Storm Clouds on the National Economic Horizon?

As this report goes to press in September 2007, there is mounting evidence that the collapse of the housing bubble has begun to harm other sectors of the economy, particularly through a tightening of credit markets. This tightening constrains the capacity of firms and households to borrow money for investment and consumption, which in turn threatens to further restrict job growth. Signs of a slowdown are especially troubling because they come at a time when inflation-adjusted wages remain below their levels of five years ago. If a slowdown did take place, it could mean that an extended economic expansion took place without any sharing of the gains with almost all workers in the form of higher wages.

The evidence of a slowdown in Pennsylvania economic growth remains ambiguous, even within the most recent six months of data. From January to June 2007, using the household survey (the Current Population Survey), which we relied on in our earlier year-to-year analysis of employment and unemployment, Pennsylvania’s unemployment rate has remained at a postrecession low of 4.3%. The employment rate is higher from January to June 2007 than it was over the same six-month period in 2006.

A second source, however, the so-called Establishment Survey, gathers job numbers from businesses, as opposed to individuals. This second source shows that total nonfarm employment, after growing in the first quarter of 2007, has shed 2,200 jobs since March—a decline of .04%.

The weakness in Pennsylvania’s economy comes from two durable goods sectors, manufacturing and construction, which together have shed nearly 12,000 jobs since March. During the same period, the service sector continued to grow, adding almost 10,000 jobs. Nationally, the manufacturing and construction industries lost a combined 78,000 jobs since March.

Weakness in the construction employment sector is related to the trouble in the housing sector. Job loss in manufacturing is not a new phenomenon but rather a continuation of trends over the past decade.

It is worth noting that the two sectors accounting for the recent job slowdown pay relatively high hourly wages, with few workers earning at or near the minimum wage. Thus, the increase in the minimum wage would not play a significant role in job loss in these sectors.

It is important to note that any credible and comprehensive analysis of the impact of the recent Pennsylvania minimum wage increase on employment must take into account national trends in employment growth and must separate the impact of these from any Pennsylvania-specific impacts due to a higher minimum wage. Any claims about the higher minimum wage causing job loss that do not control for national economic trends rooted in factors unrelated to the minimum wage would not be credible.

This page is an on-line summary of a portion of the full State of Working Pennsylvania 2006 report available for download from www.stateofworkingpa.org. © 2006 Keystone Research Center - www.keystoneresearch.org.