Pennsylvania’s low unemployment rate hides bigger problems

(The Center Square) — A low unemployment rate in Pennsylvania reflects a tight job market, but too much emphasis on one statistic can mask the state’s economy’s struggles.

Pennsylvania “Extraordinarily tight” labor market has meant an unemployment rate of four percent, the lowest since 1976. While that’s good news for anyone looking for a job or a raise, it’s not necessarily indicative of a growing labor force.

When factoring in the labor force participation rate, the low unemployment rate reflects fewer Pennsylvanians in the workforce than more Pennsylvanians flowing into it. The labor force participation rate, which is the percentage of the population working or looking for work, has been slowly declining over the past decade.

In January 2013 it was 63.5 percent. In February 2020 it was 62.7 percent. When Covid-19 struck, it fell significantly and has stood at 61.7 percent since May.

Some of that decline is expected as the state’s population ages and pensions increase. Some of these are also workers who are retiring and not necessarily receiving education or training for another job. Fewer workers cause problems for employers and customers alike.

“Without many of those positions being filled, a lot of companies are saying they’re struggling to find skilled workers — it’s affecting inflation, supply chain issues, how things are made and delivered,” said Nathan Benefield, vice president of the Commonwealth Foundation .

It also poses a problem for economic growth more broadly.

“Tax revenue — where Pennsylvania had this long struggle to be a big, slow-growth state, and now we’re behind the national trend in terms of preserving jobs and getting back to pre-pandemic levels,” Benefield said. “That has fiscal implications for states.”

The Independent Fiscal Office has warned of a labor shortage that could lead to budget deficits in the near future, like The Center Square previously reported. Without more young workers in the Commonwealth, government spending will exceed tax revenues and employers will have vacancies that will remain unfilled.

Other states that are growing are outpacing Pennsylvania’s labor force participation rate. Colorado’s participation rate is 69.5 percent. In Minnesota, it’s 67.8 percent. In Texas it is 63.6 percent.

Not all high-growth states outperform Pennsylvania’s labor force participation rate. Florida and North Carolina both lag behind the Commonwealth, but strong population growth is helping offset fiscal problems.

Nor may the Commonwealth need to compete with the strongest state economies across America. Instead, it has the opportunity to outperform neighboring states.

“People are moving to states where there are more job opportunities,” Benefield said. “I think there’s something at a precipice where some of our neighbors, especially New York and New Jersey, aren’t growing very well and there’s an opportunity to attract workers from those states,” Benefield said.

It’s important to make the state more attractive to families while also attracting working-age adults into the workforce, Benefield said. The energy and education sectors could be two driving forces.

“I have a strong belief that Pennsylvania can be a leader in the Northeast,” said Benefield. “It may never be as dynamic as Texas or Florida, but I think we can be a target state for the Northeast.”

Anthony Hennen is a reporter for The middle square. Previously he worked for Philly weekly and the James G. Martin Center for Academic Renewal. He is editor-in-chief of emigrants, a journalistic project focused on the Appalachia region.

This article was republished with permission from The middle square.

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