Public Policy and Recovery: Barriers and Solutions
Much of the blame for Pennsylvania’s and the nation’s slow jobs recovery lies with federal economic policy. The tax cuts that Congress enacted in 2001 and 2003 were generally tilted toward high-income taxpayers. Because high-income households save a larger percentage of their tax cuts than do low- and middle-income households, the tax cuts of 2001 and 2003 failed to stimulate the economy as much they would have if they had provided greater proportional tax relief to the less well off.
Federal policy has done little to stem the loss of manufacturing jobs. The value of the dollar remains high by historical standards, putting U.S. manufactured products at a competitive disadvantage. And U.S. trade agreements with low-income countries do not contain enforceable labor standards and other mechanisms to ensure that wages rise as these countries attain much higher productivity levels.
Federal policy has also failed to raise the wages of low-wage earners. The federal minimum wage has not been increased since 1997. Since then the minimum wage has lost 8 percent of its purchasing power while productivity increased by 22 percent. And the work requirements in the federal welfare reform law pushed large numbers of people into the low-wage job market, slowing the growth of wages at the bottom.
At the state level in Pennsylvania, government has taken some steps to make the state a better place for working people.
- Following a governor’s economic summit held in March, the Rendell Administration has begun to develop a manufacturing policy based on supporting companies to compete in higher-end markets more insulated from international price and wage pressures. A repositioning of this kind will take time and patience to yield results visible in the aggregate manufacturing job and wage numbers. This repositioning is nonetheless essential if the state is to slow down the long-term decline of manufacturing jobs and improve the quality of the jobs that remain. This repositioning is especially crucial for many of Pennsylvania’s smaller metropolitan areas and rural regions. In these regions, manufacturing still accounts for about one out of five jobs and remains the backbone of the middle class.
- The Rendell Administration has initiated a comprehensive reform of the state’s workforce programs. The goals of this plan include:
- linking workforce development more tightly with the skill needs of Pennsylvania’s critical economic clusters, in significant part through the creation of industry training partnerships;
- raising educational attainment, including by making postsecondary occupational training more accessible to older workers;
- building new industry-linked career pathways that expand opportunity for workers.
This plan incorporates the core recommendations of a January 2003 KRC report on workforce development and is at the cutting edge of U.S. efforts at the state level to implement strategic workforce programs.
- The legislature and governor agreed on an economic stimulus package that will put over $2 million into community revitalization, business investment, and site preparation and infrastructure. The stimulus program will create additional demand for goods and services in the Commonwealth. Unfortunately, no law currently ensures that economic stimulus dollars will be targeted at the communities, industry clusters, and public investments most likely to generate public benefits. In the past, as documented by KRC research, grants and loans from the Pennsylvania Department of Community and Economic Development have been distributed in a haphazard manner.
Although too recent to have had an impact on the economic statistics in this report, the state’s new manufacturing, workforce, and economic stimulus policies will contribute to job and wage growth in the years ahead, if sustained and deepened.
But the state could and should do even more than this. Unless public policy stimulates the economy further, the state’s recovery is not likely for several years to make up for the 170,600-job shortfall built up since March 2001 relative to the size of Pennsylvania’s working-age population. And economic growth alone cannot solve the problems of growing numbers of low-quality jobs and huge wage gaps between rich and poor Pennsylvanians.
In pointing to areas in which the state can do more, this report does not present a comprehensive blueprint. Instead it highlights options that link directly with the labor market problems documented in this year’s State of Working Pennsylvania as well as options supported by KRC research published in the last year. Pennsylvania should:
- Raise the wages of Pennsylvania’s lowest-paid workers by joining twelve other states (including neighboring Delaware) and the District of Columbia in raising its minimum wage above the federal level of $5.15 per hour.6 If the state does not act, local governments should enact their own minimum wages, as San Francisco, California; Santa Fe, New Mexico; and Madison, Wisconsin have done.
- Help retain Pennsylvania jobs by strengthening preferences for Pennsylvania- and other U.S.-made goods and services.
- Establish rules to ensure that economic development dollars create good jobs in the places that most need them.
- Require disclosure of job quality, financial assistance per job (from all sources of state and local assistance), the site of the location where business assistance will be used, and the land-use characteristics of the site. (Comprehensive disclosure recommendations are outlined in a KRC report on business subsidy programs written for the Brookings Institution.)
- Establish standards for wages and benefits that ensure that the companies receiving assistance pay well above the minimum wage and decently by the standards of their respective industries. The state should also limit total assistance per job and strengthen provisions that require companies to pay back money when they fail to deliver on job and wage promises.
- Direct economic stimulus, other state and local economic development subsidies, and tax breaks to older, higher-unemployment communities. For example, the General Assembly intended tax increment financing (TIF) districts to attract new businesses into blighted urban areas by giving generous tax breaks. Too often TIFs are now misused to promote development in upscale outlying areas, on farmland, even on trout streams. TIFs should be restricted to redeveloping, reusing, or revitalizing previously developed industrial or commercial property. Similarly, business subsidies and capital budget outlays should strengthen incentives for “infill” projects in abandoned industrial space and shopping centers.
- Increase state investment in the formation of multi-employer industry partnerships that bring together employers, unions, local governments, and community organizations, usually within a local area, to solve important problems facing employers and workers within an industry.8 Multi-employer partnerships can address common skill, marketing, and employee benefit needs. Partnerships can also promote learning about job retention, organizational practices, and innovation in ways that benefit every member in circumstances where individual employers may lack the economic incentive or knowledge to acquire such information on their own.
Just two of the many such partnerships already operating in Pennsylvania are:
- the Southwestern Pennsylvania Partnership on Aging (SWPPA) which promotes high-quality care and better jobs in long-term care;
- the Building Trades Apprenticeship Initiative in Reading which helps urban youth to obtain the academic and practical skill needed to enter building trades apprenticeship programs.
- Enact personal exemptions that eliminate state and local income and wage taxes on the first part of income. Modifying the state constitution to permit personal exemptions was part of a comprehensive state tax reform package put forward by a “PA21” business-labor tax project in a report released in April. With no change in total tax revenue, personal exemptions combined with a higher flat income tax rate would make it possible to reduce the taxes paid by Pennsylvania’s low- and middle-income households. Such a shift would also increase federal income tax deductions claimed by higher-income taxpayers who itemize federal deductions. Both shifting the tax burden away from low- and middle-income taxpayers and increasing federal income tax deductions claimed by Pennsylvanians would stimulate the Pennsylvania economy.
Implementing these policy proposals would help wipe away the effects of the recession on Pennsylvania’s working people. Over the longer term they would improve economic opportunity, help more families become self-sufficient, boost Pennsylvania’s economy, and strengthen Pennsylvania’s cities and other older communities.
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