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Pennsylvainia’ s low employment rate masks other issues

A low unemployment rate in Pennsylvania reflects a tight labor market, but too much emphasis on one statistic can obscure the struggles of the state economy.

Pennsylvania’s “extraordinarily tight” labor market has meant an unemployment rate of 4%, the lowest since 1976. While that’s good news for anyone who wants a job or a raise, it’s not necessarily an indication of a growing workforce.

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

In January 2013, it was 63.5%. In February 2020, it was 62.7%. When COVID-19 hit, it dropped significantly and has held at 61.7% since May.

Some of that decline is expected as the state’s population ages and retirements increase. Some of it is also workers dropping out of the labor force and not necessarily getting training or education for another job. A smaller labor force causes problems for employers and customers alike.

“Not having a lot of these positions filled, a lot of companies are saying they’re having trouble finding qualified workers – that has an impact across the board on inflation, on supply-chain issues, getting things produced and delivered,” said Nathan Benefield, senior vice president of the Commonwealth Foundation.

It also poses an issue for economic growth more broadly.

“Tax revenue – where Pennsylvania has had this long struggle of being a big slow-growth state and now we’re behind the national trend in terms of retaining jobs and catching back up to prepandemic levels,” Benefield said. “That has fiscal impacts on states.”

The Independent Fiscal Office has warned of a worker shortage that could cause budget deficits in the near future, as The Center Square previously reported. Without more young workers in the commonwealth, state expenditures will outpace tax collections and employers will have open jobs that go unfulfilled.

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

Not all states with high growth beat Pennsylvania’s labor force participation. Florida and North Carolina both lag behind the commonwealth, but strong population growth helps offset fiscal issues.

The commonwealth may not need to compete with the strongest state economies across America, either. Instead, it has an opportunity to outperform nearby states.

“People are moving to states where there are more job opportunities,” Benefield said. “I think something is on a precipice where some of our neighbors, New York and New Jersey in particular, are not growing very well and there is an opportunity to attract workers from those states,” Benefield said.

Making the state more attractive for families while also pulling working-age adults into the labor force, Benefield said, matters. The energy and education sector could be two driving forces.

“I do believe Pennsylvania can be a leader in the northeast,” Benefield said. “It may never be as dynamic as Texas or Florida, but I think we can be a destination state for the northeast.”

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