Significant Excess Capacity Remains in PA Labor Market

Mark Price |

Below is the second in a series of excerpts from The State of Working Pennsylvania 2015 report, released by Keystone Research Center on Sept. 2, 2015.

Although job growth has picked up, the Pennsylvania labor market continues to be characterized by substantial excess capacity. As of July, the share of the working-age population with a job stood at 59.3% (Table 1, 1st column).[1]  Before the full impact of the Great Recession was felt,[2] the percent of the population with a job averaged 61.5%. If as high a share of working-age Pennsylvanians were employed this July as before the Great Recession, there would be 225,685 more employed people in the Commonwealth than there are currently.[3]

Narrowing our focus to prime-age workers, those between the ages of 25 and 54, confirms that there is substantial excess capacity in the Pennsylvania labor market. On average, in 2014, 77.4% of the prime-age population in Pennsylvania had a job. This compares to an average of 80.2% during the strongest years of the last economic expansion.

A decline in the share of working-age people gainfully employed tends to increase the number of applicants for new job openings. This, in turn, reduces the pressure employers feel to raise wages to retain existing workers or to increase the pool of applicants for new job openings.

In the late 1990s (see below for more detail), especially after 1997, Pennsylvania experienced much more rapid job growth than in the 15 years since then. As we have illustrated  (Table 1 again), that strong job growth occurred in an economy with much less excess capacity in the labor market than exists currently.  In the next section, we reveal how these differences in the tightness of the labor market impacted wage and income growth.

[1] 6,077,452 people in Pennsylvania (or 59.3% of the civilian non-institutionalized population) reported paid employment in July which was estimated in July at 10,249,003

[2] The employment-to-population ratio averaged 61.5% from July 2005 to July 2008. Readers will note the Great Recession officially began in 2008 but large-scale employment losses didn’t begin to register until after July of that year.

[3] To put that employment gap in context, at the pace of job growth in the last 12 months, it would take over three years for Pennsylvania to add another 225,000 jobs.