Penn State economists: Loss of middle-wage jobs widens income gap in Pa.

UNIVERSITY PARK, Pa. -- From 2001 to 2011, the Pennsylvania workforce underwent a marked shift from higher-paying to lower-paying jobs, a trend that could have serious implications for the state's economy, according to a new report by economists in Penn State's College of Agricultural Sciences.

The report -- "Middle Income Job Decline in Pennsylvania, 2001-11" -- was authored by Ted Alter, professor of agricultural, environmental and regional economics, and Ted Fuller, development economist in the college's Center for Economic and Community Development.

The report tracks employment and wage trends in 17 major Pennsylvania industries during the 2001-07 business cycle, the "Great Recession" of 2007-09 and the upturn of 2009-11. Industries were placed into one of four wage groups: high, high-middle, low-middle and low wage.

"From 2001 to 2011, Pennsylvania lost more than 16,000 jobs," said Alter. "The decline is due mainly to the fact that large job losses during the Great Recession more than offset modest job gains during the 2001-07 business cycle. But embedded in the small net job loss over the decade was a major shift in employment from higher to lower wage industries."

Specifically, the report found that from 2001 to 2011, high-middle wage industries lost nearly 299,000 jobs, while low-middle wage industries gained almost 174,000 jobs. At the same time, high-wage industries added about 64,000 jobs, and the sole low-wage industry -- accommodation and food services -- expanded by more than 35,000 jobs.

"Significantly," noted co-author Fuller, "the high-middle wage industries lost jobs during the 2001-07 business cycle, the 2007-09 Great Recession and the 2009-11 upturn, while the other industry wage groups lost jobs only during the recession. This loss of high-middle wage jobs -- through recent cyclical ups and downs alike -- probably does not bode well for the Pennsylvania economy."

Among high-middle wage industries, manufacturing was the big loser with a decline of 258,000 jobs. In contrast, health and social services showed the largest gains among low-middle wage industries, adding nearly 170,000 jobs over the decade.

The report also tracked trends in weekly wage rates for industries in the four wage groups from 2001 to 2011. Although the annual average weekly wage in each of the four wage groups increased over the decade, the size of the increases -- in both dollar amounts and percentages -- were progressively smaller going from the high-wage industry group to the low-wage group.

Weekly wage increases ranged from a high of $519 (48 percent) in high-wage industries to a low of $61 (26 percent) in the lone low-wage industry.

"Workers in lower-wage industries did not keep pace with workers in higher-wage industries -- even in percent wage gains," Fuller said. "This indicates a significant widening of the gap in take-home pay between workers in higher and lower wage industries over the decade."

The researchers contend that the shift from high-middle to low-middle wage jobs, combined with the failure of lower-wage industries to keep pace in wage gains from 2001 to 2011, represents a critical challenge for Pennsylvania: how to slow down or reverse these trends and promote growth in the state's economy.

The report suggests several options for policymakers to promote growth, including the following:

-- Continue, expand and fine-tune worker training to meet the emerging skill-set needs of the business community in Pennsylvania.

-- Adopt policies that encourage entrepreneurs to invent and start new businesses.

-- Upgrade roads, bridges and other public infrastructure to improve public safety, reduce business costs and create high-wage jobs in construction and related industries.

The full report is available online.

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Last Updated January 09, 2014