received continued financing from Andrew Mellon.

The credit crunch during the recession has made it difficult for small businesses to get loans, particularly new businesses. The region’s biggest banks could do more to expand their small business lending, and federal programs and regulations should be revamped to facilitate small business lending by both banks and credit unions.

Most technology startup firms need equity capital, not loans. Modern-day technology firms have the same challenges that Hall had over a century ago – finding investors to provide the seed capital they need to get started. Pittsburgh is fortunate to have Innovation Works (www.innovationworks.org), a non-profit organization that has become the most active seed-stage investor in the region. Innovation Works invested $4.8 million in 91 local companies in 2012, and its early stage investments have positioned hundreds of startup firms to attract over $1.4 billion in additional investment from venture capitalists and other sources. We’re also fortunate to have BlueTree Allied Angels (www.bluetreealliedangels.com), a network of high net worth individuals that invest in early-stage companies. However, in order for more technology entrepreneurs with good business plans to get the investment and assistance they need, state and local leaders need to expand funding for Innovation Works (over 60% of Innovation Works’ funding comes from the Commonwealth of Pennsylvania), and more high net worth individuals need to join BlueTree’s angel investor network.

Buy Entrepreneurs’ Products and Services: Too many young firms have failed or have been forced to leave the region because they couldn’t find customers here. Both large businesses and individuals can help by buying the products and services local startup firms produce. You can find lists of many startup firms on the Innovation Works and BlueTree websites, and you can read about some of Pittsburgh’s entrepreneurs in the Post-Gazette’s series, “The Entrepreneurs” at www.post-gazette.com/business/2013/12/23/The-Entrepreneurs/stories/201312230161.

Pittsburghers can be justifiably proud of the region’s high rankings on quality of life, but we should be embarrassed by our low rankings as a place to start a business. As we start a new year, let’s resolve to make Pittsburgh one of the best places in the world for entrepreneurs.

(A shorter version of this post appeared as the Regional Insights column in the Sunday, January 5, 2014 edition of the Pittsburgh Post-Gazette.)

Regional Job Growth Increasing, But Not Enough

The Pittsburgh Region’s economy has been on a bit of roller coaster ride over the past five years. The most recent data on jobs suggest that our economy may be on the upswing again, but our growth rate is still slower than we need it to be, and we’ve continued to fall behind the rest of the country in manufacturing.

It was exactly five years ago, in November, 2008, that the Pittsburgh Region first started losing jobs as the recession swept across the country. By October 2009, southwestern Pennsylvania had 35,000 fewer jobs, and we had a total of 88,000 people looking for work, the highest number in over 20 years.

It took two years until the total number of jobs in the Pittsburgh Region returned to the levels reached just before the recession hit. Pittsburgh attracted a lot of national attention in the initial recovery period because our job growth rate was significantly faster than the U.S. as a whole and because we had lost fewer jobs during the recession than most regions.

However, despite the growth in jobs, unemployment in the Pittsburgh Region remained high because the jobs being created were in different sectors than where they were lost. In particular, the region lost 10,900 manufacturing jobs during the recession (nearly 1/3 of the total jobs lost in 2009), but there were only 2,200 new manufacturing jobs among the total 35,600 jobs created in the region from 2009-2011. The majority (20,000) of new jobs were in the professional and business services and leisure and hospitality industries.

Then, last fall, job growth in Pittsburgh began to stagnate. Our rate of job growth dropped by 30% from 2011 to 2012, even as the rate of job growth in the U.S. accelerated, and the region’s job growth was the third-lowest among the top 40 regions between October 2011 and October 2012. The stagnation persisted well into this year. In the first six months of 2013, Pittsburgh’s job growth was the seventh slowest among the top 40 regions.

The good news is that in the past few months, job creation in the region has accelerated significantly. In October 2013, the U.S. Bureau of Labor Statistics reports that there were 20,200 more jobs in the region than a year earlier (October 2012). That’s the second-biggest 12-month increase in jobs in October in the past 20 years (both in absolute and percentage terms), and it’s almost as big as the previous record for October, the 20,400 jobs added between 1999 and 2000. Job growth in July, August, and September of 2013 was also among the highest experienced in those months in the past two decades.

The bad news is that even 20,000 net new jobs in a twelve-month period still falls far short of where we need to be:

• 20,000 new jobs in a year is less than we need merely to ensure the region’s high school graduates can find work. High schools in the Pittsburgh metropolitan area have been graduating between 23,000 and 25,000 students each year since the recession began, for a total of nearly 120,000 new workers over the past 5 years. Yet we only have 28,700 more jobs today than five years ago, which is barely enough for the 27,000 high school grads who said they were going directly into the workforce over the past 5 years, much less the more than 90,000 others who will be looking for jobs after completing college.

• There were still over 90,000 southwestern Pennsylvanians unemployed in August (the most recent data available). Even if the region continues to create 20,000 net new jobs per year and even if unemployed workers could qualify for all of those jobs, it would still take at least two years just to reduce unemployment to pre-recession levels.

Perhaps the worst news of all is that hidden within the increase in total jobs is the fact that one of our most important economic sectors – manufacturing – lost 1,200 jobs over the past year, a significant setback for the thousands of unemployed manufacturing workers who are still trying to find work. In contrast, 19 of the top 40 metropolitan regions added manufacturing jobs over the past year, and only 5 other major regions had bigger losses of manufacturing jobs than Pittsburgh.

Moreover, we aren’t just losing manufacturing jobs, we’re losing entire manufacturing businesses. The Bureau of Labor Statistics reports that as of the first quarter of 2013 (the most recent data available), there were 237 fewer manufacturing firms in the Pittsburgh Region than five years earlier, a more than 8% reduction. Losing manufacturing firms will make it even harder to grow new manufacturing jobs in the future. 

Although the region continues to experience strong job growth in other sectors such as professional services, higher education, healthcare, and finance, we can’t assume that will continue. In particular, the growing pressure to reduce healthcare costs, the increasing unaffordability of higher education, and federal cutbacks in research funding mean that slower growth or even reductions in our “eds and meds” sectors are on the horizon.

If we’re going to have a truly diverse and robust economy, we need to strengthen our manufacturing sector. Even in its weakened state, manufacturing still provides nearly 9% of worker earnings in our region, the third highest amount after business services, healthcare, and government. Further losses in manufacturing businesses and jobs will have a significant negative ripple effect on the rest of our economy. To truly revitalize our manufacturing sector, we should focus on three key things:

• The Governor and General Assembly must create an attractive business climate for manufacturing firms through competitive taxes and regulations, ready-to-go industrial sites, and well-maintained highways and bridges;

• Our public schools must ensure the region’s high school graduates are proficient in basic skills and encourage them to consider careers in manufacturing; and

• Regional economic development agencies must continue to encourage entrepreneurs to start and grow new manufacturing firms here by providing the startup capital, mentoring, and initial customers they need to be successful.

A version of this post appeared as the Regional Insights column in the December 1, 2013 edition of the Pittsburgh Post-Gazette

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Which Health Plans Have the Best Provider Networks?

It’s the time of year when many people must choose a health insurance plan. Although the national news has focused on the problems people are having in signing up for coverage through the new federal health insurance exchange, thousands of senior citizens are also facing choices about whether to get their health coverage through the traditional Medicare program or one of many different Medicare Advantage insurance plans, and many workers with employer-sponsored insurance will have new choices to make during their open enrollment period.

For the first time, many Pittsburghers are being forced to evaluate different health plans based on which physicians and hospitals are “in-network.” Although the cause in our region has been the battle between UPMC and Highmark, employers and health insurance companies in other parts of the country are also increasingly offering “narrow network” health plans in an effort to reduce premiums.

The dictionary defines a “network” as a “group or system of interconnected people or things.” Traditionally, most health plan networks haven’t really been coordinated systems, but merely lists of physicians and hospitals that have agreed to give a bigger discount to the health plan. However, research shows that patients can stay healthier and get better quality care at a lower cost if the patients use a true network of high quality physicians who work together in a coordinated way to deliver better outcomes.

What does such a “high-value” network look like?

The most important elements of a good network aren’t the hospitals, because the network’s first goal should be to help you stay well so you don’t need a hospital at all. Instead, the most important component of a network is an adequate number of high-quality primary care practices. A truly high quality primary care practice does four key things for you: (1) it helps you get the preventive care you need to stay as healthy as possible; (2) it accurately diagnoses new health problems you experience and then provides or arranges for the most appropriate treatment in a timely fashion; (3) if you have a chronic disease such as asthma, diabetes, emphysema, or heart disease, it helps you manage that chronic condition successfully so you don’t have problems and end up in the hospital; and (4) if you need specialists, the practice helps you find the right specialists and makes sure all of your care is coordinated.

Unfortunately, most people don’t get truly high-quality primary care in any network today. It’s not because the primary care physicians are bad, it’s because of the way the physicians are paid by the health plan. For example:
• If you’re frustrated by how little time your primary care physician (PCP) spends with you when you have a visit, blame your health insurance, not the doctor. Medicare and most health plans pay doctors on the assumption that a typical office visit will last only 15 minutes. Moreover, doctors get paid less if they address multiple issues in the same visit than if they bring you back multiple times, even though it would save you time and money to get everything done in one visit.
• If you’re angry because your doctor spends more time during your short visit typing on the computer than listening to you, blame your health insurance, not the doctor. Medicare and many health plans now reduce physicians’ pay if they don’t enter detailed data about you in an electronic health record.
• If you have trouble getting your PCP to answer the phone or respond to an email when you have a question or health problem, don’t blame the doctor, blame your health insurance. Medicare and most health plans won’t pay doctors for phone calls or emails with patients, they only pay for office visits. The more time a doctor spends on the phone, the less time he or she has to see patients in the office, but the only way anybody in the physician practice can get paid is if the doctor (or a nurse practitioner or physician assistant) sees enough patients in the office every day.

Some health plans are beginning to change the way they pay primary care physicians so the physicians can better customize care to what their patients really need. These “patient-centered medical home” programs are a step in the right direction, but most of them have been too small to make a significant difference. That’s starting to change, but not nearly fast enough. Fewer doctors are going into primary care because of their frustrations with the way they’re paid, so it’s going to be harder and harder for people to find good primary care physicians if health plans don’t start paying PCPs in better ways.

From time to time, you’ll have a health problem that requires help from a specialist. But which of the dozens of subspecialties is the right one? If you need multiple specialists, will they all coordinate what they do so you don’t receive conflicting medications or duplicative tests?

In a true “network,” your PCP would help you find the right specialists and work with them to ensure all of your care is coordinated. But once again, the way doctors are paid gets in the way. For example, in many cases, the specialist could advise you and your PCP over the phone about what to do, rather than making you wait for weeks or months until you can get an appointment to see the specialist in person. But Medicare and most health plans don’t pay specialists for giving advice over the telephone or by email, they only pay for office visits and procedures. As a result, many specialists can’t see new patients quickly because their calendars are filled with office visits from patients they don’t really need to see in person. Specialists also don’t get paid for time they spend talking with other specialists or with PCPs to coordinate care, so it’s no wonder that patients can find themselves falling between the cracks.

Some health plans are beginning to pay differently for the specialists in the “medical neighborhood” as well as for the primary care “medical home.” In one pilot project, paying for email consultations with specialists resulted in dramatic reductions in the delays seriously ill patients experienced in getting appointments with specialists, because the specialists were able to successfully address other patients’ problems quickly through an email exchange with their PCP.

If you do need hospital care, you obviously want to make sure there are high-quality hospitals in your health plan’s network that can take care of you. Unfortunately, the hospitals in our region don’t publish information about the quality of the care they provide, so it’s impossible to know whether one network’s hospitals are better than another’s. Although you hear a lot of advertising about how certain hospitals are the “best” at one thing or another, most of those rankings aren’t based on actual outcomes for specific procedures. The limited data available suggest that for common hospital procedures, most of the hospitals in the Pittsburgh Region deliver care of similar quality, and many of the independent community hospitals do it at a much lower cost. For more complex conditions, the best hospital for you may not be in the Pittsburgh Region at all. Some national employers, such as Walmart and Lowes, are now paying not only medical costs but travel expenses so their employees can go to hospitals such as the Cleveland Clinic and Johns Hopkins that have committed to provide high quality care at an affordable cost.

So before you decide which health plan to use, first choose a primary care practice that is committed to high-quality, patient-centered care. Ask the PCP which health plans pay to support high-quality care, and ask which plans pay specialists so they can work as a team with your PCP. If you choose a health plan that supports truly coordinated, high-quality primary and specialty care, you’ll be healthier, you’ll spend less, and you may never need to worry about which hospitals are in the network.

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

High Spending on Hospitals Makes Healthcare Less Affordable

Anyone who has survived a serious injury or life-threatening illness is likely grateful for the care they received in a hospital. Advances in hospital care mean that people today can recover from injuries and diseases that would have meant certain death in the not-too-distant past.

However, in addition to saving many lives, hospitals have also become the biggest drivers of increasingly unaffordable healthcare costs. Spending on hospital care has grown faster in the past five years than any other type of healthcare spending, and payments to hospitals are the largest single category of total healthcare spending.

The good news is we don’t have to cut back on life-saving hospital care in order to reduce total spending on hospital services. The reason is that a lot of what we spend on hospital care today is either unnecessary, avoidable, or even harmful for patients. For example, national data show that 5% of hospital admissions for commercially insured patients and 17% of admissions for Medicare patients could have been avoided through better primary care or use of alternative, lower-cost treatments. For many common conditions, 20% or more of the patients who are admitted to hospitals have to be admitted again within 30 days after discharge. Worst of all, there are over 1.5 million preventable infections, errors, and complications every year, which not only harm patients but cost billions of dollars to treat.

In other words, all too often, higher spending on hospital care means a community is getting worse healthcare, not better, and that it’s paying a lot more than necessary for the care it does receive.

 Nowhere is this more true than in Pittsburgh. Although Pittsburgh’s hospitals have been national leaders in developing and delivering life-saving treatments in areas such as cancer, heart disease, and organ transplants, Pittsburgh is also a national leader in the overuse of hospitals. American Hospital Association data show that in 2010, there were 170 hospital admissions per 1,000 residents in the Pittsburgh region, the highest rate among the major regions in the country and 49% higher than the national average. Pittsburgh also had the 2nd highest rate of surgeries and the 7th highest rate of emergency room visits.

These high rates aren’t because we have an older population or because patients are coming here from other parts of the world. For example, Medicare data show that Pittsburgh seniors are hospitalized at the second highest rate among major regions, 18% more than the national average.

There are many initiatives around the country that have successfully reduced rates of hospitalizations, infections, and readmissions to hospitals by improving care to patients. The Pittsburgh Regional Health Initiative has been a national leader in developing such initiatives.

Hospitals, however, have had little incentive to participate in or support these initiatives because they cause the hospitals to lose revenue. What should really matter to hospitals is their margins (their profits), not their revenues, but two factors – the cost structure of hospitals and the way we pay for hospital services – mean that lower revenues generally cause financial losses for hospitals.

Hospitals have a lot of fixed costs they have to pay for regardless of how many patients they admit. Everyone wants the emergency room, surgery suite, and burn unit to be equipped, staffed, and ready to go even if there are no patients who need them on any given day. But hospitals don’t get paid for services that aren’t used. The emergency room runs a deficit if there aren’t enough true emergencies, so is it any wonder that hospitals advertise how quickly you can be seen in their emergency rooms even for minor problems? 

The more fixed costs a hospital has, the more lucrative every additional admission is, and the more problematic it is to have fewer admissions. Here’s a simple example. Assume that a hospital has $200 million in annual costs and that 2/3 of those costs ($133 million) are fixed (they don’t change with fewer patients), while 1/3 ($67 million) are variable (i.e., the costs decrease with fewer patients). The hospital admits 15,000 patients per year, and is paid an average of $13,500 per patient, for a total of $202.5 million in revenue. Since total revenue exceeds total cost, the hospital has a slim but positive 1.25% operating margin.

Now let’s suppose that improved primary care in the community results in 10% fewer people needing hospital care. What would happen to our hypothetical hospital? Its variable costs would decrease by 10% to $60 million, but its fixed costs would remain at $133 million. Total costs would now be $193 million, 3% less than before. Revenues, however, would decrease by 10% (to $182 million) because there are 10% fewer patients. The net result is an $11 million loss (a negative 6% margin).

Conversely, if primary care in the community deteriorates and 5% more people are hospitalized, the hospital’s revenues will increase by 5%, but its costs will increase by less than 2%, giving the hospital a margin of 5%, better than before. The hospital only “wins” when people in the community are sicker.

This problem is bigger in Pittsburgh than in most communities because we have so many hospitals. Pittsburgh has the 3rd largest number of hospitals per capita and the 2nd largest number of hospital beds per capita among the largest 40 metropolitan regions. That’s a lot of fixed costs that have to be paid for. If physicians do a better job of helping patients with asthma, diabetes, emphysema, heart failure, and other chronic diseases stay well and stay out of the hospital, many hospitals in Pittsburgh, particularly community hospitals, could experience significant financial losses.

Fortunately, a hospital doesn’t have to go bankrupt in order for the community to be healthier and for payers to spend less. Paying the hospital slightly more per admission in conjunction with programs to reduce avoidable admissions could enable the hospital to maintain its margins even though it’s getting less total revenue. This would be a true win-win-win: patients would be healthier, healthcare spending would be lower, and the hospital would remain financially viable.

Moreover, reducing hospital costs doesn’t necessarily mean losses in jobs, particularly direct patient care jobs. In fact, only 44% of hospital spending in our region goes to payroll costs, the third lowest percentage of any major region in the country, so many of our hospitals should be able to significantly reduce costs without cutting jobs.

Unfortunately, instead of pursuing win-win-win solutions, most communities around the country are locked in win-lose battles between hospitals and health plans. Hospitals are doing everything possible to fill beds and raise prices, while Medicare and health plans are trying to cut hospital payments to offset the higher cost of more admissions. Health systems are building more hospitals to generate more admissions rather than helping patients stay healthy, and hospitals are merging, not to reduce duplicative fixed costs, but to increase their leverage in demanding higher prices from health plans and patients.

Is there a better way? Fortunately, yes.

First, health plans need to commit to adjust their payments to hospitals so hospitals can continue to cover their costs when admissions decline due to better outpatient care. Second, hospital CEOs and Boards of Directors need to support programs to reduce unnecessary hospitalizations and to eliminate unnecessary and duplicative hospital costs so their hospitals can deliver high-quality care with less revenue.

Maryland has implemented this kind of approach for rural hospitals through a state-mandated program, and as a result, they’ve seen dramatic reductions in hospital admissions and readmissions without negative financial impacts on hospitals. Similar or better results could be achieved in southwestern Pennsylvania without state intervention if hospitals, health plans, physicians, and employers could work together in a more collaborative way.

(A version of this post appeared as the Regional Insights column in the Sunday, October 6, 2013 edition of the Pittsburgh Post-Gazette.)

Patients Can Get Quality Healthcare at Lower Cost With the Right Kind of Health Plan

Many people believe that healthcare costs for both private businesses and government programs could be reduced significantly – perhaps by as much as 30-40% -- while actually improving outcomes for patients. That’s because of growing recognition that many healthcare tests and procedures being performed today are unnecessary or even harmful to patients and because many desirable healthcare services are being delivered inefficiently or at higher-than-necessary prices. Eliminating the unnecessary costs would make it more affordable to provide insurance coverage through both private employers and public programs such as Medicare and Medicaid.

The healthcare industry doesn’t get the same pressure from consumers to eliminate waste and inefficiencies as other industries do because in the vast majority of cases, the person who receives the services – the patient – doesn’t pay for most of the price of that service. If an MRI is “free” because insurance pays for it, why get a lower-cost X-ray instead, even if the X-ray would be good enough to accurately diagnose your condition?

To try and give patients more “skin in the game,” virtually all health plans require cost-sharing by patients, either through a copayment (e.g., $20 for a doctor’s visit or $30 for a prescription), co-insurance (e.g., 20% of the cost of a hospital stay), or a deductible (i.e., the patient pays 100% of the cost of services up to a specific amount before health insurance kicks in).

A survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust found that in 2013, three-fourths (78%) of workers with employer-sponsored health insurance now have a deductible, compared to only 55% in 2006. More than a third (38%) of workers have an annual deductible of $1,000 or more, compared to only 10% in 2006, and 15% have a deductible of $2,000 or more, compared to 3% in 2006. The numbers are higher for those who work for small businesses (those with under 200 employees) – over half (58%) now have deductibles of $1,000 or more, and nearly a third (31%) have deductibles of $2,000 or more.

Unfortunately, research studies have shown that co-payments, co-insurance, and deductibles don’t just discourage people from getting unnecessary services, they can also prevent people from getting necessary services that would avoid even more expensive problems in the future. For example, if money’s tight, someone who has a chronic health problem like high blood pressure, diabetes, or asthma may decide not to get their prescriptions filled or see their doctor when a problem first develops, particularly if they have a high deductible. But they’d also be more likely to later end up in the emergency room or need an expensive hospital stay. In other words, it can be penny-wise and pound foolish for the health plan to require the copayments and deductible. Although federal law now prohibits cost-sharing for important preventive services to avoid some of these kinds of problems, cost-sharing remains high for many medications and other services that can help people stay well.

That’s not the only problem with copayments, co-insurance, and deductibles, though. They also don’t provide people with any incentive to choose lower-cost providers for expensive services. 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 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 for the surgery regardless of which hospital you chose. It would be the same under a high-deductible plan, because the cost of the surgery is well above the deductible. Since there is no incentive for you to choose the lower-cost hospital, there’s no incentive for Hospital #1 to stay low cost or for Hospital #2 to become more efficient or charge less.

Is there a better way? Three promising approaches to improved cost-sharing are being used by the most innovative employers and health plans around the country:

Value-based cost-sharing. A growing number of employers and health plans are reducing or eliminating cost-sharing for chronic disease medications in order to prevent high-cost complications and hospitalizations. This is particularly important when there is no generic equivalent for the drug a patient needs. Programs that have made medications free for patients with diabetes and high blood pressure have improved medication adherence and reduced complications without increasing total expenditures, and they may well reduce overall spending in the longer run.

Reference pricing. Why should you expect health insurance to pay extra for you to go to an expensive hospital if you can get high-quality care for less? CalPERS (the California state employee retirement system) found it was paying less than $20,000 for knee surgery at some hospitals and over $100,000 at others. Many hospitals were willing to do quality knee surgery for less than $30,000, so CalPERS told its members that it would pay no more than $30,000 (the “reference price”) for a knee replacement. CalPERS members are free to go to more expensive hospitals if they want to, but they have to pay any cost above $30,000 themselves. A new study found that after this policy was implemented, use of lower-priced quality hospitals increased by 21% and use of higher-priced hospitals decreased. Moreover, the higher-priced facilities reduced their prices by 34% in order to avoid losing patients. As a result, CalPERS saved $2.8 million and its members paid $300,000 less in cost-sharing.

Tiered networks. A tiered network goes a step further by grouping hospitals into multiple tiers based on their relative cost and quality. If a patient who needs non-emergency services chooses a hospital from a lower-cost/higher-quality tier, the patient pays less. The patient has an incentive to look for the lowest-cost, high-quality hospital, but unlike high-deductible plans or plans with high cost-sharing, insurance will cover most of the cost if the patient chooses a lower-cost, high-quality hospital.

Well-designed tiered networks are much better than the “narrow networks” or “high-performance networks” many health plans are now offering that look more like traditional HMOs than the broad-network PPO plans people have become used to. In a narrow network, the employer or health plan chooses which doctors and hospitals you can use and makes you pay a lot more if you get care from an “out-of-network” provider, i.e., the health plan “steers” you to the providers it chooses. But most people don’t know in advance what healthcare services they will need or whether the hospitals the health plan chose for the network will be the best for those specific services. For example, if a patient unexpectedly develops cancer, they may want to be able to afford to go to the highest-quality oncology provider, even if they get all of their other healthcare services from other, lower-cost providers. Moreover, there may be differences in cost among providers within the narrow network, and in a narrow network plan, the patient typically has no incentive to choose the lower-cost providers, merely to avoid the out-of-network providers.

In contrast, a tiered network allows you to use any high-quality hospital you wish when you have a healthcare problem, but you have to pay more if you choose a hospital that charges more to deliver care when a lower-cost hospital is available for that particular problem. The only “steering” is what the hospitals themselves do based on the quality of their services and the prices they charge; i.e., if a hospital wants to avoid losing patients, it can reduce its prices, improve its quality, or both.

Do tiered networks encourage better care at lower cost? The fact that many large, high-cost health systems try to prevent the use of tiered network plans may be the best evidence possible that tiered networks have significant potential to be effective in controlling high prices. Unfortunately, there are no true tiered network plans available in the Pittsburgh Region today. In Massachusetts, the state legislature required all health insurance companies to offer tiered network plans.

If employers and workers want to reduce their health insurance costs while improving the quality of the healthcare they receive, they need to demand that their health insurance plans use value-based cost-sharing, reference pricing, and tiered networks. In order for patients to make well-informed choices under these types of health plans, the region’s hospitals need to issue public reports on the quality of care they provide and post their prices for everyone to see.

(A version of this post appeared as the Regional Insights column in the Sunday, September 1, 2013 edition of the Pittsburgh Post-Gazette.)

Growth in Wages But Not Jobs

Four years after the recession officially ended, Pittsburgh, like the nation as a whole, is still struggling to recover. Although most of the major regions across the country have seen job growth improving over the past couple of years, the opposite is unfortunately true in Pittsburgh. Between 2009 and 2010, the Pittsburgh Region had the 6th highest job growth among the top 40 regions, but between 2010 and 2012, job growth here ranked only 26th. So far, 2013 has been even worse – the Pittsburgh Region was among the bottom 5 regions in job growth during most of the first half of this year.

Although our job growth has been slower than other regions, wages in the Pittsburgh Region have actually been growing faster than in most regions over the past two years. U.S. Bureau of Labor Statistics data show that between 2010 and 2012, workers in the Pittsburgh Region had the 5th highest growth in average weekly wages among the 40 largest metropolitan regions in the country. Average weekly wages here increased by 7.2% over that two year period, nearly two percentage points more than the 5.3% rate of inflation. Only Northern California (San Francisco and Silicon Valley), Seattle, and Houston had higher wage growth than Pittsburgh, and most regions had wage growth of less than 5.5%.

In fact, Pittsburgh has been doing better than other regions in wage growth throughout the entire recession and recovery period. Between 2007 (before the recession started) and 2012, average weekly wages in the Pittsburgh Region increased by 13.6%, again the 5th highest increase among the top 40 regions. Early indications are that in 2013, wage growth in Pittsburgh has continued to be higher than most other regions.

Why are wages increasing so much more here than in other regions?

One reason is that we’ve had above average wage increases in most industries, not just a few. The only major sectors where wage increases were below average compared to other large regions were wholesale trade, financial services, and federal and state government jobs.

It’s important to note, however, that while the increases in wages were above average, that doesn’t mean that the wages themselves were above average. In many industries, wages in Pittsburgh have been and continue to be below average compared to other regions. Higher than average wage increases may simply be a reflection of employers playing catch-up to other regions in order to compete for talent.

For example, in the healthcare and social assistance sector, which has been one of the biggest job generators in the region in recent years, average weekly wages increased by 4.6% between 2010 and 2012, the 11th highest increase among the 32 large regions for which data are available. However, despite that above-average growth, Pittsburgh’s average weekly wage in 2012 for health and social services jobs ($868) was still the 8th lowest among the 32 regions.

In fact, despite having the fifth highest overall wage growth over a five year period (2007-2012), Pittsburgh’s overall average weekly wage in 2012 ($937) ranked only 22nd among the top 40 regions. That is a big improvement over our 27th ranking in 2007, but still below average. Although Pittsburgh’s lower cost of living means that lower wages buy a lot more here than in other regions, lower pay, particularly low starting salaries, can deter young workers from starting their careers here.

Even though Pittsburgh wage increases were above average in most industries, the increases were not in the top 5 in any industry. So how did the region have the 5th highest wage increase overall?

The answer is that the types of jobs in the region have also changed significantly during the recession and recovery period. Compared to 2007, the year before the recession hit, Pittsburgh today has 10,500 fewer manufacturing jobs, 7,900 fewer government jobs, 5,800 fewer retail jobs, 3,900 fewer construction jobs, 3,900 fewer information sector jobs, 2,900 fewer wholesale trade jobs, and 1,500 fewer transportation and warehousing jobs. But offsetting those losses are 21,700 more business and professional services jobs, 16,300 more health care and social services jobs, 6,600 more leisure and hospitality jobs, 6,400 more financial services jobs, 6,100 more mining jobs, and 3,900 more education jobs in private education. Although many of the jobs we’ve lost have been in high-paying sectors like construction and manufacturing, the jobs in professional and business services, financial services, and mining have wages significantly higher than in either construction or manufacturing.

Our above-average wage growth has probably helped to offset some of the economic problems our region might otherwise have experienced due to below-average job growth. In fact, despite ranking only 29th in job growth among the top 40 regions between 2010 and 2012, the Pittsburgh Region had the 15th highest growth in total wages (i.e., the sum of all paychecks in the region), and it had the 8th highest growth in total wages from 2007 to 2012. More total wages usually means more consumer dollars being spent on products and services sold in the region.

Higher than average wage growth is great for those who have jobs, but it does little to help those who don’t have jobs. And unfortunately, the Pittsburgh Region continues to have far too many unemployed workers – over 92,000 in June. Unemployment has been decreasing very slowly and remains close to 7% precisely because the jobs that are being created aren’t in the sectors where they were lost. High-paying jobs in law firms, accounting firms, and banks are good for the region, but they require different types of education and skills than those who were laid off from manufacturing and retail jobs can easily acquire.

We also can’t be complacent about the sectors that have been creating high-paying jobs, because there are many signs of danger ahead. For example, our major health systems have indicated that they will be making cutbacks in hiring. Colleges and universities are trying to become more efficient as state funding is cut and more young people try to minimize the burden of education debt. Although the region has benefited from the boom in natural gas, the drop in demand for coal has resulted in power plant shutdowns and threats of mining layoffs. Our success in business and professional services has been dependent on serving as a headquarters city, but that is continually threatened by cutbacks in direct air service to other cities.

No one can predict where growth will come from in the future. So rather than trying to pick particular industries to focus on, our priority should be making our region attractive for all types of businesses. We need to reduce state business taxes, repair our decaying transportation and water/sewer infrastructure, provide ready-to-go industrial sites for manufacturing firms that want to locate and expand here, and improve the performance of our schools. We need to ensure that startup firms can find the capital and customers they need to grow and succeed here, rather than moving to other regions. And we need to help the tens of thousands of unemployed Pittsburghers get the training and assistance they need to be hired for the high-wage jobs the region is creating.

(A version of this post appeared as the Regional Insights column in the Sunday, August 11, 2013 edition of the Pittsburgh Post-Gazette.)

Too Many Pittsburgh Babies Are Dying or Living in Poverty

There is no major region in the country that needs babies more than Pittsburgh. The Pittsburgh Region lost population for two straight decades and continues to have one of the slowest growth rates of any large region because it is the only major region in the country where there are more deaths than births. While that’s partly because our death rate is the highest of any major region in the country, it’s also because we have the lowest birth rate among the largest 40 regions.

However, we don’t just need more babies, we need healthy babies raised in households that can give them the support they need to succeed in life. Unfortunately, our region is performing poorly in that respect, too.

Babies are more likely to die in the Pittsburgh Region than elsewhere. Data from the Pennsylvania Department of Health and the National Center for Health Statistics show that in 2010, the infant mortality rate (the proportion of infants born alive who die within the first year of life) was 7.2 deaths per 1000 live births in the Pittsburgh metropolitan area, 17% higher than the national rate of 6.15. The neonatal mortality rate (infant deaths which occurred during the first month of life) was 5 per 1000 births in the Pittsburgh Region, 25% higher than the national rate. The infant mortality rate in Allegheny County (7.6) was higher than both the regional and national averages, and the rate in Lawrence County (12.5) was double the national average.

African American babies are much more likely to die here than in other regions. The mortality rate for infants born to African American mothers in Allegheny County was 14.5 per 1000 in 2010, 25% higher than the national average of 11.6. (85% of the African American births in the region occur in Allegheny County, so race-specific infant mortality rates are not statistically reliable in the other counties.) The infant mortality rate for African American babies was more than double the rate for white babies (5.7), a bigger disparity than in other parts of the country.

Babies aren’t dying because of a lack of prenatal care. Over 80% of mothers in the Pittsburgh Region get prenatal care in the first trimester, which is better than the national average. Although having every mother get early prenatal care would be ideal, it’s more likely that our infant mortality rates are high because mothers aren’t engaging in healthy behaviors during pregnancy and because many mothers don’t have adequate resources to care for their babies after birth.

Too many babies in Pittsburgh are born to mothers who smoke during and after pregnancy. Research has shown that smoking during pregnancy doubles the likelihood of having a low birthweight baby and increases the rate of infant mortality. Pennsylvania Department of Health data indicate that 1 in 6 mothers in the Pittsburgh Region smoked throughout their pregnancy, a 25% higher rate than the national average. Smoking during pregnancy is much more frequent in rural parts of the region; more than 1 in 4 mothers in Fayette County smoked throughout their pregnancy, and more than 1 in 5 pregnant women smoked in Armstrong, Greene, and Lawrence Counties. Babies born to young mothers face the greatest health challenges.

Teenage mothers (under age 20) and young mothers (ages 20-24) are more likely to engage in unhealthy behaviors such as smoking during and after pregnancy and to have low birthweight babies. In the Pittsburgh Region, 24% of mothers under age 20 smoke during pregnancy and 28% of pregnant women ages 20-24 smoke, compared to only 16% of pregnant women ages 25-29 and 10% of those age 30 and older. 10% of the babies born to mothers under age 25 in Pittsburgh were low birthweight (under 5.5 pounds), compared to fewer than 7% of babies born to mothers ages 25-34. Low birthweight babies are more likely to die and, if they survive, to have serious health problems and learning disabilities that can make them less likely to succeed in school.

More African American babies are born to teen mothers in Pittsburgh than in any large region of the country. A major reason the infant mortality rate for African Americans is so much higher here is likely because an unusually high proportion of our African American babies are born to young mothers. 55% of African American babies in the Pittsburgh Region have mothers under age 25, compared to only 47% nationally. Nearly one-fifth of the black babies here (19%) have teenage mothers, the highest proportion among the top 40 regions in the country. In contrast, in regions such as Boston, Portland (OR), and San Diego, fewer than 10% of African American babies are born to teenagers, and teen birth rates in those regions are only half as high as they are in Pittsburgh.

Too many babies in the Pittsburgh Region are growing up in poverty. Young mothers are far more likely to be single than older mothers, and that’s particularly true in the Pittsburgh Region. 96% of mothers under age 20 are single here compared to 88% nationally, and 74% of Pittsburgh mothers ages 20-24 are unmarried, compared to 63% nationally. Single parenthood creates a vicious cycle of poverty for both the mother and baby, since it is very difficult for young, single mothers to finish their education and obtain employment while taking care of an infant. In the Pittsburgh Region, the majority (60%) of mothers under age 25 are on Medicaid, compared to fewer than 19% of older mothers. The problem is even more severe in the African American community, where 78% of the mothers ages 20-34 are unmarried, the third highest rate among the top 40 regions. Likely as a result of the high rates of single motherhood in the African American community, over 50% of the African American children under age 5 in Pittsburgh are living in poverty, the 7th highest rate among the top 40 regions.

The inescapable conclusion is that the Pittsburgh Region needs to make a more concerted effort to reduce teenage pregnancy rates and improve pregnancy outcomes, particularly in the African American community and rural parts of the region. At least three types of actions would be desirable:

• Encourage teenagers to avoid unplanned pregnancies and encourage young women to delay pregnancies until they have finished their education and have adequate financial resources to support raising a baby. This is something that parents, family, and friends can encourage as well as physicians, schools, and social service programs.

• Urge young women who are pregnant to stop smoking and obtain good prenatal care in order to have the healthiest baby possible. Encouraging this should also be a community role, not just the role of doctors and healthcare providers.

• Assist young women who have babies to obtain affordable childcare and to finish school and obtain employment. Although there are a number of programs in the region designed to address these goals, particularly in Allegheny County, the data suggest that much more needs to be done. Programs that are effective should get the resources they need to expand, and those that are not effective should either improve or the resources supporting them should be shifted to higher-impact programs.

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

Lack of Diversity is Hurting the Region’s Economy

For many years, no matter what kind of good economic news our region received, it was always overshadowed by a lingering sign of economic decline – our continuing loss of population. After losing nearly 7% of our population in the 1980s (the largest loss of any region in the country), the Pittsburgh Region was the only major region to lose population in the 1990s. Rather than slowing or reversing losses after 2000, population decline actually accelerated, and we ended the decade with 3.1% fewer residents than we had in 2000, for a total cumulative 30-year population loss of 11%.

So it’s hard to blame people for feeling optimistic about the fact that in both 2011 and 2012, the Census Bureau estimated that the Pittsburgh region had experienced a net increase in population. Unfortunately, though, the estimated growth has been very small. According to the Census Bureau, the Pittsburgh Region added only 1,795 people between 2010 and 2011, and an even smaller number, 619 people, between 2011 and 2012. Those are minuscule increases in the region’s total population of 2.3 million, and the fact that the increase was smaller in 2012 than 2011 is not a good sign.

What’s holding our population growth back?

One of the biggest factors is likely the lack of racial and ethnic diversity in our region. The largest source of population growth in every region in the country has been racial and ethnic minorities – particularly African Americans, Asians, and Hispanics. But Pittsburgh has fewer minorities than every other major region in the country. The 2010 Census showed that only 13% of the residents of our region were non-white or Hispanic – the smallest percentage of any the top 40 regions in the country.

The diversity of the Pittsburgh region’s population has increased over the past 30 years, but only barely. Although the minority share of the region’s population increased from 8% in 1980 to 13% in 2010, every other region of the country experienced significantly more growth in its minority population than the Pittsburgh Region over that 30 year period. Today, on average, 45% of the residents of other major metropolitan regions are minorities.

Why does this matter? If Pittsburgh wants its population to grow, attracting and retaining more minority residents isn’t an option, it’s a necessity. In fact, Pittsburgh’s population losses during the 1980s, 1990s, and 2000s would have been even bigger if not for the growth the region did have in its minority population. Over the past 30 years, the white population here declined by 16%, but the non-white population grew by 44%. Between 2000 and 2010, the number of white residents of our region declined by 5.6% but because the minority population increased by 18%, our region’s total population loss was held to only 3.1%.

Moreover, unless we attract more residents from other states and countries, our population will continue to shrink. Between 2010 and 2012, the Pittsburgh Region had the lowest birth rate and the highest death rate among the top 40 regions, and it is still the only major region in the country with more deaths than births. So unlike any other region, Pittsburgh’s population would have declined in 2011 and 2012 if it hadn’t been for new residents moving here from other communities.

The subgroup that Pittsburgh has done the poorest job in attracting is foreign-born residents. Census estimates for 2011 indicate that only 3.3% of the Pittsburgh Region’s residents are foreign-born, the smallest percentage among the top 40 metropolitan regions. There are almost twice as many foreign-born residents in Cleveland (6%), more than three times as many in Minneapolis (9.7%) and Charlotte (10.3%), and more than ten times as many (36.4%) in Silicon Valley as here. Since Census estimates show that we also rank dead last in the rate of international migration into the region, the gap will continue to widen.

This will likely affect not just our population growth but also our job creation rate, since studies have shown that a high percentage of successful technology companies across the country have been started by immigrant entrepreneurs. Pittsburgh’s success a century ago derived from the entrepreneurship and labor of immigrants, so it’s ironic that today, Pittsburgh has become one of the least diverse regions in the country, and it’s also likely that’s a significant reason why our job growth has also been much slower.

Although it is not easy to change the diversity of a region, other communities have done it successfully. In fact, thirty years ago, Pittsburgh was not the least diverse of the major regions in the country the way it is today. Minneapolis was. In 1980, only 5% of the residents of the Minneapolis metro area were minorities, the lowest percentage among the largest 40 regions in the country. But today, 21% of the residents of the Minneapolis Region are minorities.

The change in Minneapolis wasn’t an accident. The community made a major effort to resettle southeast Asian refugees into the Twin Cities and to help migrant farmworkers become homeowners in rural areas. As a result, Minneapolis had the 11th highest growth in Hispanic residents and the 12th highest growth in Asian residents among the top 40 regions between 1980 and 2010. By comparison, during the same time period, Pittsburgh ranked 37th and 35th in attracting Hispanic and Asian residents. Minneapolis still has a smaller percentage of African-American residents than Pittsburgh does, but it’s had the second highest growth in African Americans over the past 30 years among major regions, whereas Pittsburgh has had the fifth slowest growth, so Minneapolis will likely soon surpass us on that measure, too.

Expanding diversity certainly hasn’t hurt the Minneapolis economy. Jobs in the Minneapolis region grew four times as fast as they did in Pittsburgh over the past decade. Moreover, the unemployment rate in Minneapolis in March was only 5.3%, significantly lower than the 7.1% unemployment rate in Pittsburgh, so it seems that attracting new residents has benefited everyone in the Minneapolis region.

Pittsburgh’s lack of diversity is unlikely to change dramatically on its own. Public and private leaders in the region need to proactively focus on the issue and invest sufficient resources over a multi-year period to achieve success. Two strategies will likely have the most immediate impact:

• Encourage minority and international students to stay in the region after graduation. Thanks to our world-class universities, we’re already attracting some of the best and brightest minorities in the world to our region. We just need to do everything we can to encourage them to stay here. Businesses in the region could help by offering minority students internships and jobs and also by serving as mentors and customers for students who want to become entrepreneurs.

• Help existing minority residents obtain the education, jobs, and entrepreneurial assistance needed for success.  A previous post outlined ways to address the high rates of unemployment and poverty among our African American residents. If we show African Americans and other minority groups that they can be successful in our region, more will likely be willing to come here.

(A version of this post appeared as the Regional Insights column in the Sunday, June 2, 2013 edition of the Pittsburgh Post-Gazette.)

African Americans Are Being Left Behind By Pittsburgh’s Economy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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