Monday, August 19, 2013

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.)


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