Sunday, February 07, 2010

Has Our Region Lost Businesses as Well as Jobs?

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.


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