Pittsburgh's Future

Pittsburgh Is Losing Both Jobs and Population

2014-04-06T08:21:00.002-04:00

Three years ago, when the country was struggling to recover from the recession, the Pittsburgh Region had the sixth highest job growth rate of any major region in the country. In contrast, this year, when most major metropolitan regions are experiencing job growth rates of 2% per year or more, Pittsburgh is actually losing jobs. Between February 2013 and February 2014, Southwestern Pennsylvania lost 5,200 jobs, the biggest loss in percentage terms among the top 40 regions in the country.

The loss of jobs wasn’t just something unusual that happened in February; the Pittsburgh Region has been losing jobs every month since the end of last year, and the losses have been getting bigger. Moreover, these job losses are coming on the heels of surprising news that job creation in Pittsburgh in 2013 was much smaller than what many had believed. Reports last fall indicated that the region had created over 20,000 net new jobs, but in reality, there were only 400 more jobs here in 2013 than 2012. (Each spring, the U.S. Bureau of Labor Statistics (BLS) replaces the previous year’s estimates with actual figures based on the results of a complete census of businesses. It turned out that BLS had significantly over-estimated the number of jobs in Pittsburgh in 2013.)

The combination of minuscule job growth in 2013 followed by large job losses at the beginning of 2014 means that Pittsburgh has fewer jobs today than it did two years ago, the only major region in the country with that unfortunate distinction. What’s worse, the Pittsburgh Region has 7,000 fewer jobs today than it did thirteen years ago, while most regions have added tens of thousands of jobs during that same time period.

You might be puzzled as to how Pittsburgh could be losing so many jobs when news stories have been reporting that the region’s unemployment rate has been declining. The big reduction in the unemployment rate from 8.6% in January 2013 to 6.5% in January 2014 wasn’t because a lot of unemployed workers found jobs, but because nearly 29,000 unemployed workers stopped looking for work altogether and dropped out of the labor force. In other words, a drop in the unemployment rate isn’t always good news.

The labor data don’t tell us whether the people who stopped looking for work are still living here or if they moved out of the region altogether in order to look for a job. We’ll have a better sense of that next year when the Census Bureau releases the population estimates for 2014. However, it seems likely that continued job losses could cause population losses in the region. In 2011, the year that jobs were growing faster here than in most other regions, we had more population in-migration than any other year in the past decade. Since then, our job growth has fallen behind other regions, and our rate of in-migration has also declined. Although more people moved in than moved out between 2012 and 2013, our rate of in-migration was lower than in previous years, and it was not enough to offset the fact that the region had more deaths than births. As a result, Pittsburgh was the only major metropolitan area in the country that actually lost population in 2013.

There’s no one reason we’ve been losing jobs. Most economic sectors in the region lost jobs over the past year, including manufacturing, higher education, finance, government, construction, retail, and professional and business services. However, the biggest loss by far was in manufacturing. While the majority of major regions in the country were adding manufacturing jobs over the past year, Pittsburgh lost 2,800 manufacturing jobs, the fourth highest rate of loss among the top 40 regions. Pittsburgh’s inability to attract and retain manufacturing businesses is a serious problem, not only because of the high wages paid for manufacturing jobs, but because of the large number of other businesses and jobs they support in the region’s economy.

The sector that created the largest number of new jobs over the past year is leisure and hospitality. While 1,400 more jobs in the leisure and hospitality industry are certainly welcome, those jobs have the lowest average wages of any sector, paying only one-third as much as manufacturing jobs, so they don’t come close to replacing the high-wage jobs we’ve lost in other sectors.

The latest data on jobs and population should be a wake-up call for the region. Promoting the region’s great quality of life won’t do much good if prospective residents can’t find jobs. We can’t assume that “eds and meds” will continue to create new jobs here year after year when there is growing pressure to reduce healthcare spending and growing concern about the high cost of higher education. We can’t blame federal policies for slow growth when every other major region in the country is creating more jobs than we are.

Two of the most important ways we can encourage more job growth and population growth are:

Improving the region’s business climate. It’s hard to attract and retain businesses in a state with the second highest corporate income tax rate in the nation and a reputation for a difficult-to-navigate regulatory maze. It’s impossible to attract and retain manufacturing businesses if they can’t find the industrial sites, buildings, and skilled workers here that they can find in other regions. Both state and local government leaders need to ensure the region provides a competitive environment for all types of businesses. Improving the state’s business climate needs to be a top issue in this year’s gubernatorial campaign.

Encouraging entrepreneurship. Most new jobs are created by startups, not established firms, but our region has had one of the lowest rates of new business formation in the nation. As described in more detail in a previous post, we need more local seed and venture capital to support startups, more small business lending by banks, and greater willingness by local businesses to become customers for the products and services that local entrepreneurs produce.

(A version of this post appeared as the Regional Insights column in the Sunday, April 6, 2014 edition of the Pittsburgh Post-Gazette.)

More Industrial Sites Needed for Future Jobs

2014-03-02T07:17:00.000-05:00

As explained in a previous post, one of the region’s highest economic development priorities should be rebuilding our struggling manufacturing sector. But if a manufacturing firm wants to locate or expand in southwestern Pennsylvania, will it be able to find the land and buildings it needs?

Site location consultants report that it’s much more difficult to find industrial land and buildings in Pittsburgh than in other regions. The fourth quarter 2013 industrial market report from commercial real estate firm Newmark Grubb Knight Frank shows that Pittsburgh had less vacant industrial space available than 38 of the 49 regions they track. While the 9 million square feet of vacant space here may sound like a lot, other regions have 2 to 4 times as much space available, in many cases at lower costs than Pittsburgh. For example, Charlotte had 38 million sq. ft. of vacant space, and average rents for industrial space there were $3.51 per square foot, compared to $5.14 here.

Pittsburgh is even less competitive than these statistics imply because many of the vacant buildings here are very old and most firms won’t even consider them. Newmark Grubb Knight Frank reports that only 14% of the vacant industrial space in Pittsburgh is “Class A” space. The vacancy rate for Class A space is only 4.2%, compared to 9.1% for lower-quality space, confirming the greater desirability of the space that’s in shortest supply. Although a number of new industrial properties were being developed in Pittsburgh at the end of last year, most other regions had an even larger amount of new space under development, so our poor ranking isn’t likely to change soon.

It’s harder to develop new industrial buildings here because there are far fewer ready-to-go industrial sites and industrial parks in Pittsburgh than in other regions. There are two major reasons for this:

Problem #1: Limited Flat Land. The scenic beauty of our hills and rivers is great for tourism but it has the unfortunate side effect of making Pittsburgh one of the most difficult and expensive regions in the country in which to develop the large flat sites that manufacturing plants and distribution facilities need. Nearly 70% of the land in Southwestern Pennsylvania has a slope greater than 8%, whereas in Columbus, for example, less than 200 miles to the west, less than 20% of the land is that steep. Turning land with steep slopes into industrial sites can cost twice as much or more than land that is flat to begin with.

With a limited supply of flat land, it’s not surprising that most flat sites in our region have already been used for something. Although reusing vacant industrial sites for new businesses is a desirable goal, those sites are generally also very expensive to develop because existing facilities have to be demolished, any environmental contamination has to be cleaned up, and the infrastructure has to be modernized.

As a result, it’s almost impossible to develop industrial sites here without significant government subsidy to offset the extra costs of the land preparation and infrastructure.

Problem #2: Governmental Fragmentation. Southwestern Pennsylvania is carved up into 548 cities, boroughs, and townships, more than almost any other region in the country. Because they are so small, most of our municipalities and many of our counties don’t have the financial resources needed to offset the higher costs of developing large industrial sites. Moreover, because a large part of an industrial park needs to be vacant so that sites are available when firms or developers need them, an industrial park will contribute much less property tax revenue to its host municipality than if the property were developed and filled with housing or retail stores. As a result, small municipalities may be reluctant to host an industrial park without a way to offset their tax losses.

These are not new problems for Pittsburgh. Over a half century ago, the Regional Industrial Development Corporation (RIDC) was formed because regional leaders realized there weren’t enough modern industrial sites to support new business growth and no municipality could address the problem alone. Today, six of the ten largest business parks in the region and many of the region’s jobs are here thanks to the efforts of RIDC starting in the 1960s and 1970s. Similarly impressive work was done by the Westmoreland County Industrial Development Corporation and other county development agencies.

In the mid-1990s, a shortage of sites developed again, and a number of manufacturing businesses that wanted to locate here were turned away because there was no suitable space anywhere in the region. To address this, the Southwestern Pennsylvania Growth Alliance - a public-private partnership of elected officials and business executives from all 10 counties - worked together to assemble the first-ever regional priority list of industrial site projects. The state responded by providing nearly $40 million in grants for industrial site projects in all 10 counties. Many of the manufacturing and technology businesses providing jobs here today are located on industrial sites developed over the past two decades using funding obtained through that effort. Unfortunately, the Growth Alliance was disbanded nearly a decade ago.

It takes years to develop new industrial sites and buildings, so regional leaders need to take steps today to address the shortage of sites and buildings in the region before it gets even worse. No municipality or county can address this alone, because different businesses will need different types of sites, and because the jobs at each site will be filled by the residents of municipalities and counties throughout the region. Unfortunately, we have no regional financing mechanism for economic development infrastructure, and one needs to be created.

Help from state government is essential, not only because of the magnitude of the investment required, but because the majority of the tax revenues paid by the businesses and employees on the sites will go to the state, not to local governments. However, the region shouldn’t have to fight to get its fair share of funds from the state’s discretionary grant programs for economic development. The General Assembly and Governor should delegate decision-making authority to our region for a large portion of state economic development and infrastructure funding if the region creates an effective mechanism for infrastructure planning, decision-making, and financing.

An aggressive program for investing in industrial sites and other infrastructure should be a priority for both state and regional leaders. It will create jobs in construction, manufacturing, and other industries and help get our sluggish economy back on track.

(A version of this post appeared as the Regional Insights column in the Sunday, March 2, 2014 edition of the Pittsburgh Post-Gazette.)

More Immigration Would Help Our Region’s Economy

2014-02-02T21:11:00.002-05:00

A previous post explained how our low rate of new business formation has been holding back the region’s job growth. One of the likely causes for our poor performance in entrepreneurship is how badly we do in attracting residents from other countries.

National data show that foreign immigrants are more likely than U.S. natives to form small businesses. A study by the Fiscal Policy Institute found that nearly one in five small business owners (18%) in the U.S. in 2007 were immigrants and immigrant-owned businesses collectively employed 4.7 million workers. Another study done for the Partnership for a New American Economy found that even though immigrants represented only 13% of the U.S. population, they started 28% of all new U.S. businesses in 2011.

Immigrants play a particularly important role in creating fast-growing technology-oriented firms. A study sponsored by the Kaufmann Foundation found that one-fourth of the engineering and technology companies formed in the U.S. between 2006 and 2012 had at least one key founder who was foreign-born.

Unfortunately, Southwestern Pennsylvania isn’t benefiting from the above-average entrepreneurial skills of immigrants because our region ranks dead last among the top 40 regions in the percentage of the population born in another country. Census data show that only 3% of the Pittsburgh Region’s residents are foreign-born, whereas in places like Atlanta, Austin, Boston, Charlotte, Denver, and Seattle, 10-20% of the residents were born abroad.

This is an ironic position for Pittsburgh given that it came to greatness a century ago thanks to the entrepreneurial energy and hard labor of immigrants. One of the region’s most famous immigrant entrepreneurs was Andrew Carnegie, who was born in Scotland to poor parents and came with them to Pittsburgh in 1848. By the turn of the century, he had formed the U.S. Steel Corporation, the first billion dollar company in the world, and his philanthropic efforts benefit Pittsburghers even today.

When the Pittsburgh Region’s immigrant population peaked in 1910, one of every four residents was foreign-born, and another 28% were children born here to parents who came from overseas. There were over 448,000 foreign-born residents in the region in 1910, more than the total population of the City of Pittsburgh today. Although many of them couldn’t speak English, read, or write, their hard work turned the region into one of the greatest manufacturing centers in the world.

In the hundred years since, the percentage of foreign-born residents increased in most major regions, but southwestern Pennsylvania had the largest decrease. Moreover, the residents of the Pittsburgh Region today are from a less diverse set of countries than other regions. One third of the foreign-born residents living here today are from Europe, the second highest percentage among large regions. Only one in five of the foreign-born residents here came from countries outside of Europe and Asia, the lowest percentage among the largest metro regions.

Today, the gap between Pittsburgh and the rest of the country in foreign-born residents is getting worse, not better, because our region ranks dead last in the country in the rate at which new international immigrants are moving here. The U.S. Census Bureau estimates that between 2010 and 2012, new immigrants represented only 0.25% of the Pittsburgh Region’s population, while most regions attracted immigrants at double that rate or higher.

While small in number, the immigrants who do live in southwestern Pennsylvania are making a positive impact on the region. For example:

• Even though the region added fewer than 6,000 foreign immigrants between 2010 and 2012, that was enough to offset the region’s losses due to other factors and result in a small increase in the region’s population for the first time in decades.

• A study by the Fiscal Policy Institute found that the foreign-born residents of the Pittsburgh Region create businesses at a 20% higher rate than our U.S.-born residents, and the economic output of foreign-born workers in the Pittsburgh Region is 47% higher than their share of the population, the highest ratio among the top 25 regions in the country.

Immigrants’ impact on our region’s population growth and job creation would be much bigger, though, if we had more of them. It’s not a coincidence that in Silicon Valley, the nation’s hotbed for technology entrepreneurship, over one-third of the residents are foreign-born, the second highest percentage among the top 40 regions, and ten times as high as Pittsburgh.

Should the many unemployed workers in our region worry that more immigrants would make it even harder for them to find jobs? National research indicates that regions with higher rates of immigration don’t have higher rates of unemployment. Not only do immigrant entrepreneurs create jobs for native workers, immigrants typically bring a different set of skills than unemployed workers have, and the more diverse workforce can actually help attract more jobs to the region for everyone. For example, 38% of the current foreign-born residents in Allegheny County have a graduate or professional degree, compared to only 13% of the native-born population.

What should we do to increase immigration into the Pittsburgh Region?

• Support Federal Immigration Reform. There are problems with current federal immigration laws that make it very difficult for skilled workers and entrepreneurs to come to the U.S. or to stay here even if they start a business and create jobs. Legislation currently being considered in Congress would increase the number of H-1B visas for foreign professionals and make it easier for entrepreneurs and people with advanced degrees in science and mathematics to become residents. The region’s Congressional delegation should support these kinds of changes.

• Help Foreign-Born Professionals and Entrepreneurs Feel Welcome. It can be more difficult to attract immigrants to a region which has few residents from their home country, so Pittsburgh needs to make special efforts to jumpstart immigration from other countries. An organization called Vibrant Pittsburgh (www.vibrantpittsburgh.org) is spearheading efforts to attract and retain immigrants and minority groups to the region, but it needs local businesses to join and work actively to support diversity initiatives.

We can’t reverse decades of low immigration overnight. However, even small improvements each year will have a positive impact on our population and economy, and the cumulative effect of long-term efforts could truly transform our region.

(A version of this post appeared as the Regional Insights column in the Sunday, February 2, 2014 edition of the Pittsburgh Post-Gazette.)

Pittsburgh Needs to Do More to Encourage Entrepreneurship

2014-01-05T07:33:00.003-05:00

A century ago, Pittsburgh was one of the most entrepreneurial regions in the nation, perhaps even in the world. Companies like Alcoa, H.J. Heinz, Mine Safety Appliances, PPG, U.S. Steel, and Westinghouse didn’t move here because of economic development marketing efforts, they were started here from scratch by entrepreneurs. Not only did they grow to become major employers in the Pittsburgh Region themselves, they spawned thousands of local jobs in supply firms.

Unfortunately, the Pittsburgh Region has now become one of the least entrepreneurial places in the country. Data released by the U.S. Census Bureau last summer show that in 2011 (the most recent data available), southwestern Pennsylvania had the second smallest rate of new business formation among the top 40 regions. (Only firms with paid employees are counted, not sole proprietorships.)

National research shows that business startups, not established firms, accounted for all of the net new jobs created in the U.S. between 1980 and 2005. The low rate of new business creation in southwestern Pennsylvania may be one important reason why our overall rate of job growth has been below other regions.

Despite many regional efforts to encourage entrepreneurship, the number of new businesses here has actually decreased significantly over the past two decades. In the late 1980s, nearly 4,000 new businesses per year were being created here, but that dropped to only 3,400 in the late 1990s, the second biggest reduction among the top 40 regions. From 2003-2006, new business starts here decreased to only 3,200, whereas business formation increased in most regions. And while business creation slowed dramatically everywhere during the recession, business starts declined more in Pittsburgh than in most regions, with only 2,300 businesses started here in 2011.

Starting a new firm is very risky. Many don’t survive, particularly during their first year. Although a higher proportion of firms started in Pittsburgh remain in business after one year than in most regions in the country, it’s hard to know whether this is because entrepreneurs here are more capable business leaders, because we do a better job of helping new businesses succeed, or because the businesses that are started here are lower risk ventures. Regardless, even the higher survival rate here isn’t enough to offset our much lower startup rate, and so the Pittsburgh Region has the third lowest rate of one-year old firms among the top 40 regions.

Many entrepreneurs start businesses that will never be large employers. That doesn’t mean they’re not important to the local economy; nationally, more than 1 in 6 workers are employed by a business with fewer than 20 employees. However, special attention is needed for the subset of startup firms with the potential to generate hundreds or thousands of jobs for the region’s economy.

These high-growth firms are likely to be in technology-based industries. The importance of new technology firms has been recognized by Pittsburgh Region leaders for over two decades, and many programs have been established to encourage life sciences, robotics, and other technology firms to start and expand here. However, a recent study by the Kauffman Foundation indicates that while these efforts may have had some impact, they have not made the Pittsburgh Region a leader in high-tech startups. The study found that in 2010, the Pittsburgh Region ranked only 28th among the top 40 regions in the rate of new high-tech business formation. While that’s an improvement over our ranking of 35th out of 40 in 1990, it still means Pittsburgh is in the bottom tier among major regions.

With its high quality of life and low cost of living, Pittsburgh should be a magnet for entrepreneurs, and with its world-class universities and R&D facilities, it should particularly be a magnet for technology entrepreneurs. However, the region does not have a reputation for being a good place to start a business; in fact, Pittsburgh almost never shows up on lists of “best places to start a business.” For example, Pittsburgh ranked 60th in Fortune Small Business magazine’s 2008 “Best Places to Live and Launch a Business,” and a 2013 national survey of 7,000 business owners conducted by Thumbtack.com gave the Pittsburgh Region a grade of D+ on “small business friendliness.”

What should we do to encourage more entrepreneurship here?

Cut Red Tape: New businesses face many challenges in starting and expanding, but one of their biggest frustrations is often figuring out how to navigate the regulatory mazes created by municipal, county, state, and federal governments. Local and state government officials could go a long way toward improving the region’s reputation by cutting red tape in the areas that create the biggest problems for new businesses and publicizing the positive feedback from entrepreneurs.

Improve Access to Capital: One of the most critical issues almost every new business faces is finding adequate financial capital. Alcoa, for example, started in Pittsburgh because 125 years ago, inventor Charles Martin Hall couldn’t find capital in his home state of Ohio, but he received the $20,000 in seed capital he needed from Alfred E. Hunt and a small group of investors in Pittsburgh, and then received continued financing from Andrew Mellon.

The credit crunch during the recession has made it difficult for small businesses to get loans, particularly new businesses. The region’s biggest banks could do more to expand their small business lending, and federal programs and regulations should be revamped to facilitate small business lending by both banks and credit unions.

Most technology startup firms need equity capital, not loans. Modern-day technology firms have the same challenges that Hall had over a century ago – finding investors to provide the seed capital they need to get started. Pittsburgh is fortunate to have Innovation Works (www.innovationworks.org), a non-profit organization that has become the most active seed-stage investor in the region. Innovation Works invested $4.8 million in 91 local companies in 2012, and its early stage investments have positioned hundreds of startup firms to attract over $1.4 billion in additional investment from venture capitalists and other sources. We’re also fortunate to have BlueTree Allied Angels (www.bluetreealliedangels.com), a network of high net worth individuals that invest in early-stage companies. However, in order for more technology entrepreneurs with good business plans to get the investment and assistance they need, state and local leaders need to expand funding for Innovation Works (over 60% of Innovation Works’ funding comes from the Commonwealth of Pennsylvania), and more high net worth individuals need to join BlueTree’s angel investor network.

Buy Entrepreneurs’ Products and Services: Too many young firms have failed or have been forced to leave the region because they couldn’t find customers here. Both large businesses and individuals can help by buying the products and services local startup firms produce. You can find lists of many startup firms on the Innovation Works and BlueTree websites, and you can read about some of Pittsburgh’s entrepreneurs in the Post-Gazette’s series, “The Entrepreneurs” at www.post-gazette.com/business/2013/12/23/The-Entrepreneurs/stories/201312230161.

Pittsburghers can be justifiably proud of the region’s high rankings on quality of life, but we should be embarrassed by our low rankings as a place to start a business. As we start a new year, let’s resolve to make Pittsburgh one of the best places in the world for entrepreneurs.

(A shorter version of this post appeared as the Regional Insights column in the Sunday, January 5, 2014 edition of the Pittsburgh Post-Gazette.)

Regional Job Growth Increasing, But Not Enough

2013-12-01T10:14:00.000-05:00

The Pittsburgh Region’s economy has been on a bit of roller coaster ride over the past five years. The most recent data on jobs suggest that our economy may be on the upswing again, but our growth rate is still slower than we need it to be, and we’ve continued to fall behind the rest of the country in manufacturing.

It was exactly five years ago, in November, 2008, that the Pittsburgh Region first started losing jobs as the recession swept across the country. By October 2009, southwestern Pennsylvania had 35,000 fewer jobs, and we had a total of 88,000 people looking for work, the highest number in over 20 years.

It took two years until the total number of jobs in the Pittsburgh Region returned to the levels reached just before the recession hit. Pittsburgh attracted a lot of national attention in the initial recovery period because our job growth rate was significantly faster than the U.S. as a whole and because we had lost fewer jobs during the recession than most regions.

However, despite the growth in jobs, unemployment in the Pittsburgh Region remained high because the jobs being created were in different sectors than where they were lost. In particular, the region lost 10,900 manufacturing jobs during the recession (nearly 1/3 of the total jobs lost in 2009), but there were only 2,200 new manufacturing jobs among the total 35,600 jobs created in the region from 2009-2011. The majority (20,000) of new jobs were in the professional and business services and leisure and hospitality industries.

Then, last fall, job growth in Pittsburgh began to stagnate. Our rate of job growth dropped by 30% from 2011 to 2012, even as the rate of job growth in the U.S. accelerated, and the region’s job growth was the third-lowest among the top 40 regions between October 2011 and October 2012. The stagnation persisted well into this year. In the first six months of 2013, Pittsburgh’s job growth was the seventh slowest among the top 40 regions.

The good news is that in the past few months, job creation in the region has accelerated significantly. In October 2013, the U.S. Bureau of Labor Statistics reports that there were 20,200 more jobs in the region than a year earlier (October 2012). That’s the second-biggest 12-month increase in jobs in October in the past 20 years (both in absolute and percentage terms), and it’s almost as big as the previous record for October, the 20,400 jobs added between 1999 and 2000. Job growth in July, August, and September of 2013 was also among the highest experienced in those months in the past two decades.

The bad news is that even 20,000 net new jobs in a twelve-month period still falls far short of where we need to be:

• 20,000 new jobs in a year is less than we need merely to ensure the region’s high school graduates can find work. High schools in the Pittsburgh metropolitan area have been graduating between 23,000 and 25,000 students each year since the recession began, for a total of nearly 120,000 new workers over the past 5 years. Yet we only have 28,700 more jobs today than five years ago, which is barely enough for the 27,000 high school grads who said they were going directly into the workforce over the past 5 years, much less the more than 90,000 others who will be looking for jobs after completing college.

• There were still over 90,000 southwestern Pennsylvanians unemployed in August (the most recent data available). Even if the region continues to create 20,000 net new jobs per year and even if unemployed workers could qualify for all of those jobs, it would still take at least two years just to reduce unemployment to pre-recession levels.

Perhaps the worst news of all is that hidden within the increase in total jobs is the fact that one of our most important economic sectors – manufacturing – lost 1,200 jobs over the past year, a significant setback for the thousands of unemployed manufacturing workers who are still trying to find work. In contrast, 19 of the top 40 metropolitan regions added manufacturing jobs over the past year, and only 5 other major regions had bigger losses of manufacturing jobs than Pittsburgh.

Moreover, we aren’t just losing manufacturing jobs, we’re losing entire manufacturing businesses. The Bureau of Labor Statistics reports that as of the first quarter of 2013 (the most recent data available), there were 237 fewer manufacturing firms in the Pittsburgh Region than five years earlier, a more than 8% reduction. Losing manufacturing firms will make it even harder to grow new manufacturing jobs in the future.

Although the region continues to experience strong job growth in other sectors such as professional services, higher education, healthcare, and finance, we can’t assume that will continue. In particular, the growing pressure to reduce healthcare costs, the increasing unaffordability of higher education, and federal cutbacks in research funding mean that slower growth or even reductions in our “eds and meds” sectors are on the horizon.

If we’re going to have a truly diverse and robust economy, we need to strengthen our manufacturing sector. Even in its weakened state, manufacturing still provides nearly 9% of worker earnings in our region, the third highest amount after business services, healthcare, and government. Further losses in manufacturing businesses and jobs will have a significant negative ripple effect on the rest of our economy. To truly revitalize our manufacturing sector, we should focus on three key things:

• The Governor and General Assembly must create an attractive business climate for manufacturing firms through competitive taxes and regulations, ready-to-go industrial sites, and well-maintained highways and bridges;

• Our public schools must ensure the region’s high school graduates are proficient in basic skills and encourage them to consider careers in manufacturing; and

• Regional economic development agencies must continue to encourage entrepreneurs to start and grow new manufacturing firms here by providing the startup capital, mentoring, and initial customers they need to be successful.

A version of this post appeared as the Regional Insights column in the December 1, 2013 edition of the Pittsburgh Post-Gazette

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Which Health Plans Have the Best Provider Networks?

2013-11-03T08:55:00.002-05:00

It’s the time of year when many people must choose a health insurance plan. Although the national news has focused on the problems people are having in signing up for coverage through the new federal health insurance exchange, thousands of senior citizens are also facing choices about whether to get their health coverage through the traditional Medicare program or one of many different Medicare Advantage insurance plans, and many workers with employer-sponsored insurance will have new choices to make during their open enrollment period.

For the first time, many Pittsburghers are being forced to evaluate different health plans based on which physicians and hospitals are “in-network.” Although the cause in our region has been the battle between UPMC and Highmark, employers and health insurance companies in other parts of the country are also increasingly offering “narrow network” health plans in an effort to reduce premiums.

The dictionary defines a “network” as a “group or system of interconnected people or things.” Traditionally, most health plan networks haven’t really been coordinated systems, but merely lists of physicians and hospitals that have agreed to give a bigger discount to the health plan. However, research shows that patients can stay healthier and get better quality care at a lower cost if the patients use a true network of high quality physicians who work together in a coordinated way to deliver better outcomes.

What does such a “high-value” network look like?

The most important elements of a good network aren’t the hospitals, because the network’s first goal should be to help you stay well so you don’t need a hospital at all. Instead, the most important component of a network is an adequate number of high-quality primary care practices. A truly high quality primary care practice does four key things for you: (1) it helps you get the preventive care you need to stay as healthy as possible; (2) it accurately diagnoses new health problems you experience and then provides or arranges for the most appropriate treatment in a timely fashion; (3) if you have a chronic disease such as asthma, diabetes, emphysema, or heart disease, it helps you manage that chronic condition successfully so you don’t have problems and end up in the hospital; and (4) if you need specialists, the practice helps you find the right specialists and makes sure all of your care is coordinated.

Unfortunately, most people don’t get truly high-quality primary care in any network today. It’s not because the primary care physicians are bad, it’s because of the way the physicians are paid by the health plan. For example:
• If you’re frustrated by how little time your primary care physician (PCP) spends with you when you have a visit, blame your health insurance, not the doctor. Medicare and most health plans pay doctors on the assumption that a typical office visit will last only 15 minutes. Moreover, doctors get paid less if they address multiple issues in the same visit than if they bring you back multiple times, even though it would save you time and money to get everything done in one visit.
• If you’re angry because your doctor spends more time during your short visit typing on the computer than listening to you, blame your health insurance, not the doctor. Medicare and many health plans now reduce physicians’ pay if they don’t enter detailed data about you in an electronic health record.
• If you have trouble getting your PCP to answer the phone or respond to an email when you have a question or health problem, don’t blame the doctor, blame your health insurance. Medicare and most health plans won’t pay doctors for phone calls or emails with patients, they only pay for office visits. The more time a doctor spends on the phone, the less time he or she has to see patients in the office, but the only way anybody in the physician practice can get paid is if the doctor (or a nurse practitioner or physician assistant) sees enough patients in the office every day.

Some health plans are beginning to change the way they pay primary care physicians so the physicians can better customize care to what their patients really need. These “patient-centered medical home” programs are a step in the right direction, but most of them have been too small to make a significant difference. That’s starting to change, but not nearly fast enough. Fewer doctors are going into primary care because of their frustrations with the way they’re paid, so it’s going to be harder and harder for people to find good primary care physicians if health plans don’t start paying PCPs in better ways.

From time to time, you’ll have a health problem that requires help from a specialist. But which of the dozens of subspecialties is the right one? If you need multiple specialists, will they all coordinate what they do so you don’t receive conflicting medications or duplicative tests?

In a true “network,” your PCP would help you find the right specialists and work with them to ensure all of your care is coordinated. But once again, the way doctors are paid gets in the way. For example, in many cases, the specialist could advise you and your PCP over the phone about what to do, rather than making you wait for weeks or months until you can get an appointment to see the specialist in person. But Medicare and most health plans don’t pay specialists for giving advice over the telephone or by email, they only pay for office visits and procedures. As a result, many specialists can’t see new patients quickly because their calendars are filled with office visits from patients they don’t really need to see in person. Specialists also don’t get paid for time they spend talking with other specialists or with PCPs to coordinate care, so it’s no wonder that patients can find themselves falling between the cracks.

Some health plans are beginning to pay differently for the specialists in the “medical neighborhood” as well as for the primary care “medical home.” In one pilot project, paying for email consultations with specialists resulted in dramatic reductions in the delays seriously ill patients experienced in getting appointments with specialists, because the specialists were able to successfully address other patients’ problems quickly through an email exchange with their PCP.

If you do need hospital care, you obviously want to make sure there are high-quality hospitals in your health plan’s network that can take care of you. Unfortunately, the hospitals in our region don’t publish information about the quality of the care they provide, so it’s impossible to know whether one network’s hospitals are better than another’s. Although you hear a lot of advertising about how certain hospitals are the “best” at one thing or another, most of those rankings aren’t based on actual outcomes for specific procedures. The limited data available suggest that for common hospital procedures, most of the hospitals in the Pittsburgh Region deliver care of similar quality, and many of the independent community hospitals do it at a much lower cost. For more complex conditions, the best hospital for you may not be in the Pittsburgh Region at all. Some national employers, such as Walmart and Lowes, are now paying not only medical costs but travel expenses so their employees can go to hospitals such as the Cleveland Clinic and Johns Hopkins that have committed to provide high quality care at an affordable cost.

So before you decide which health plan to use, first choose a primary care practice that is committed to high-quality, patient-centered care. Ask the PCP which health plans pay to support high-quality care, and ask which plans pay specialists so they can work as a team with your PCP. If you choose a health plan that supports truly coordinated, high-quality primary and specialty care, you’ll be healthier, you’ll spend less, and you may never need to worry about which hospitals are in the network.

(A version of this post appeared as the Regional Insights column in the Sunday, November 3, 2013 edition of the Pittsburgh Post-Gazette.)

High Spending on Hospitals Makes Healthcare Less Affordable

2013-10-06T06:51:00.000-04:00

Anyone who has survived a serious injury or life-threatening illness is likely grateful for the care they received in a hospital. Advances in hospital care mean that people today can recover from injuries and diseases that would have meant certain death in the not-too-distant past.

However, in addition to saving many lives, hospitals have also become the biggest drivers of increasingly unaffordable healthcare costs. Spending on hospital care has grown faster in the past five years than any other type of healthcare spending, and payments to hospitals are the largest single category of total healthcare spending.

The good news is we don’t have to cut back on life-saving hospital care in order to reduce total spending on hospital services. The reason is that a lot of what we spend on hospital care today is either unnecessary, avoidable, or even harmful for patients. For example, national data show that 5% of hospital admissions for commercially insured patients and 17% of admissions for Medicare patients could have been avoided through better primary care or use of alternative, lower-cost treatments. For many common conditions, 20% or more of the patients who are admitted to hospitals have to be admitted again within 30 days after discharge. Worst of all, there are over 1.5 million preventable infections, errors, and complications every year, which not only harm patients but cost billions of dollars to treat.

In other words, all too often, higher spending on hospital care means a community is getting worse healthcare, not better, and that it’s paying a lot more than necessary for the care it does receive.

Nowhere is this more true than in Pittsburgh. Although Pittsburgh’s hospitals have been national leaders in developing and delivering life-saving treatments in areas such as cancer, heart disease, and organ transplants, Pittsburgh is also a national leader in the overuse of hospitals. American Hospital Association data show that in 2010, there were 170 hospital admissions per 1,000 residents in the Pittsburgh region, the highest rate among the major regions in the country and 49% higher than the national average. Pittsburgh also had the 2nd highest rate of surgeries and the 7th highest rate of emergency room visits.

These high rates aren’t because we have an older population or because patients are coming here from other parts of the world. For example, Medicare data show that Pittsburgh seniors are hospitalized at the second highest rate among major regions, 18% more than the national average.

There are many initiatives around the country that have successfully reduced rates of hospitalizations, infections, and readmissions to hospitals by improving care to patients. The Pittsburgh Regional Health Initiative has been a national leader in developing such initiatives.

Hospitals, however, have had little incentive to participate in or support these initiatives because they cause the hospitals to lose revenue. What should really matter to hospitals is their margins (their profits), not their revenues, but two factors – the cost structure of hospitals and the way we pay for hospital services – mean that lower revenues generally cause financial losses for hospitals.

Hospitals have a lot of fixed costs they have to pay for regardless of how many patients they admit. Everyone wants the emergency room, surgery suite, and burn unit to be equipped, staffed, and ready to go even if there are no patients who need them on any given day. But hospitals don’t get paid for services that aren’t used. The emergency room runs a deficit if there aren’t enough true emergencies, so is it any wonder that hospitals advertise how quickly you can be seen in their emergency rooms even for minor problems?

The more fixed costs a hospital has, the more lucrative every additional admission is, and the more problematic it is to have fewer admissions. Here’s a simple example. Assume that a hospital has $200 million in annual costs and that 2/3 of those costs ($133 million) are fixed (they don’t change with fewer patients), while 1/3 ($67 million) are variable (i.e., the costs decrease with fewer patients). The hospital admits 15,000 patients per year, and is paid an average of $13,500 per patient, for a total of $202.5 million in revenue. Since total revenue exceeds total cost, the hospital has a slim but positive 1.25% operating margin.

Now let’s suppose that improved primary care in the community results in 10% fewer people needing hospital care. What would happen to our hypothetical hospital? Its variable costs would decrease by 10% to $60 million, but its fixed costs would remain at $133 million. Total costs would now be $193 million, 3% less than before. Revenues, however, would decrease by 10% (to $182 million) because there are 10% fewer patients. The net result is an $11 million loss (a negative 6% margin).

Conversely, if primary care in the community deteriorates and 5% more people are hospitalized, the hospital’s revenues will increase by 5%, but its costs will increase by less than 2%, giving the hospital a margin of 5%, better than before. The hospital only “wins” when people in the community are sicker.

This problem is bigger in Pittsburgh than in most communities because we have so many hospitals. Pittsburgh has the 3rd largest number of hospitals per capita and the 2nd largest number of hospital beds per capita among the largest 40 metropolitan regions. That’s a lot of fixed costs that have to be paid for. If physicians do a better job of helping patients with asthma, diabetes, emphysema, heart failure, and other chronic diseases stay well and stay out of the hospital, many hospitals in Pittsburgh, particularly community hospitals, could experience significant financial losses.

Fortunately, a hospital doesn’t have to go bankrupt in order for the community to be healthier and for payers to spend less. Paying the hospital slightly more per admission in conjunction with programs to reduce avoidable admissions could enable the hospital to maintain its margins even though it’s getting less total revenue. This would be a true win-win-win: patients would be healthier, healthcare spending would be lower, and the hospital would remain financially viable.

Moreover, reducing hospital costs doesn’t necessarily mean losses in jobs, particularly direct patient care jobs. In fact, only 44% of hospital spending in our region goes to payroll costs, the third lowest percentage of any major region in the country, so many of our hospitals should be able to significantly reduce costs without cutting jobs.

Unfortunately, instead of pursuing win-win-win solutions, most communities around the country are locked in win-lose battles between hospitals and health plans. Hospitals are doing everything possible to fill beds and raise prices, while Medicare and health plans are trying to cut hospital payments to offset the higher cost of more admissions. Health systems are building more hospitals to generate more admissions rather than helping patients stay healthy, and hospitals are merging, not to reduce duplicative fixed costs, but to increase their leverage in demanding higher prices from health plans and patients.

Is there a better way? Fortunately, yes.

First, health plans need to commit to adjust their payments to hospitals so hospitals can continue to cover their costs when admissions decline due to better outpatient care. Second, hospital CEOs and Boards of Directors need to support programs to reduce unnecessary hospitalizations and to eliminate unnecessary and duplicative hospital costs so their hospitals can deliver high-quality care with less revenue.

Maryland has implemented this kind of approach for rural hospitals through a state-mandated program, and as a result, they’ve seen dramatic reductions in hospital admissions and readmissions without negative financial impacts on hospitals. Similar or better results could be achieved in southwestern Pennsylvania without state intervention if hospitals, health plans, physicians, and employers could work together in a more collaborative way.

(A version of this post appeared as the Regional Insights column in the Sunday, October 6, 2013 edition of the Pittsburgh Post-Gazette.)

Patients Can Get Quality Healthcare at Lower Cost With the Right Kind of Health Plan

2013-09-01T07:13:00.002-04:00

Many people believe that healthcare costs for both private businesses and government programs could be reduced significantly – perhaps by as much as 30-40% -- while actually improving outcomes for patients. That’s because of growing recognition that many healthcare tests and procedures being performed today are unnecessary or even harmful to patients and because many desirable healthcare services are being delivered inefficiently or at higher-than-necessary prices. Eliminating the unnecessary costs would make it more affordable to provide insurance coverage through both private employers and public programs such as Medicare and Medicaid.

The healthcare industry doesn’t get the same pressure from consumers to eliminate waste and inefficiencies as other industries do because in the vast majority of cases, the person who receives the services – the patient – doesn’t pay for most of the price of that service. If an MRI is “free” because insurance pays for it, why get a lower-cost X-ray instead, even if the X-ray would be good enough to accurately diagnose your condition?

To try and give patients more “skin in the game,” virtually all health plans require cost-sharing by patients, either through a copayment (e.g., $20 for a doctor’s visit or $30 for a prescription), co-insurance (e.g., 20% of the cost of a hospital stay), or a deductible (i.e., the patient pays 100% of the cost of services up to a specific amount before health insurance kicks in).

A survey conducted by the Kaiser Family Foundation and the Health Research and Educational Trust found that in 2013, three-fourths (78%) of workers with employer-sponsored health insurance now have a deductible, compared to only 55% in 2006. More than a third (38%) of workers have an annual deductible of $1,000 or more, compared to only 10% in 2006, and 15% have a deductible of $2,000 or more, compared to 3% in 2006. The numbers are higher for those who work for small businesses (those with under 200 employees) – over half (58%) now have deductibles of $1,000 or more, and nearly a third (31%) have deductibles of $2,000 or more.

Unfortunately, research studies have shown that co-payments, co-insurance, and deductibles don’t just discourage people from getting unnecessary services, they can also prevent people from getting necessary services that would avoid even more expensive problems in the future. For example, if money’s tight, someone who has a chronic health problem like high blood pressure, diabetes, or asthma may decide not to get their prescriptions filled or see their doctor when a problem first develops, particularly if they have a high deductible. But they’d also be more likely to later end up in the emergency room or need an expensive hospital stay. In other words, it can be penny-wise and pound foolish for the health plan to require the copayments and deductible. Although federal law now prohibits cost-sharing for important preventive services to avoid some of these kinds of problems, cost-sharing remains high for many medications and other services that can help people stay well.

That’s not the only problem with copayments, co-insurance, and deductibles, though. They also don’t provide people with any incentive to choose lower-cost providers for expensive services. Suppose you need knee surgery and you have a choice of two high-quality hospitals. Hospital #1 charges $15,000 and Hospital #2 charges $30,000. If you were paying on your own, you’d likely choose Hospital #1. But under a typical health plan, you would only be responsible for a 10% co-insurance payment up to an overall annual $1,500 limit on out-of-pocket expense. So it would cost you $1,500 for the surgery regardless of which hospital you chose. It would be the same under a high-deductible plan, because the cost of the surgery is well above the deductible. Since there is no incentive for you to choose the lower-cost hospital, there’s no incentive for Hospital #1 to stay low cost or for Hospital #2 to become more efficient or charge less.

Is there a better way? Three promising approaches to improved cost-sharing are being used by the most innovative employers and health plans around the country:

Value-based cost-sharing. A growing number of employers and health plans are reducing or eliminating cost-sharing for chronic disease medications in order to prevent high-cost complications and hospitalizations. This is particularly important when there is no generic equivalent for the drug a patient needs. Programs that have made medications free for patients with diabetes and high blood pressure have improved medication adherence and reduced complications without increasing total expenditures, and they may well reduce overall spending in the longer run.

Reference pricing. Why should you expect health insurance to pay extra for you to go to an expensive hospital if you can get high-quality care for less? CalPERS (the California state employee retirement system) found it was paying less than $20,000 for knee surgery at some hospitals and over $100,000 at others. Many hospitals were willing to do quality knee surgery for less than $30,000, so CalPERS told its members that it would pay no more than $30,000 (the “reference price”) for a knee replacement. CalPERS members are free to go to more expensive hospitals if they want to, but they have to pay any cost above $30,000 themselves. A new study found that after this policy was implemented, use of lower-priced quality hospitals increased by 21% and use of higher-priced hospitals decreased. Moreover, the higher-priced facilities reduced their prices by 34% in order to avoid losing patients. As a result, CalPERS saved $2.8 million and its members paid $300,000 less in cost-sharing.

Tiered networks. A tiered network goes a step further by grouping hospitals into multiple tiers based on their relative cost and quality. If a patient who needs non-emergency services chooses a hospital from a lower-cost/higher-quality tier, the patient pays less. The patient has an incentive to look for the lowest-cost, high-quality hospital, but unlike high-deductible plans or plans with high cost-sharing, insurance will cover most of the cost if the patient chooses a lower-cost, high-quality hospital.

Well-designed tiered networks are much better than the “narrow networks” or “high-performance networks” many health plans are now offering that look more like traditional HMOs than the broad-network PPO plans people have become used to. In a narrow network, the employer or health plan chooses which doctors and hospitals you can use and makes you pay a lot more if you get care from an “out-of-network” provider, i.e., the health plan “steers” you to the providers it chooses. But most people don’t know in advance what healthcare services they will need or whether the hospitals the health plan chose for the network will be the best for those specific services. For example, if a patient unexpectedly develops cancer, they may want to be able to afford to go to the highest-quality oncology provider, even if they get all of their other healthcare services from other, lower-cost providers. Moreover, there may be differences in cost among providers within the narrow network, and in a narrow network plan, the patient typically has no incentive to choose the lower-cost providers, merely to avoid the out-of-network providers.

In contrast, a tiered network allows you to use any high-quality hospital you wish when you have a healthcare problem, but you have to pay more if you choose a hospital that charges more to deliver care when a lower-cost hospital is available for that particular problem. The only “steering” is what the hospitals themselves do based on the quality of their services and the prices they charge; i.e., if a hospital wants to avoid losing patients, it can reduce its prices, improve its quality, or both.

Do tiered networks encourage better care at lower cost? The fact that many large, high-cost health systems try to prevent the use of tiered network plans may be the best evidence possible that tiered networks have significant potential to be effective in controlling high prices. Unfortunately, there are no true tiered network plans available in the Pittsburgh Region today. In Massachusetts, the state legislature required all health insurance companies to offer tiered network plans.

If employers and workers want to reduce their health insurance costs while improving the quality of the healthcare they receive, they need to demand that their health insurance plans use value-based cost-sharing, reference pricing, and tiered networks. In order for patients to make well-informed choices under these types of health plans, the region’s hospitals need to issue public reports on the quality of care they provide and post their prices for everyone to see.

(A version of this post appeared as the Regional Insights column in the Sunday, September 1, 2013 edition of the Pittsburgh Post-Gazette.)

Growth in Wages But Not Jobs

2013-08-19T10:58:00.000-04:00

Four years after the recession officially ended, Pittsburgh, like the nation as a whole, is still struggling to recover. Although most of the major regions across the country have seen job growth improving over the past couple of years, the opposite is unfortunately true in Pittsburgh. Between 2009 and 2010, the Pittsburgh Region had the 6th highest job growth among the top 40 regions, but between 2010 and 2012, job growth here ranked only 26th. So far, 2013 has been even worse – the Pittsburgh Region was among the bottom 5 regions in job growth during most of the first half of this year.

Although our job growth has been slower than other regions, wages in the Pittsburgh Region have actually been growing faster than in most regions over the past two years. U.S. Bureau of Labor Statistics data show that between 2010 and 2012, workers in the Pittsburgh Region had the 5th highest growth in average weekly wages among the 40 largest metropolitan regions in the country. Average weekly wages here increased by 7.2% over that two year period, nearly two percentage points more than the 5.3% rate of inflation. Only Northern California (San Francisco and Silicon Valley), Seattle, and Houston had higher wage growth than Pittsburgh, and most regions had wage growth of less than 5.5%.

In fact, Pittsburgh has been doing better than other regions in wage growth throughout the entire recession and recovery period. Between 2007 (before the recession started) and 2012, average weekly wages in the Pittsburgh Region increased by 13.6%, again the 5th highest increase among the top 40 regions. Early indications are that in 2013, wage growth in Pittsburgh has continued to be higher than most other regions.

Why are wages increasing so much more here than in other regions?

One reason is that we’ve had above average wage increases in most industries, not just a few. The only major sectors where wage increases were below average compared to other large regions were wholesale trade, financial services, and federal and state government jobs.

It’s important to note, however, that while the increases in wages were above average, that doesn’t mean that the wages themselves were above average. In many industries, wages in Pittsburgh have been and continue to be below average compared to other regions. Higher than average wage increases may simply be a reflection of employers playing catch-up to other regions in order to compete for talent.

For example, in the healthcare and social assistance sector, which has been one of the biggest job generators in the region in recent years, average weekly wages increased by 4.6% between 2010 and 2012, the 11th highest increase among the 32 large regions for which data are available. However, despite that above-average growth, Pittsburgh’s average weekly wage in 2012 for health and social services jobs ($868) was still the 8th lowest among the 32 regions.

In fact, despite having the fifth highest overall wage growth over a five year period (2007-2012), Pittsburgh’s overall average weekly wage in 2012 ($937) ranked only 22nd among the top 40 regions. That is a big improvement over our 27th ranking in 2007, but still below average. Although Pittsburgh’s lower cost of living means that lower wages buy a lot more here than in other regions, lower pay, particularly low starting salaries, can deter young workers from starting their careers here.

Even though Pittsburgh wage increases were above average in most industries, the increases were not in the top 5 in any industry. So how did the region have the 5th highest wage increase overall?

The answer is that the types of jobs in the region have also changed significantly during the recession and recovery period. Compared to 2007, the year before the recession hit, Pittsburgh today has 10,500 fewer manufacturing jobs, 7,900 fewer government jobs, 5,800 fewer retail jobs, 3,900 fewer construction jobs, 3,900 fewer information sector jobs, 2,900 fewer wholesale trade jobs, and 1,500 fewer transportation and warehousing jobs. But offsetting those losses are 21,700 more business and professional services jobs, 16,300 more health care and social services jobs, 6,600 more leisure and hospitality jobs, 6,400 more financial services jobs, 6,100 more mining jobs, and 3,900 more education jobs in private education. Although many of the jobs we’ve lost have been in high-paying sectors like construction and manufacturing, the jobs in professional and business services, financial services, and mining have wages significantly higher than in either construction or manufacturing.

Our above-average wage growth has probably helped to offset some of the economic problems our region might otherwise have experienced due to below-average job growth. In fact, despite ranking only 29th in job growth among the top 40 regions between 2010 and 2012, the Pittsburgh Region had the 15th highest growth in total wages (i.e., the sum of all paychecks in the region), and it had the 8th highest growth in total wages from 2007 to 2012. More total wages usually means more consumer dollars being spent on products and services sold in the region.

Higher than average wage growth is great for those who have jobs, but it does little to help those who don’t have jobs. And unfortunately, the Pittsburgh Region continues to have far too many unemployed workers – over 92,000 in June. Unemployment has been decreasing very slowly and remains close to 7% precisely because the jobs that are being created aren’t in the sectors where they were lost. High-paying jobs in law firms, accounting firms, and banks are good for the region, but they require different types of education and skills than those who were laid off from manufacturing and retail jobs can easily acquire.

We also can’t be complacent about the sectors that have been creating high-paying jobs, because there are many signs of danger ahead. For example, our major health systems have indicated that they will be making cutbacks in hiring. Colleges and universities are trying to become more efficient as state funding is cut and more young people try to minimize the burden of education debt. Although the region has benefited from the boom in natural gas, the drop in demand for coal has resulted in power plant shutdowns and threats of mining layoffs. Our success in business and professional services has been dependent on serving as a headquarters city, but that is continually threatened by cutbacks in direct air service to other cities.

No one can predict where growth will come from in the future. So rather than trying to pick particular industries to focus on, our priority should be making our region attractive for all types of businesses. We need to reduce state business taxes, repair our decaying transportation and water/sewer infrastructure, provide ready-to-go industrial sites for manufacturing firms that want to locate and expand here, and improve the performance of our schools. We need to ensure that startup firms can find the capital and customers they need to grow and succeed here, rather than moving to other regions. And we need to help the tens of thousands of unemployed Pittsburghers get the training and assistance they need to be hired for the high-wage jobs the region is creating.

(A version of this post appeared as the Regional Insights column in the Sunday, August 11, 2013 edition of the Pittsburgh Post-Gazette.)

Too Many Pittsburgh Babies Are Dying or Living in Poverty

2013-07-07T08:22:00.000-04:00

There is no major region in the country that needs babies more than Pittsburgh. The Pittsburgh Region lost population for two straight decades and continues to have one of the slowest growth rates of any large region because it is the only major region in the country where there are more deaths than births. While that’s partly because our death rate is the highest of any major region in the country, it’s also because we have the lowest birth rate among the largest 40 regions.

However, we don’t just need more babies, we need healthy babies raised in households that can give them the support they need to succeed in life. Unfortunately, our region is performing poorly in that respect, too.

Babies are more likely to die in the Pittsburgh Region than elsewhere. Data from the Pennsylvania Department of Health and the National Center for Health Statistics show that in 2010, the infant mortality rate (the proportion of infants born alive who die within the first year of life) was 7.2 deaths per 1000 live births in the Pittsburgh metropolitan area, 17% higher than the national rate of 6.15. The neonatal mortality rate (infant deaths which occurred during the first month of life) was 5 per 1000 births in the Pittsburgh Region, 25% higher than the national rate. The infant mortality rate in Allegheny County (7.6) was higher than both the regional and national averages, and the rate in Lawrence County (12.5) was double the national average.

African American babies are much more likely to die here than in other regions. The mortality rate for infants born to African American mothers in Allegheny County was 14.5 per 1000 in 2010, 25% higher than the national average of 11.6. (85% of the African American births in the region occur in Allegheny County, so race-specific infant mortality rates are not statistically reliable in the other counties.) The infant mortality rate for African American babies was more than double the rate for white babies (5.7), a bigger disparity than in other parts of the country.

Babies aren’t dying because of a lack of prenatal care. Over 80% of mothers in the Pittsburgh Region get prenatal care in the first trimester, which is better than the national average. Although having every mother get early prenatal care would be ideal, it’s more likely that our infant mortality rates are high because mothers aren’t engaging in healthy behaviors during pregnancy and because many mothers don’t have adequate resources to care for their babies after birth.

Too many babies in Pittsburgh are born to mothers who smoke during and after pregnancy. Research has shown that smoking during pregnancy doubles the likelihood of having a low birthweight baby and increases the rate of infant mortality. Pennsylvania Department of Health data indicate that 1 in 6 mothers in the Pittsburgh Region smoked throughout their pregnancy, a 25% higher rate than the national average. Smoking during pregnancy is much more frequent in rural parts of the region; more than 1 in 4 mothers in Fayette County smoked throughout their pregnancy, and more than 1 in 5 pregnant women smoked in Armstrong, Greene, and Lawrence Counties. Babies born to young mothers face the greatest health challenges.

Teenage mothers (under age 20) and young mothers (ages 20-24) are more likely to engage in unhealthy behaviors such as smoking during and after pregnancy and to have low birthweight babies. In the Pittsburgh Region, 24% of mothers under age 20 smoke during pregnancy and 28% of pregnant women ages 20-24 smoke, compared to only 16% of pregnant women ages 25-29 and 10% of those age 30 and older. 10% of the babies born to mothers under age 25 in Pittsburgh were low birthweight (under 5.5 pounds), compared to fewer than 7% of babies born to mothers ages 25-34. Low birthweight babies are more likely to die and, if they survive, to have serious health problems and learning disabilities that can make them less likely to succeed in school.

More African American babies are born to teen mothers in Pittsburgh than in any large region of the country. A major reason the infant mortality rate for African Americans is so much higher here is likely because an unusually high proportion of our African American babies are born to young mothers. 55% of African American babies in the Pittsburgh Region have mothers under age 25, compared to only 47% nationally. Nearly one-fifth of the black babies here (19%) have teenage mothers, the highest proportion among the top 40 regions in the country. In contrast, in regions such as Boston, Portland (OR), and San Diego, fewer than 10% of African American babies are born to teenagers, and teen birth rates in those regions are only half as high as they are in Pittsburgh.

Too many babies in the Pittsburgh Region are growing up in poverty. Young mothers are far more likely to be single than older mothers, and that’s particularly true in the Pittsburgh Region. 96% of mothers under age 20 are single here compared to 88% nationally, and 74% of Pittsburgh mothers ages 20-24 are unmarried, compared to 63% nationally. Single parenthood creates a vicious cycle of poverty for both the mother and baby, since it is very difficult for young, single mothers to finish their education and obtain employment while taking care of an infant. In the Pittsburgh Region, the majority (60%) of mothers under age 25 are on Medicaid, compared to fewer than 19% of older mothers. The problem is even more severe in the African American community, where 78% of the mothers ages 20-34 are unmarried, the third highest rate among the top 40 regions. Likely as a result of the high rates of single motherhood in the African American community, over 50% of the African American children under age 5 in Pittsburgh are living in poverty, the 7th highest rate among the top 40 regions.

The inescapable conclusion is that the Pittsburgh Region needs to make a more concerted effort to reduce teenage pregnancy rates and improve pregnancy outcomes, particularly in the African American community and rural parts of the region. At least three types of actions would be desirable:

• Encourage teenagers to avoid unplanned pregnancies and encourage young women to delay pregnancies until they have finished their education and have adequate financial resources to support raising a baby. This is something that parents, family, and friends can encourage as well as physicians, schools, and social service programs.

• Urge young women who are pregnant to stop smoking and obtain good prenatal care in order to have the healthiest baby possible. Encouraging this should also be a community role, not just the role of doctors and healthcare providers.

• Assist young women who have babies to obtain affordable childcare and to finish school and obtain employment. Although there are a number of programs in the region designed to address these goals, particularly in Allegheny County, the data suggest that much more needs to be done. Programs that are effective should get the resources they need to expand, and those that are not effective should either improve or the resources supporting them should be shifted to higher-impact programs.

(A version of this post appeared as the Regional Insights column in the Sunday, July 7, 2013 edition of the Pittsburgh Post-Gazette.)

Lack of Diversity is Hurting the Region’s Economy

2013-06-02T18:46:00.001-04:00

For many years, no matter what kind of good economic news our region received, it was always overshadowed by a lingering sign of economic decline – our continuing loss of population. After losing nearly 7% of our population in the 1980s (the largest loss of any region in the country), the Pittsburgh Region was the only major region to lose population in the 1990s. Rather than slowing or reversing losses after 2000, population decline actually accelerated, and we ended the decade with 3.1% fewer residents than we had in 2000, for a total cumulative 30-year population loss of 11%.

So it’s hard to blame people for feeling optimistic about the fact that in both 2011 and 2012, the Census Bureau estimated that the Pittsburgh region had experienced a net increase in population. Unfortunately, though, the estimated growth has been very small. According to the Census Bureau, the Pittsburgh Region added only 1,795 people between 2010 and 2011, and an even smaller number, 619 people, between 2011 and 2012. Those are minuscule increases in the region’s total population of 2.3 million, and the fact that the increase was smaller in 2012 than 2011 is not a good sign.

What’s holding our population growth back?

One of the biggest factors is likely the lack of racial and ethnic diversity in our region. The largest source of population growth in every region in the country has been racial and ethnic minorities – particularly African Americans, Asians, and Hispanics. But Pittsburgh has fewer minorities than every other major region in the country. The 2010 Census showed that only 13% of the residents of our region were non-white or Hispanic – the smallest percentage of any the top 40 regions in the country.

The diversity of the Pittsburgh region’s population has increased over the past 30 years, but only barely. Although the minority share of the region’s population increased from 8% in 1980 to 13% in 2010, every other region of the country experienced significantly more growth in its minority population than the Pittsburgh Region over that 30 year period. Today, on average, 45% of the residents of other major metropolitan regions are minorities.

Why does this matter? If Pittsburgh wants its population to grow, attracting and retaining more minority residents isn’t an option, it’s a necessity. In fact, Pittsburgh’s population losses during the 1980s, 1990s, and 2000s would have been even bigger if not for the growth the region did have in its minority population. Over the past 30 years, the white population here declined by 16%, but the non-white population grew by 44%. Between 2000 and 2010, the number of white residents of our region declined by 5.6% but because the minority population increased by 18%, our region’s total population loss was held to only 3.1%.

Moreover, unless we attract more residents from other states and countries, our population will continue to shrink. Between 2010 and 2012, the Pittsburgh Region had the lowest birth rate and the highest death rate among the top 40 regions, and it is still the only major region in the country with more deaths than births. So unlike any other region, Pittsburgh’s population would have declined in 2011 and 2012 if it hadn’t been for new residents moving here from other communities.

The subgroup that Pittsburgh has done the poorest job in attracting is foreign-born residents. Census estimates for 2011 indicate that only 3.3% of the Pittsburgh Region’s residents are foreign-born, the smallest percentage among the top 40 metropolitan regions. There are almost twice as many foreign-born residents in Cleveland (6%), more than three times as many in Minneapolis (9.7%) and Charlotte (10.3%), and more than ten times as many (36.4%) in Silicon Valley as here. Since Census estimates show that we also rank dead last in the rate of international migration into the region, the gap will continue to widen.

This will likely affect not just our population growth but also our job creation rate, since studies have shown that a high percentage of successful technology companies across the country have been started by immigrant entrepreneurs. Pittsburgh’s success a century ago derived from the entrepreneurship and labor of immigrants, so it’s ironic that today, Pittsburgh has become one of the least diverse regions in the country, and it’s also likely that’s a significant reason why our job growth has also been much slower.

Although it is not easy to change the diversity of a region, other communities have done it successfully. In fact, thirty years ago, Pittsburgh was not the least diverse of the major regions in the country the way it is today. Minneapolis was. In 1980, only 5% of the residents of the Minneapolis metro area were minorities, the lowest percentage among the largest 40 regions in the country. But today, 21% of the residents of the Minneapolis Region are minorities.

The change in Minneapolis wasn’t an accident. The community made a major effort to resettle southeast Asian refugees into the Twin Cities and to help migrant farmworkers become homeowners in rural areas. As a result, Minneapolis had the 11th highest growth in Hispanic residents and the 12th highest growth in Asian residents among the top 40 regions between 1980 and 2010. By comparison, during the same time period, Pittsburgh ranked 37th and 35th in attracting Hispanic and Asian residents. Minneapolis still has a smaller percentage of African-American residents than Pittsburgh does, but it’s had the second highest growth in African Americans over the past 30 years among major regions, whereas Pittsburgh has had the fifth slowest growth, so Minneapolis will likely soon surpass us on that measure, too.

Expanding diversity certainly hasn’t hurt the Minneapolis economy. Jobs in the Minneapolis region grew four times as fast as they did in Pittsburgh over the past decade. Moreover, the unemployment rate in Minneapolis in March was only 5.3%, significantly lower than the 7.1% unemployment rate in Pittsburgh, so it seems that attracting new residents has benefited everyone in the Minneapolis region.

Pittsburgh’s lack of diversity is unlikely to change dramatically on its own. Public and private leaders in the region need to proactively focus on the issue and invest sufficient resources over a multi-year period to achieve success. Two strategies will likely have the most immediate impact:

• Encourage minority and international students to stay in the region after graduation. Thanks to our world-class universities, we’re already attracting some of the best and brightest minorities in the world to our region. We just need to do everything we can to encourage them to stay here. Businesses in the region could help by offering minority students internships and jobs and also by serving as mentors and customers for students who want to become entrepreneurs.

• Help existing minority residents obtain the education, jobs, and entrepreneurial assistance needed for success. A previous post outlined ways to address the high rates of unemployment and poverty among our African American residents. If we show African Americans and other minority groups that they can be successful in our region, more will likely be willing to come here.

(A version of this post appeared as the Regional Insights column in the Sunday, June 2, 2013 edition of the Pittsburgh Post-Gazette.)

African Americans Are Being Left Behind By Pittsburgh’s Economy

2013-05-05T06:16:00.000-04:00

Every few months you hear about a new ranking showing that Pittsburgh is doing better than other regions. Last fall, we were rated the “best U.S. city for relocation.” In January, Pittsburgh was designated one of the “happiest cities” in which to work. In April, it was reported that there were more U-Hauls coming here than leaving in 2012.

There are some rankings you never hear about, however, because they aren’t statistics we can be proud of. They show that tens of thousands of our region’s minority residents not only aren’t sharing in the region’s overall economic progress, they’re worse off than in almost any other major region in the country.

For example, throughout the course of the recent recession and recovery, Pittsburgh has celebrated the fact that its unemployment rate was below the national average. However, Census estimates for 2011 indicate that the unemployment rate for African Americans in southwestern Pennsylvania was above the national average for African Americans. In fact, the Pittsburgh Region had the 11th highest unemployment rate among African Americans among the top 40 regions.

The Census estimated that the unemployment rate among African Americans in our region in 2011 was 19%, meaning nearly one out of every 5 African Americans who wanted to work was unable to find work. Our black unemployment rate was 2.6 times the unemployment rate among whites, the 7th worst disparity among the top 40 regions in the country.

Our unusually high unemployment among African Americans is not a new phenomenon and it’s not due to the recent recession. Throughout the last decade, African Americans in Pittsburgh have had one of the highest unemployment rates among major metropolitan regions in the country.

The disparity isn’t just in unemployment. The African Americans in our region who do have jobs are earning significantly less than white workers here and less than African Americans make in other regions of the country. In 2011, the average African American man with a full-time job earned only $39,132 in the Pittsburgh Region. That’s the second lowest average wage for African Americans among the top 40 regions (only Cleveland has lower earnings for blacks than Pittsburgh), and it’s more than 40% lower than the $65,850 the average white man with a full-time job makes in the Pittsburgh region. African American women with full-time jobs earned slightly less than men – an average of $37,138 – but their earnings rank slightly better (only 7th lowest) compared to African American women in other parts of the country.

One reason for the disparity in earnings compared to other regions is the types of jobs African Americans who live here have. Only 23% of African Americans in Pittsburgh work in management, business, science, and arts occupations, the second lowest percentage among the top 40 regions, whereas 34% work in service occupations, the highest percentage among major regions.

The combination of persistently high unemployment rates among African Americans and lower wage levels among those who are employed have resulted in an even more shameful statistic – Pittsburgh had the 3rd highest rate of poverty for working-age (18-64) African Americans among the major metropolitan regions in the country in 2011, and the sixth highest rate of poverty for African American children. Nearly one-third (31%) of 18-64 year old African Americans are living in poverty, nearly half (45%) of African American children under 18 are poor, and over half (53%) of African American children under age 5 live in households with income below the poverty line.

It’s not surprising that if minorities in the region have trouble finding work and fall into poverty, we would have trouble attracting and retaining minorities in the region. And, in fact, Pittsburgh has the least diverse population of any major metropolitan region in the country. The most recent estimates from the U.S. Census Bureau indicate that only 12% of the residents of the Pittsburgh Region are non-white, the smallest percentage among the top 40 regions in the country. The average among the largest regions is 32%, and in the U.S. as a whole, 24% of the population is non-white, twice as high a proportion as in Pittsburgh. If you looked to see who was behind the wheel of those U-Hauls that came here last year, you probably wouldn’t see many non-white families.

In a quirk of statistics, our lack of diversity makes our region look like it’s doing better in terms of unemployment than it really is. For example, in 2011, the overall unemployment rate in Pittsburgh was lower than the unemployment rate for Baltimore. But the Census data show that the unemployment rates for both whites and blacks were higher in Pittsburgh than in Baltimore. How can that be? Because 38% of the population in the Baltimore region is non-white, but only 12% of the population in southwestern Pennsylvania is non-white, Baltimore’s total regional unemployment rate is higher than Pittsburgh’s simply because Baltimore has a bigger non-white population.

What can be done to improve the economic status of African Americans in the region?

Improve the Region’s Business Climate. It’s hard to help African Americans get good jobs if there aren’t good jobs available in the region. As noted in a previous post (Pittsburgh Worst in U.S. in Both Job Growth and Unemployment Reduction), our region has had one of the slowest rates of job growth in the nation in recent months. In order to create more jobs, we need to lower state business taxes, create more industrial sites, fix our decaying roads, bridges, and water and sewer systems, and provide the capital that entrepreneurs need to start and expand businesses.

Improve the Quality of Public Education. If we are successful in creating more jobs, we need to make sure that our African American residents have the skills they’ll need to be hired for them, and that means improving our education system. State tests show that fewer than half (43%) of the African American 11th graders in the region can read properly and fewer than one-third (29%) are proficient in math. Only 15% of African Americans in the Pittsburgh Region over age 25 have a bachelor’s degree or higher, the 3rd lowest percentage of any major region in the country.

Support Adequate, Affordable Public Transit to Job Centers. Census data show that 25% of the African American workers in our region rely on public transportation to get to work, the second highest proportion of any major region in the country (only New York is higher), and six times higher than the proportion of white workers in our region who use public transit (4%). Cutbacks in transit service will have disproportionately negative impacts on the ability of African Americans to obtain and retain jobs.

While it’s good to celebrate our region’s successes, it’s time we started making more serious efforts to correct our weaknesses. We need to accelerate our economic and workforce development efforts, but we need to do it in a way that will benefit all of our region’s citizens.

(A version of this post appeared as the Regional Insights column in the Sunday, May 5, 2013 edition of the Pittsburgh Post-Gazette.)

Pittsburgh Worst in U.S. in Both Job Growth and Unemployment Reduction

2013-04-07T07:33:00.000-04:00

Although Pittsburgh’s economy was doing better than most parts of the country during the early stages of recovery from the recession, that’s no longer true. In fact, Pittsburgh is now dead last in the country in job growth. The latest data from the U.S. Bureau of Labor Statistics show that jobs in the Pittsburgh Region grew by only 0.2% between February 2012 and February 2013, the slowest rate of job creation of any of the 40 largest metropolitan areas in the country. Most large regions grew ten times faster than Pittsburgh did over the past year.

A 0.2% growth rate means that the Pittsburgh Region added only 2,100 net new jobs last year. That’s fewer new jobs than any major region in the country except for Providence, Rhode Island, a region less than half our size. Other regions that are smaller than Pittsburgh created thousands more jobs than we did. For example, the Cleveland Region added 13,400 jobs over the past year, more than 6 times as many as Pittsburgh. Charlotte added 21,600 jobs, more than 10 times as many as southwestern Pennsylvania.

Not only is the Pittsburgh Region at the bottom in terms of job creation, it had the biggest increase in unemployment over the past year among the largest 40 regions in the country. That would be bad enough if unemployment were going up in all regions, as it was during the recession, but unemployment has been going down in most parts of the country over the past year. The Pittsburgh Region was one of only 11 major metropolitan regions in the country that saw its unemployment rate increase in the past year, and our unemployment rate was almost a full point higher in January than it was a year earlier (8.6% in January 2013 vs. 7.7% in January 2012), the largest increase by far of any major region.

The big increase in our unemployment rate means there are a lot more Pittsburghers unable to find work today than in the past. In January 2013, there were more than 108,000 people looking for work in the Pittsburgh Region, the largest number of people unemployed during January in over a quarter century. Even after adjusting for the fact that unemployment is typically higher in January than other months, there were nearly as many people unemployed at the beginning of this year as there were at the height of the recession three years ago. Pittsburgh now has the 13th highest unemployment rate among the top 40 regions in the country. Places like Baltimore, Boston, Cincinnati, Cleveland, Columbus, Kansas City, Milwaukee, Minneapolis, and St. Louis all have lower unemployment rates than we do.

If all of this is news to you, it shouldn’t be. Our job growth rate has been slipping and our unemployment rate has been increasing for almost a year. However, local civic boosters have ignored these troublesome statistics and instead celebrated the fact that the region’s labor force has been growing. The fact that the labor force grew last year would be indeed be good news except for the fact that job creation isn’t keeping up with the labor force growth. The 2,100 new jobs our region added last year didn’t come close to helping the more than 80,000 Pittsburghers who were looking for work throughout 2012, and adding 30,000 more people to the labor force only made it worse. Last fall, people were also touting the fact that we had a record high number of jobs, but that’s no longer true: there were 3,000 fewer jobs here in February 2013 than there were in February 2001, a dozen years ago.

Unemployment is continuing to increase because we’ve actually lost jobs over the past year in many of our biggest economic sectors. Our biggest loss of jobs last year was in government; we had 3,500 fewer government jobs in February 2013 than a year earlier, and 8,600 fewer than two years ago, a bigger percentage loss of government jobs than any other major region. But the problem isn’t just government jobs; we also had the third lowest growth rate of private sector jobs among the top 40 regions last year. We lost 2,600 jobs in the leisure and hospitality industry (one of only six of the top 40 regions to lose jobs in that sector over the past year); we lost 1,300 jobs in wholesale trade (the biggest percentage loss in that sector of any major region in the country); and we lost 500 manufacturing jobs (whereas most major regions added manufacturing jobs in 2012).

The two sectors that added the most jobs – professional and business services (4,000 jobs) and healthcare and social assistance (2,700 jobs) – both grew more slowly than in most other major regions. Our only economic sectors that added significant numbers of jobs and grew at a faster rate than other regions were financial services (1,700 jobs and a 2.4% growth rate) and mining (900 jobs and a 9.4% growth rate). The few sectors where we had growth barely created enough jobs to offset the losses in other sectors.

It’s time to stop pretending our economy is doing well or hoping that the next month’s job report will show that things have finally turned around. And we can’t blame federal policies when we’re doing worse than every other region in the country in almost all of our industries. The labor force will come to an abrupt end if those 100,000 unemployed Pittsburghers give up and move to one of the dozens of other regions that are adding thousands more jobs than we are. Our many cultural attractions and other amenities won’t mean much to people who can’t find work.

What do we need to do to jumpstart job growth?

Improve Pennsylvania’s Business Climate. Part of Pittsburgh’s problem is that it’s part of a state that’s also doing poorly economically. Over the past year, Pennsylvania had the 5th smallest growth in total jobs among the fifty states and the 6th smallest growth in private sector jobs. That’s not surprising since Pennsylvania has the second highest corporate income tax rate in the country and it’s the only state that taxes both business income and business assets. The Tax Foundation’s State Business Tax Climate Index ranks Pennsylvania as having the fifth worst corporate taxes in the country. To solve this, the Governor and General Assembly should eliminate the Capital Stock and Franchise Tax, reduce the Corporate Net Income Tax to 8.5% or less, and eliminate the cap on the Net Operating Loss Carryforward.

Improve Pittsburgh’s Business Climate. Pennsylvania is only part of Pittsburgh’s problem, however, since job growth in the Pittsburgh region is lower than almost any other region in the state. Since our biggest losses have been in manufacturing, that’s where our biggest economic development emphasis should be. We need to (1) make major investments in the infrastructure needed to support manufacturing firms, particularly ready-to-go industrial sites with easy access to airports, highways, railroads, and waterways; (2) create a workforce with the skills and willingness to work in manufacturing jobs; and (3) provide the capital entrepreneurs need to start and expand manufacturing businesses.

(A version of this post appeared as the Regional Insights column in the Sunday, April 7, 2013 edition of the Pittsburgh Post-Gazette.)

Better Information on Hospital Prices and Quality Will Help Make Health Insurance More Affordable

2013-03-03T08:30:00.001-05:00

Imagine walking into an automobile dealer’s showroom, and when you ask the price of a car, they won’t tell you. They say you can’t find out the price until after you commit to buying the car, and moreover, you’ll have to pay for whatever options the dealer decides to include, whether you want them or not. There’s also no warranty on the cars they sell – if something doesn’t work properly, you’ll have to pay extra to have it fixed.

You’d undoubtedly shake your head in disgust and go to get your car elsewhere. But as bizarre as that sounds, it’s exactly the way our healthcare system works today. Many hospitals can’t or won’t tell you in advance what they’ll charge you for a procedure, they’re free to add on as many extra services as they want at your expense, and if they make a mistake or give you an infection, you have to pay extra to fix the problem, including paying for a second hospitalization if you have to be readmitted after discharge.

A study published in the Journal of the American Medical Association in February described what a researcher found when she called 122 hospitals around the country to find out what it would cost her healthy 62 year old grandmother to get a hip replacement. Nineteen of the hospitals were unable to give her any price information at all. For 27 other hospitals, she was only able to get the hospital’s price or the physician’s price, but not both. For about half (57) of the hospitals, she was able to get both the hospital’s price and the physician’s price, but only by calling them separately. Only 19 hospitals (16%) were able to give her a combined price for the hospital and physician services (both of which are obviously necessary if you need hip surgery).

It also turned out to be worth the effort she made to call and ask about prices. The combined hospital and physician prices ranged from $11,100 to a whopping $125,798 – a more than 10-fold difference. The lower prices weren’t coming from lower-quality hospitals, either; even among the hospitals on the highly-advertised U.S. News and World Report “Top Hospitals” list,” the prices ranged from $12,500 to $105,000, i.e., she might have to pay 8 times as much for the same procedure depending on which “top hospital” she chose.

Many other studies have found that when the veil of secrecy is removed from prices, tremendous variation across providers is revealed. It’s not just for major surgery, either; for example, the price of an MRI can range from several hundred dollars to several thousand dollars, depending on where you get it. Same test, huge differences in cost.

So if you’re uninsured, what you don’t know can hurt you financially. Even if you have health insurance, costs are going to start mattering more and more. A growing number of individuals now have high-deductible health plans, meaning they will pay 100% of the cost for many tests and outpatient procedures. Moreover, the ongoing battle between Highmark and UPMC may soon mean that many Pittsburghers will have to pay a higher percentage of the cost if the doctor or hospital they want to use is “out of network” for their health insurance plan. And regardless of what kind of health insurance you have, if people don’t start choosing the most cost-effective hospitals for their care, insurance premiums will continue to skyrocket.

Citizens, business leaders, and public officials should be demanding four things to ensure that all Pittsburghers can find the best quality hospital care at the most affordable price:

1. Hospitals Should Publicly Announce Their Prices for Tests and Procedures.

Some progressive hospitals around the country put their prices right on their websites (for example, look at the website for the Spectrum Health system in Michigan at http://www.spectrumhealth.org/AveragePrices ). But you won’t find that on any hospital websites in the Pittsburgh Region. (Our hospitals’ websites tell you how to pay your bill, but not what your bill will be.)

Moreover, the published price should include all costs associated with the procedure, including all physician services and facility charges. Even for something as simple as a colonoscopy, a hospital can charge a lot more depending on what kind of anesthesia is used or where the procedure is done.

2. Hospitals Should Publish Detailed Statistics on Their Quality of Care.

No one wants lower cost healthcare if it means poor quality care. Unfortunately, the quality of hospital care in the Pittsburgh Region is a lot worse than people realize. In fact, every large hospital in the Pittsburgh Region is going to be penalized financially by Medicare this year because of either poor quality care or high readmission rates (http://www.kaiserhealthnews.org/Stories/2012/December/21/value-based-purchasing-chart.aspx) . No Pittsburgh hospital appears on the just-released Truven Health list of Top 100 hospitals (http://100tophospitals.com/top-national-hospitals/) and even on the much-advertised U.S. News and World Report rankings (http://health.usnews.com/best-hospitals/rankings ) (which are driven heavily by physicians’ opinions of the hospitals’ reputation, rather than the objective data used for the Truven list) no Pittsburgh hospital is in the top 20 for cancer care (http://health.usnews.com/best-hospitals/rankings/cancer).

Some Pittsburgh Region hospitals have begun to put a limited number of statistics about the quality of their care on their websites, but most publish no information about their quality of care at all. In contrast, progressive hospitals like Beth Israel Deaconess in Boston (www.bidmc.org/Quality-and-Safety ) provide detailed information publicly about the quality of all aspects of the care they deliver.

3. Hospitals Should Offer a Warranty for Preventable Complications.

For several years, the Geisinger Health System in Central Pennsylvania has offered a “warranty” on services ranging from heart bypass surgery to maternity care (http://www.nytimes.com/2007/05/17/business/17quality.html?pagewanted=all&_r=0) . If you have a complication or if you have to be readmitted to the hospital for a problem related to your original procedure, Geisinger doesn’t charge extra the way other hospitals do. Studies have shown that the quality of care they deliver is now even higher than it was before, and their cost of care has also gone down because less money is being spent on treating complications.

Unfortunately, none of our hospitals in the Pittsburgh Region offer such a warranty. Medicare will be testing a new Bundled Payment program this summer that will pay for hospital care with a single, warrantied price (http://innovation.cms.gov/initiatives/Bundled-Payments/Participating-Health-Care-Facilities/index.html ), but only seven hospitals in our region volunteered to participate in this important new program (Allegheny General, Allegheny Valley, Canonsburg, Forbes, Indiana, Sharon, and West Penn).

4. A Consumer-Friendly Cost Comparison Website Should be Created.

In many other states, either state government or the state hospital association has created a price comparison website that shows what all hospitals in the state charge for a wide range of procedures. (For example, look at the Wisconsin PricePoint system at www.wipricepoint.org and the New Hampshire Health Cost website at www.nhhealthcost.org ).

Unfortunately, nothing comparable exists in Pennsylvania. If you know where to look, you can find some information on the Pennsylvania Health Care Cost Containment Council (PHC4) website. The Council’s 2011 Hospital Performance Report for Western Pennsylvania (http://www.phc4.org/reports/hpr/11/docs/hpr2011west.pdf) shows average charges for a dozen common types of hospital admissions. It shows, for example, that the average hospital charge for laparoscopic gall bladder removal ranged from $13,383 at Uniontown Hospital to $55,202 at UPMC Presbyterian/Shadyside, despite having comparable mortality and readmission rates. However, these figures are just for what the hospital bills for the procedure, they do not include charges for the surgeon or other physicians involved in the case, so they underestimate what the total cost to a patient would be. More importantly, though, the report doesn’t include any information on the charges or payments made for common major procedures such as heart surgery or orthopedic surgery. The most recent information PHC4 published on cardiac surgery was for 2009 (http://www.phc4.org/reports/cabg/09/default.htm ); it showed that average hospital charges for cardiac bypass surgery ranged from$51,756 at Heritage Valley Beaver (with normal levels of mortality and readmissions) to $221,800 at UPMC Presbyterian/Shadyside (which had higher than expected readmissions), but that information is too old to be useful. The PHC4 report on orthopedic surgery (http://www.phc4.org/reports/ortho/ ) does not include information on the prices of surgery by hospital.

Although Pennsylvania was a national leader when it established the Pennsylvania Health Care Cost Containment Council (PHC4) 27 years ago, it has fallen behind many other states in making healthcare information available to the public. The Governor and General Assembly need to provide the funding and the mandate to PHC4 to publish timely, comprehensive information on the cost and quality of healthcare in the state.

(A version of this post appeared as the Regional Insights column in the Sunday, March 3, 2013 edition of the Pittsburgh Post-Gazette.

Higher-Quality Healthcare Can Help Solve the Federal Deficit (and Make Our Region More Competitive)

2013-02-03T06:20:00.001-05:00

The single biggest challenge facing the President and Congress this year is solving the federal deficit. The last minute legislation that kept the country from going over the “fiscal cliff” was only a temporary solution, and across-the-board funding cuts are scheduled to go into effect this spring unless a more permanent solution is found.

How do you reduce the deficit? Although most of the rhetoric in Washington focuses on whether to raise taxes or cut special interest spending programs, the reality is that the deficit problem will never be solved unless we find a way to control healthcare spending. The Congressional Budget Office projects that almost half (46%) of the growth in the federal budget over the next decade will be due to higher spending on healthcare (Medicare, Medicaid, and health insurance subsidies), particularly Medicare spending. Another 31% of spending growth will be due to Social Security, and 17% will pay for higher interest on debt. Only 2% of the growth will be due to increases in discretionary spending (defense, social programs, etc.), so the kinds of spending cuts most politicians talk about won’t do much good.

What policymakers are struggling with today is not whether healthcare spending should be reduced, but how. Federal and state officials believe they have only two options for reducing Medicare and Medicaid spending. One option is to cut benefits, such as by refusing to cover certain healthcare services, charging patients more for healthcare services, or tightening eligibility standards. Not surprisingly, this is not an attractive option for elected officials who count on seniors’ votes, and it could seriously hurt seniors and low income families who count on Medicare and Medicaid to pay for their healthcare needs.

The second option is to cut payment rates to doctors and hospitals, and that is exactly what is on the table now. Doctors are being threatened with the most draconian cut: a 27% cut in Medicare payments to doctors was scheduled to go into effect this year, but Congress delayed that cut at the last minute by reducing payments to hospitals and other healthcare providers instead. In the past, hospitals and doctors have compensated for Medicare and Medicaid fee cuts by raising prices for private employers and commercial health plans, but that kind of cost shifting can’t continue, since it has made health insurance unaffordable for both employers and workers and it is making our businesses uncompetitive in world markets.

Is there a better way? Fortunately, yes. By redesigning the way healthcare services are delivered, quality can be improved and costs can be reduced without the need to cut benefits or cut fees. Here are just three examples:

Improve Primary Care. Demonstration projects all across the country, including here in Pittsburgh, have shown that if primary care physicians are given the resources to provide more comprehensive preventive care and care coordination services for patients, they can help patients stay well and avoid expensive emergency room visits, hospitalizations, and readmissions, thereby saving money for Medicare and health plans. Since Pittsburgh has one of the highest rates of hospitalization and emergency room use in the country, these “patient centered medical homes” could be of tremendous value here. Unfortunately, the health plans in our region have been very slow to implement payment systems which will support medical homes, and many physicians and health systems have been reluctant to accept accountability for controlling costs in return for more flexible payment. To solve this, employers should only use health plans that support multi-payer, physician-driven medical homes for all of their members, and patients should only choose primary care physicians who provide comprehensive medical home services. In addition, our Congressional delegation should demand that Medicare pay to support medical homes for seniors in the region.

Avoid Unnecessary Tests and Procedures. Study after study has shown that many patients are receiving medical tests, procedures, and even major surgery they do not need. This overuse not only increases healthcare costs, but it can often harm patients. Overuse is a particular concern in the Pittsburgh Region, since we have one of the highest rates of healthcare service utilization in the country.

For example, Federal data show that Medicare beneficiaries in the Pittsburgh region are hospitalized at the second highest rate among major regions, and they receive heart bypass surgery and stents 20% more often than the U.S. average and more than twice as often as some regions of the country. A study by the U.S. Bureau of Economic Analysis found that for commercially insured patients, the Pittsburgh Region had the 7th highest rate of healthcare utilization among 85 regions across the country.

A growing number of medical specialties are trying to reduce overused tests and procedures through the Choosing Wisely campaign (www.choosingwisely.org); nine specialties have identified procedures that they believe are being overused, and more specialty societies will be doing so later this month. Patients and their family members can help by taking the time to learn about the risks as well as the benefits of treatment before making a decision about their care, and health plans and hospitals need to pay physicians based on whether they achieve good outcomes for their patients, rather than based on how many procedures they perform.

Improve Maternity Care. One of the most overused procedures in America is the Cesarean section. One out of every three babies nationally and in southwestern Pennsylvania is delivered by C-Section, 50% more than 20 years ago. Yet C-Sections create greater health risks for both the mother and the baby. A report issued last month called The Cost of Having a Baby in the United States (available at www.chqpr.org) found that employers pay almost $10,000 more for babies delivered by C-Section than by vaginal delivery, and Medicaid programs pay almost $4,000 more. That means that reducing the C-Section rate in the Pittsburgh Region could save tens of millions of dollars for employers and taxpayers, as well as producing healthier babies and mothers. Delivering more babies in birth centers instead of hospitals could save even more, while still providing a quality, safe birth experience for mothers and babies. Pregnant women should demand to deliver their babies naturally and at full term, and health plans should pay doctors more for vaginal deliveries than C-Sections.

Rather than forcing Congress to cut payments in order to reduce healthcare spending, our physicians and health systems need to step forward and agree to take accountability for controlling costs. Payers and purchasers, including employers as well as Medicare, need to create payment systems and benefit designs that give physicians and hospitals the flexibility to redesign care without expecting them to take on insurance risk. Quality of care for patients should be assured by the kinds of objective, publicly reported measures other regions use, not by where we rank on a U.S. News and World Report opinion poll. Not only can this help solve the federal deficit, but having high-quality, affordable healthcare will help our region attract new businesses and residents in the increasingly competitive global marketplace.

(A version of this post appeared as the Regional Insights column in the Sunday, February 3, 2013 edition of the Pittsburgh Post-Gazette.)

Lessons from the Past for a Better Economic Future

2012-12-30T06:54:00.000-05:00

The new year will begin with the nation still suffering from the effects of a recession that began five years ago. It has been called the “Great Recession” because it was the longest and worst national economic downturn since the Great Depression in the 1930s.

However, long-time Pittsburghers know the real Great Recession actually happened thirty years ago. Between 1979 and 1983, the U.S. experienced two back-to-back recessions as a result of high energy prices and efforts to control inflation. In January 1983, U.S. unemployment rate reached 11.4%, nearly a full point higher than the peak rate of 10.6% that was reached during the most recent recession.

No part of the country suffered more back then than Pittsburgh. Between 1979 and 1983, the Pittsburgh Region lost over 110,000 jobs, almost 9% of total employment at the time.

Not surprisingly, unemployment in the region skyrocketed. At its peak, the unemployment rate reached 18.2% in January 1983, with over 212,000 southwestern Pennsylvanians unemployed. Perhaps even more devastating was the loss of thousands of young people who moved away in search of work. Between 1982 and 1987, 82,000 people left the region’s labor force, a 7% reduction.

Although many people think the problem was caused solely by the collapse of the steel industry, there were job losses nationally across all manufacturing sectors, and nearly one-fourth of the jobs in Pittsburgh at the time were in some type of manufacturing, not just steel. When the recession hit, Pittsburgh lost over 95,000 manufacturing jobs in less than four years, one-third of the total manufacturing jobs in the region at the time.

It took until 1989 for the number of jobs in the region to return to 1979 levels. Although over 100,000 net new jobs were added in the six years after 1983, that merely brought job levels back to where they had been before the recessions started. Since Pittsburgh lost more jobs than most regions did, it took longer for it to catch up. While jobs in the U.S. grew by 20% during the decade of the 80s, the Pittsburgh region had no net job growth at all.

Part of the reason for our slow recovery was that manufacturing job losses didn’t stop when total jobs hit bottom in 1983. Between 1983 and 1987, another 37,000 manufacturing jobs disappeared. The region had to rely on job growth in service sectors such as health care, education, and tourism to make up the shortfall.

Fast forward to today. On the surface, it would appear that the restructuring of the region’s economy over the past thirty years has made our economy stronger and more resilient than other regions. The statistics you hear all the time seem to prove it: Pittsburgh had one of the smallest job losses of any region in the country during the 2008-2009 recession; our unemployment rate was below the national average during the recession (the first time that had ever happened in any recession), and we’re one of only a handful of regions that has more jobs today than before the recession began.

But a closer look suggests that we’re really not doing all that well:

• There are still over 80,000 southwestern Pennsylvanians who are unemployed. That’s 30,000 more people looking for work than before the recession started. The region’s unemployment rate in October 2012 was 6.6%, dramatically higher than the 3.9% rate in October 2007 before the recession began. The fact that the unemployment rate is below the national average is small consolation for the tens of thousands of people struggling to find jobs here.

• While it’s true that Pittsburgh lost fewer jobs during the recession than other regions, that was mostly because the region had created so few new jobs before the recession began. In fact, there were fewer jobs in the Pittsburgh Region in 2007 than in the year 2000, making it one of only a small number of major regions in the country that hadn’t recovered from the previous recession before the most recent recession began.

• Although Pittsburgh was adding jobs faster than other regions immediately after the recession ended in 2009, that’s no longer true. Between November 2011 and November 2012, Pittsburgh had the 9th worst job growth among the 40 largest regions in the country.

• Local boosters were quick to quote a recent Brookings Institution report saying that Pittsburgh was one of only three U.S. regions that had “fully recovered” from the recession, but they failed to point out that the same report showed Pittsburgh was doing worse than more than half of the regions in the world (not just the U.S.) in terms of growth in employment and real GDP per capita from 2011 to 2012.

Prior to 1980, our region had benefited from having a large number of high-paying manufacturing jobs, but we suffered from the 1982 recession more than other regions because we were so dependent on manufacturing. However, rather than learning from history, we’re repeating the mistakes of the past. Instead of having a more diversified economy today, we’ve simply become dependent on a different group of industries, namely, health care and higher education. Although those sectors helped us get through the recession, they’re a risky bet for the future, because the growing unaffordability of both healthcare and higher education makes it unlikely that the growth we’ve seen there in the past will continue. In contrast, Pittsburgh now has fewer high-paying manufacturing jobs than half of the major regions in the U.S.

So instead of patting ourselves on the back for surviving the recession better than others, let’s make a New Year’s resolution to encourage job growth in a wide range of sectors and to enable our region to succeed in an increasingly competitive global economy.

• Let’s resolve that Pittsburgh will be seen as one of the best places in the world for manufacturing firms to locate. To do that, we need to create a truly competitive state tax structure, prepare ready-to-go industrial sites all across the region, and educate our young people so they have both the skills and willingness to work in high-paying manufacturing jobs.

• Let’s resolve that Pittsburgh will also be seen as one of the best places in the world for entrepreneurs to start a new business. We need to ensure that there is sufficient startup capital available for every entrepreneur with an innovative idea and a solid business plan, and enough customers willing to try their innovative products and services.

(A version of this post appeared as the Regional Insights column in the Sunday, December 30, 2012 edition of the Pittsburgh Post-Gazette.)

How Can Our Region Compete if Our Children Can't Read?

2012-12-02T06:05:00.000-05:00

There has been a lot of attention recently to how badly students in the Pittsburgh Public Schools are doing. State test scores showed that in most grades, City of Pittsburgh students’ proficiency levels in reading and mathematics declined between 2011 and 2012. In some individual schools in the City, there were double-digit drops in performance.

All of the focus on how the Pittsburgh Public Schools are doing might lead you to think the City is the only place in southwestern Pennsylvania where there are problems with student achievement. But you’d be wrong. Most of the region’s suburban schools aren’t doing very well either, and a number of them are doing worse than the Pittsburgh Public Schools.

In fact, there are a dozen school districts in the 10-county region where 11th graders are less proficient in math than students in the Pittsburgh Schools, and 16 school districts where students have poorer reading skills. While it’s a serious problem that only 56% of the 11th graders in the Pittsburgh School District can read at grade level, the 2011-12 Pennsylvania System of School Assessment (PSSA) shows there are eleven other school districts in the region where fewer than 50% of the 11th graders can read adequately. In fact, proficiency levels in both reading and math are twice as good in the Pittsburgh Public Schools as in the Clairton School District.

Low proficiency in basic skills isn’t just a problem with high school students. Many schools are failing students at a very early age. For example, there are thirteen school districts in southwestern Pennsylvania where fewer than half of the 5th graders can read adequately – and the Pittsburgh School District isn’t one of them.

Looking only at the lowest performing schools in the region risks missing the fact that many schools perform only marginally better than do the schools in Pittsburgh. Indeed, in the majority of school districts in the region, 30% or more of the 11th graders can’t read properly, and 40% or more aren’t proficient in math.

Among the 314 elementary schools in the region, there are only 17 where 90% or more of the 5th graders read at grade level. (If you’d like to find out how your own local schools are doing at each grade level, the Post-Gazette has an interactive website you can use at http://newsinteractive.post-gazette.com/PSSA/2012/.)

This widespread mediocrity means that even if student performance in the Pittsburgh Public Schools were to improve dramatically, it would barely make a dent in the student achievement problem the region is facing. There are over 6,400 students in the Pittsburgh Region who will be entering the workforce this year without being able to read properly, but fewer than 10% of them will be products of the City of Pittsburgh schools.

If you’re tempted to think that Pennsylvania’s tests may be too tough, or that having 30% of high school students unable to read isn’t so bad, think again. U.S. Department of Education data indicate that students’ skills in the Pittsburgh Region are likely a lot worse than the state tests imply. The National Assessment of Education Progress (NAEP) tests student proficiency across the country, and it shows that Pennsylvania students are only doing half as well as the state’s own tests indicate. For example, the 2011 NAEP tests showed that only 38% of eighth graders in Pennsylvania were proficient in reading or mathematics, even though the state’s own tests claim that 76% of eighth graders are proficient in reading and 80% are proficient in math.

Are the NAEP tests too tough? The only way to know that is to look at international benchmarks. Every three years, the Program for International Student Assessment tests 15 year olds in 65 countries to assess their skills in reading, mathematics, and science. The most recent results, for the test given in 2009, found that mathematics scores for U.S. students were below the average for developed countries. In mathematics, students in 17 of 33 OECD (Organization for Economic Cooperation and Development) countries had higher average math scores than students in the U.S., and only 5 had lower scores. For reading, the U.S. was a little above average; 6 countries had higher scores, 13 had lower scores, and 14 were about the same.

Which countries are beating us? Students in Australia, Canada, China, Japan, Korea, and Singapore are all doing better than U.S. students in both reading and math, and students in many European countries are doing better than American students in math while matching their skills in reading. (If you’d like to find out how education performance in your own school district stacks up against the rest of the world, you can use The Global Report Card available at http://globalreportcard.org/)

How can southwestern Pennsylvania families expect their children to get jobs in an increasingly competitive global economy if they can’t read? How will they find work in technology-driven industries if they don’t have adequate math skills?

The knee-jerk response to poor school performance from most educators and many politicians is to claim that school funding is inadequate. However, schools in the Pittsburgh Region already spend more per child on education than the state or national average, yet they clearly aren’t getting significantly better results. Moreover, some of the best performing schools in the Pittsburgh Region are spending less than the average, not more.

The fact that our schools probably won’t meet the Federal No Child Left Behind law’s goal of 100% proficiency by 2014 doesn’t mean the law should be changed, it means that schools and communities need to completely rethink their approach to educating students:

• First, we need to reward the many teachers who are successfully helping their students to learn, and replace the teachers who are just going through the motions.

• Second, we need to cut the billions of dollars in school district spending that’s going to administrative overhead, sports, and other non-instructional programs and focus school funding on improving education proficiency.

• Third, we need people leading our school districts who will implement these kinds of bold changes. Now is the time to recruit candidates for next year’s school board elections who will commit themselves to ensuring that every child has the skills they need to be successful.

(A version of this post appeared as the Regional Insights column in the Sunday, December 2 edition of the Pittsburgh Post-Gazette.)

Some Parts of the Pittsburgh Region Are Suffering More Than Others

2012-11-04T07:49:00.000-05:00

In the Presidential campaign, both candidates agree that the national economy is growing too slowly, but disagree on what to do about it. For those of us in Pittsburgh, however, the U.S. job growth rate actually looks good compared to what we’ve been experiencing in recent months.

Last year, things looked pretty rosy in the Pittsburgh region; jobs were growing significantly faster here than in the U.S. as a whole in 2011. However, since May 2012, our region’s job growth has fallen below the national rate. In both June and September, the 12-month rate of job growth in Pittsburgh was less than 1%, the lowest rates in the past two years, whereas the national job growth rate has been 1.3% or higher for over twelve straight months.

What’s worse, if you adjust for the normal seasonal variations in jobs during the summer, there were actually fewer jobs in the Pittsburgh region in September than in August, and fewer jobs in August than in July. In other words, we’re moving backward, not forward.

The slowing rate of job growth here has meant that instead of seeing unemployment improve, it has actually been getting worse. In September 2012, there were 84,876 people unemployed in the Pittsburgh region, 1,700 more than a year earlier, and 37,600 more than in September 2007, the year before the recession began.

Although it’s true that our region’s unemployment rate is below the national average (6.7% here vs. 7.6% nationally in September), that gives little comfort to the nearly 85,000 people who are still looking for work. And things are even less positive for some parts of our region. In September, both Armstrong and Fayette Counties had unemployment rates higher than the U.S. (7.7% in Armstrong and 8.3% in Fayette), and the unemployment rate in Lawrence County (7.5%) was only barely lower than the U.S. rate.

As explained in a previous post, even though our region has more jobs today in total than before the recession began, that’s not the same as saying that all the jobs we lost during the recession have come back. Most of the layoffs during the recession were in manufacturing, but most of the jobs that have been created since the recession have been in professional/business services and the hospitality industry. As a result, many of the people who lost work during the recession still can’t find the kinds of jobs they have the skills and experience to fill.

This mismatch between job creation and unemployment is exacerbated when you look at individual counties in our region. For example, over 60% of the manufacturing jobs in the region are located outside of Allegheny County, and 65% of the manufacturing job losses during the recession occurred outside of Allegheny County. Before the recession began, manufacturing jobs represented only 6% of the jobs in Allegheny County, but over 12% of the jobs in most of our other counties. That means the job losses in manufacturing had twice as big an impact on the economies of Armstrong, Beaver, Butler, Fayette, Lawrence, Washington, and Westmoreland Counties as they did in Allegheny County.

In contrast, over 70% of the region’s jobs in business and professional services and nearly 60% of the region’s jobs in the leisure and hospitality industry are in Allegheny County, and the majority of the job gains in those two sectors have occurred in Allegheny County, meaning Allegheny County has disproportionately benefited from much of the job growth that has occurred in our region since the recession.

Some counties have been luckier than others in getting back the manufacturing jobs they’ve lost. For example, Beaver County has regained three-fourths of the manufacturing jobs it lost during the recession, but in most of the other counties, fewer than 20% of the manufacturing jobs lost in the recession have come back.

The hardest hit in terms of manufacturing job loss has been Butler County, where over 17% of the jobs in the county were in manufacturing prior to the recession. Butler County lost 1700 manufacturing jobs during the recession (12% of its total), but only 5% of them have come back. Yet Butler County has the lowest unemployment rate in the region – 5.8% in September. What’s its secret? Butler County has had a huge influx of jobs from business headquarters moving to the office parks in the southern part of the county. In fact, essentially all of the job growth the county has experienced in the past four years has come from new business headquarters and expanded public schools due to population growth. Butler County’s unemployment is also low because more of its residents commute to Pittsburgh for jobs than any other county in the region.

The highest rate of job growth over the past two years has occurred in Greene County. Twenty years ago, the unemployment rate in Greene County was double the regional average, but in September, the unemployment rate in Greene County was 6.5%, lower than the region as a whole and the second lowest rate of any county in the region. The reason is simple – coal mining as well as gas well drilling has been a growth industry recently, and mining/extraction represents almost one-fourth of the jobs in Greene County, a dramatically larger share of the economy than in any other county in the region.

There are two lessons in all of this.

First, just because the region as a whole is doing well doesn’t mean that every part of the region or every type of worker is also doing well. We need to constantly ensure that the entire region is benefiting from our economic development initiatives.

Second, we can’t predict where economic growth will occur, so we can’t put all of our economic eggs in any one basket. The counties in our region each contribute unique strengths, ranging from manufacturing to tourism, energy to life sciences, etc. We need economic development programs that will support both new and existing firms in a wide range of industries across the entire region in order to have a diversified and stable regional economy that provides job opportunities for all of our residents.

(A version of this post appeared as the Regional Insights column in the Sunday, November 4, 2012 edition of the Pittsburgh Post-Gazette.)

High-Growth Firms Needed To Reduce Unemployment

2012-10-07T05:55:00.000-04:00

The most recent economic data for the Pittsburgh Region continue to be a cause for concern. Our unemployment rate has increased for two months in a row. Over 95,000 of our residents were unemployed in August, more than any August since 1985. Job growth in the region has been slowing, and most of the jobs being created are not in the high-wage sectors where they were lost. Our labor force won’t keep growing for long if there aren’t enough job opportunities for those looking for work.

How can we accelerate job growth? National studies have consistently shown that most new jobs are created by small businesses, and recent studies have found that virtually all net new jobs are created by young startup firms. Some of the most desirable young firms are those with fast-growing revenue, because more revenue typically means more jobs, and rapidly growing revenue means new jobs will created quickly.

The federal government doesn’t report information on how many fast-growing firms there are, but a national publication does. Each year since 1982, Inc. magazine has published a list of the “Inc. 500” – the fastest growing young firms in the country. To be considered, a firm must: (1) be privately-owned (i.e., its stock is not publicly traded); (2) have high revenue growth over the previous three years; and (3) have at least $2 million in revenue in the most recent year. The 500 firms with the highest revenue growth in the country make the Inc. 500 list. Although being on the list is no guarantee of long term success or large job creation, many of the companies that have made the Inc. 500 list have created thousands or tens of thousands of jobs in the course of the past decade. Past Inc. 500 lists have included companies like Intuit, Jamba Juice, Jiffy Lube, Microsoft, Oracle, Qualcomm, Under Armour, and Zappos.

Last month, the Kauffman Foundation (a large foundation headquartered in Kansas City that has dedicated itself to studying and supporting entrepreneurship) released a study that analyzed the locations of Inc. 500 companies over the past 30 years. Its findings should be a wake-up call for economic development efforts in Pittsburgh.

Although the study showed there was at least one firm from Pittsburgh on the Inc. 500 list every year since 2001, there have never been more than 6 on the list in any one year. On average, Pittsburgh had 3 firms on the list every year from 2001 to 2010. (In 2012, there was only one Pittsburgh firm on the Inc. 500 list – an IT staffing firm called Independent Catalyst. In 2011, Precision Therapeutics and Urban Lending Solutions were on the list as well as Independent Catalyst.)

In contrast, the Washington, DC region had an average of 39 firms on the Inc. 500 list every year between 2001 and 2010, more than 10 times as many as the Pittsburgh region. Boston had an average of 21 firms every year, 7 times as many as Pittsburgh. Atlanta had an average of 19 firms on the list every year, Chicago had 18, Dallas had 16, Philadelphia had 14, Seattle had 12, Denver had 9, and Indianapolis had 7. Even Buffalo had more firms on the list (nearly 4 per year) than Pittsburgh.

In fact, Pittsburgh ranked near the bottom (42nd) among the 52 largest metropolitan areas in the country in producing Inc. 500 firms relative to population. It also had fewer Inc. 500 firms relative to population size than 33 smaller metropolitan regions, including Provo (Utah), Ann Arbor (Michigan), Tulsa (Oklahoma), Des Moines (Iowa), and Akron (Ohio). Scranton, Pennsylvania had a firm on the list almost every year, a higher rate of success relative to population than Pittsburgh.

The Kauffman Foundation researchers looked for factors that might explain which regions had the most firms on the Inc. 500 lists. What they found surprised them. Although the availability of venture capital, the amount of academic research, and the number of patents filed have often been viewed as important indicators of a region’s ability to create new startup firms, the Kauffman study found that none of those factors was significant in predicting the number of Inc. 500 firms.

The most significant factors were the proportion of a region’s jobs that were in high-technology sectors and the number of science and engineering graduates per population. This isn’t surprising because many fast growing firms aren’t inventing a brand new technology; they’re merely finding a new way to use an existing technology, such as computer software, the internet, or medical devices. That means that many successful entrepreneurs will need to have skills and experience in using technology, but the most important skills will still most likely be creativity and entrepreneurship, which is why high growth firms can and do start anywhere.

With such a small number of fast-growing firms in the last decade, it’s not surprising that Pittsburgh also had one of the slowest rates of total job growth in the country before the most recent recession. If we’re going to accelerate job growth in the decade ahead, we’ll need more fast-growth firms to lead the way.

The best-funded economic development efforts in Pittsburgh have focused either on trying to attract large new facilities or on supporting commercialization of completely new technologies, but the Kauffman study suggests we need to broaden our economic development focus and help entrepreneurs in a wide range of industries to start up and grow rapidly.

We already have many effective programs to provide advice and mentoring to entrepreneurs, but startup firms also need capital, customers, and skilled workers in order to succeed. We’re fortunate to have a professionally managed network of investors in startup firms (BlueTree Allied Angels) but more high net worth individuals in our region need to join so that entrepreneurs don’t have to move away to find capital. Banks need to help by providing working capital to small firms with significant growth prospects. Large firms can help by buying the products and services startup firms produce, so young firms aren’t forced to leave the region in order to find their first customer. And a much higher percentage of our high school graduates need to be proficient in math and science so rapidly-growing technology businesses can find the kinds of workers they need.

Pittsburgh never makes the national lists of “top regions to start a business,” and it’s time we made that a regional goal. If we want our region to grow, we need to put out a much bigger welcome mat for entrepreneurs.

(A version of this post appeared as the "Regional Insights" column in the Sunday, October 7 edition of the Pittsburgh Post-Gazette.)

Pittsburgh's Job Growth Isn’t Helping the Unemployed

2012-09-02T06:42:00.000-04:00

In January 2012, it looked as though Southwestern Pennsylvania was poised to be a national leader in job creation. The Pittsburgh Region’s 2.1% job growth in 2011 was nearly double the 1.1% national rate and the 8th highest rate of growth among the largest 40 metropolitan areas in the country.

By Labor Day 2012, however, things no longer look quite so rosy. According to U.S. Bureau of Labor Statistics data, the rate of job growth in Pittsburgh Region has slowed, while job growth in most other regions has accelerated. Our 12-month rate of private sector job creation fell from 2.4% in July 2011 (the 11th fastest growth among the top 40 regions) to 1.9% in July 2012 (ranking only 21st out of 40). Regions like Boston, Cincinnati, Columbus, Detroit, and Indianapolis all created jobs at significantly higher rates than Pittsburgh over the past year.

The fact that Pittsburgh lost fewer jobs during the recession than other regions means that even with slower job growth, Pittsburgh is still ahead of other regions compared to the immediate pre-recession days. Indeed, Pittsburgh is one of only 8 major regions with more jobs today than in July 2008. (The only other regions that have seen positive net job growth over the past four years are Austin, Boston, Dallas, Houston, New Orleans, San Antonio, and Washington DC.)

But having more jobs today than before the recession started is not the same thing as saying that we’ve recovered all of the jobs we lost during the recession. In fact, the increase in total jobs here continues to mask the fact that in many important industries, there are still significantly fewer jobs in our region today than before the recession began. For example, in July 2012, we have 9,800 fewer manufacturing jobs, 8,400 fewer construction jobs, 2,400 fewer jobs in the information sector, and 700 fewer retail jobs than we did in July 2008.

Our biggest loss of jobs during the recession was in the manufacturing sector. In the 12 months between July 2008 and July 2009, we lost 11,600 manufacturing jobs, 12% of the total manufacturing jobs in the region. In the last 36 months (July 2009-July 2012), only 1,800 manufacturing jobs (16% of what we lost) have returned. In contrast, regions like Cincinnati, Detroit, Milwaukee, and Seattle have recovered 50%-100% of the manufacturing jobs they lost during the recession.

Most of the recent job growth we’ve experienced has been in industries other than those which lost the bulk of the jobs during the recession. Our two biggest job creators over the past three years have been the professional and business services industry and the leisure and hospitality industry; those two sectors created more than half of our net new jobs since 2009.

But when jobs are created in different industries than where they were lost, many of the people who lost jobs will have serious problems finding work. Jobs in law firms and accounting firms require different training and skills than jobs in manufacturing and construction, so new jobs in the former don’t necessarily reduce unemployment in the latter. This is not just a Pittsburgh problem, but a national problem. The U.S. Bureau of Labor Statistics looked at long-tenured workers (those who had worked for an employer for more than three years) who had been laid off during the recession, and determined that only 56% had found work by January 2012. Of those who had, 14% were only working part time, and another 21% were earning 80% or less of what they made in their previous job.

So while it’s true that in June, the Pittsburgh Region had more jobs than at any time in its history, it’s unfortunately also true that we had more people unemployed than at any time in the past quarter-century. In July 2012, there were 97,200 people unemployed in the Pittsburgh Region, over 30,000 more than in July 2008 when the recession began. Except for July 2010, when the number of unemployed was just slightly higher (97,500), that’s the largest number of people unemployed in any July since 1985. And it’s getting worse, not better: the number of unemployed people here has increased for three months in row.

Unemployment in Pittsburgh remains high not only because jobs haven’t returned to the industries where layoffs occurred, but because the region’s labor force has been growing. For years we lamented the fact that people were leaving the region and the population was declining. That’s now changed – the region’s labor force grew by over 57,000 in the past seven years. Our new problem is that the rate of job creation in the region isn’t keeping up with the growth in the labor force. Over the past two years, even though employment increased by 37,700, the labor force increased by almost as much (37,400), which means that unemployment only decreased by 300.

What do we need to do?

First of all, regional economic development efforts need to concentrate on manufacturing, where most of our jobs were lost during the recession. Although manufacturing has been one of the leaders in national growth, it has lagged behind in Pittsburgh. We won’t make up this gap with one or two new plants; we need to encourage more entrepreneurship and help our existing manufacturing firms to expand by creating a more competitive business climate and ensuring manufacturing businesses can get the capital they need for growth.

Second, job training efforts need to focus on preparing individuals for jobs in sectors where job growth is likely to occur. In many manufacturing firms, jobs aren’t increasing simply because there aren’t qualified workers to fill them. We can’t count on higher education and health care continuing to drive our economy, because the unaffordably high costs of both will likely result in slower growth or even cutbacks over the next few years. In fact, many high school graduates would be better off pursuing careers in manufacturing than immediately going off to college.

Although it’s great that Pittsburgh continues to get high national rankings for quality of life, it doesn’t mean much if people who want to live here can’t find good jobs. Regional leaders should commit themselves to getting the unemployment rate back down to pre-recession levels by Labor Day 2013.

(A version of this post appeared as the "Regional Insights" column in the Sunday, September 2, 2012 Pittsburgh Post-Gazette.)

Does a College Degree Have to Be So Expensive?

2012-08-05T06:44:00.001-04:00

Most parents get sticker shock when they see the price of a college education. According to U.S. Department of Education data, annual tuition at private, non-profit, four-year colleges and universities across the country averaged $22,782 last year, and it was over $45,000 at the most expensive private schools. Public colleges and universities are less expensive than private schools, but the cost depends on where you live and which school you want to attend. Last year, the national average for out-of-state tuition at public four year colleges and universities was $16,074, and the average in-state tuition was $7,083, but the most expensive public schools charged more than twice as much.

The price of college seems to be particularly high in the Pittsburgh Region. Carnegie Mellon University had the sixth highest tuition and fees among all private colleges in the country last year ($44,010), and the University of Pittsburgh had the highest in-state tuition and fees of any public university ($16,132).

Does a college degree have to be so expensive?

Most people don’t realize that students typically pay a lot less to attend college than the published tuition would lead you to believe. On average, students at the most selective and expensive private schools in the country receive grants to cover over 40% of their tuition and fees, and 70% of those grants come from the schools themselves. If you check the “net price calculator” that all colleges are now required to have on their websites, you’ll find that a low-income family might actually pay less for their child to attend an “expensive” school than a college with a lower published price. For example, in 2009-10, even though Carnegie Mellon’s published tuition was 7th highest in the country at $40,920, its net tuition (i.e., what students actually paid) averaged only $30,178, ranking 46th among private four-year colleges in the country

Moreover, even though tuition at private schools seems to be increasing rapidly each year, many of these increases appear to be going back to students in the form of scholarships. In fact, the College Board estimated that after adjusting for inflation, the average net tuition at private non-profit four-year colleges has remained essentially unchanged over the past decade.

The situation is different at public four-year colleges; nationally, their net tuition has almost doubled over the past decade even after controlling for inflation. This is because public schools rely heavily on state and local government appropriations to keep their tuition costs low, and financially-strapped state and local governments have reduced inflation-adjusted appropriations per student by an average of 12.5% between 2006 and 2011, with 17 states reducing aid per student by over 20%.

Public higher education is particularly expensive in Pennsylvania. Last year, the state’s public colleges and universities had the second highest in-state tuition among the fifty states (only New Hampshire was higher) and the fifth highest net tuition per student. In part, this is due to low state subsidies – data from the State Higher Education Executive Officers show that Pennsylvania provided the 10th lowest state higher education subsidies per student in FY2011, and the state spent 40% less on higher education funding than the U.S. average on both a per capita basis and relative to personal income. However, it also appears that public colleges and universities in Pennsylvania have higher costs than in other states – they collected the 11th highest total educational revenue per student (from both tuition and state subsidies) in 2011. In an effort to address this, Governor Corbett has tied increases in state aid to commitments by the schools to control their costs and their tuition.

Is it possible to deliver a good college education at a significantly lower cost? Yes; in fact, right here in southwestern Pennsylvania, Grove City College has the lowest tuition ($14,212) of any private college and actually charges less than the in-state tuition of most of the public colleges and universities. It attracts a high-quality student body (its students have higher SAT scores than most colleges in the region), and a higher percentage of its students graduate (83%) than do students at most other colleges.

Reducing the cost of higher education is going to become an increasingly important priority in the future for both our region and the nation as a whole. Although getting a college education is neither necessary nor sufficient for young people to get good jobs, having a college education increases the types of opportunities that young people can pursue, and our region and our nation will be more competitive if as many of our citizens as possible have a good college education.

But if young people have to incur tens of thousands of dollars of debt to go to college, it will both limit their career choices and reduce their ability to spend money elsewhere in the economy for decades to come. So it’s incumbent on the faculty and administrators at our colleges and universities to do what every other industry in America has been forced to do – become more efficient. For example:

Many courses could be delivered online, reducing the need for colleges to spend as much building and maintaining facilities, and allowing more students to learn directly from senior faculty rather than teaching assistants.
Unnecessary administrative costs should be reduced; many of the “lean” redesign tools that have worked in manufacturing can be used in higher education, too.
Tuition revenues should be devoted to education, rather than social activities and sports. Over the past decade, both public and private colleges nationally have increased spending more on student support and administration than on instruction.
The length of time needed to complete many degrees could be reduced, and students who take college-level courses in high school should be allowed to finish their college degrees sooner.

Parents and students can help, too, by choosing those colleges that offer a high quality education at an affordable cost, rather than going deeply into debt to pay whatever a college charges. Informed consumer choice drives value-based competition in other industries, and it can help higher education become more efficient, too.

(A version of this post appeared as the Regional Insights column in the Sunday, August 5, 2012 Pittsburgh Post-Gazette.)

Is a College Education Worth The Cost? Part 2: The High Cost of College Dropouts

2012-07-01T12:15:00.001-04:00

A previous post showed that merely getting a college degree doesn’t always result in better job prospects or earnings. But the value of pursuing a college education also depends on how much college costs and how likely you are to graduate.

The Pittsburgh Region is lucky to have some of the best universities in the nation, but they also have fairly high tuition. U.S. Department of Education statistics show that in 2010-11, the University of Pittsburgh had the second highest tuition and fees for in-state students of any four-year public university in the country (Penn State was the highest), and Carnegie Mellon University had the 10th highest tuition and fees among four-year private, non-profit colleges in the nation.

The most expensive college education of all, however, is the one that never results in a degree. A shocking fact about higher education in America is that on average, over 40% of the students who go to a four-year college or university don’t graduate (at least not from the school where they started). The most selective colleges generally have the highest graduation rates, whereas the colleges that are easiest to get into generally turn out to be the hardest to finish, at least for the students who go to them. U.S. Department of Education data show that among the students who started college in 2004, the graduation rate was 87% for those who went to the most selective colleges (i.e., colleges that admitted fewer than 25% of those who applied), but the graduation rate was only 45% for those who went to the least selective colleges (those that admitted 90% or more of their applicants), and only 29% for those who went to open enrollment schools (those that admit anyone who can pay).

In the Pittsburgh Region, the highest graduation rate is at Carnegie Mellon, where 86% of students who were admitted graduated within 6 years. The second highest graduation rate is at Grove City College, where 84% of students graduate, and Pitt’s 76% graduation rate is third highest. In contrast, most other colleges in our region graduate fewer than two-thirds of the students who enter, and at some, fewer than 50% of the students graduate within 6 or even 8 years, including The Art Institute, the Penn State regional campuses, Point Park University, Thiel College, and the University of Phoenix. (Graduation rates are based on the percentage of students who graduated from the same school where they started, and so some students may transfer to other colleges and graduate from there.)

These differences are so large that it’s actually misleading to simply rank colleges based on their tuitions. A more expensive college can actually be a better value if it has a higher graduation rate, because students who enroll there will be more likely to receive a degree.

Consider two hypothetical colleges. College A charges $30,000 per year in tuition, while College B charges only $20,000. 80% of College A’s students graduate, but only 40% of College B’s students graduate. For simplicity, let’s assume that those who don’t graduate drop out after two years.

If College A admits 1,000 students, 800 of them will graduate, and the college will have collected a total of $108 million in tuition revenue over the previous four years: $96 million from those who graduated, and $12 million from those who didn’t. That works out to $135,000 for every degree awarded. If College B admits 1,000 students, only 400 of them will graduate; the college will have collected a total of $32 million in tuition revenue from those who graduated but another $24 million from those who didn’t, for a total of $56 million, or $140,000 for every degree awarded. In other words, even though College A’s tuition makes it look like it’s 50% more expensive than College B, College A actually produces college graduates at a lower cost than College B.

Even worse, college students who don’t graduate will very likely have thousands or even tens of thousands of dollars in debt with no degree to show for it. Although national statistics indicate that people with “some college” do better in the labor market than those with no college at all, it’s likely that much of this is because the students who made it into college in the first place have higher skills than the average high school graduate. Those students might have been better off going to a two-year college, getting an Associate Degree, and avoiding a lot of debt, or going directly into a manufacturing job, developing skills through on-the-job training, and saving money to go to college in the future.

Low graduation rates aren’t entirely the fault of the colleges, though. They’re also due to the poor preparation of the students who enter them. U.S. Department of Education data show that about one-third of students entering post-secondary education have to take at least one remedial course. Moreover, remedial education has become a significant and growing expense at many colleges and universities, and that increases the cost of a college degree for everyone.

So if we want to increase the value of higher education, we should start by improving the effectiveness of elementary and secondary education, i.e., our public schools. Although many high schools proudly report the percentage of their graduates who go on to college, they rarely tell you how many of those students actually finish their college degrees. The best measure of the quality of public schools is how proficient their graduates are in key skills, not whether they go to college, since high proficiency levels will help students whether they want to go to college or go directly into the workforce. And schools in the Pittsburgh Region have a lot of improving to do, since more than 37 percent of the 11th-graders in the region can't do math properly, and 26 percent can't read adequately.

A future post will look at what else makes college education so expensive and what can be done about it.

(A version of this post appeared as the Regional Insights column in the Sunday, July 1, 2012 edtition of the Pittsburgh Post-Gazette.)

Is a College Education Worth the Cost? (Part 1)

2012-06-03T06:46:00.000-04:00

A new crop of college graduates will be entering the job market this summer, and they’ll have to confront one of the slowest-growing economies in history. Most of them will have tens of thousands of dollars in debt hanging over them during their job search. Nationally, total student loan debt now exceeds one trillion dollars, and those with federal student loans will see their interest rates double this summer if Congress doesn’t act to extend current subsidies.

Is a college education worth all of the expense? A study last year by the Pew Research Center found that a majority (57%) of Americans feel that higher education fails to provide students with good value for the money spent, and 75% say college is too expensive for most Americans to afford.

The conventional wisdom has been that college is one of the best investments you can make. For years, many parents have believed that getting their child into college would guarantee they’d get a good job, or at least a better job than they could get with just a high school diploma. But in a world economy that’s changing rapidly, the conventional wisdom may no longer apply.

In fact, much of the conventional wisdom has been based on statistics about how college graduates fare compared to high school graduates on average. However, what happens to any individual may be much better or worse than average.

How much does a college degree improve your chances of getting a job? Although having a college degree doesn’t guarantee a job, the unemployment rate for college graduates is much lower than for those with just a high school diploma. According to an analysis by the Economic Policy Institute, the unemployment rate for young college graduates (ages 21-24) over the past year (April 2011-March 2012) was 9.4%, whereas for young high school graduates, the unemployment rate was more than three times as high – 31.1%.

Those are averages for all recent graduates, though. Whether an individual college grad gets a job depends heavily on their major. A study by the Georgetown University Center on Education and the Workforce found that in 2009-2010, unemployment rates for recent college graduates varied from a high of 13.9% for students majoring in architecture and 11.1% for arts majors to a low of 5.4% for students majoring in health or education. Unemployment rates for engineers and business majors were around 7.5%.

Similarly, whether a high school graduate gets a job depends on how well they did in high school and what kind of job they pursue. There are thousands of highly-paid manufacturing jobs going unfilled today because businesses can’t find workers. Instead of a college degree, most of those jobs require someone with high-school level proficiency in reading and mathematics, a good work ethic, and on-the-job training.

Even though most recent college graduates are employed, many aren’t working in jobs that require a college education or are even related to their degree. A 2011 study by Rutgers University found that 40% of recent college graduates said their first job didn’t actually require a college degree. Less than half (44%) said their education was closely related to their first job, and nearly one third (30%) said there was little or no relationship between their education and their job.

Will you make more money if you get a college degree? U.S. Bureau of Labor Statistics data show that in 2011, the median annual pay in the U.S. for people with a bachelor’s degree (but not a more advanced degree) was $54,756. That’s 65% more than the median annual pay of $33,176 for people with only a high school diploma.

But just because the average college graduate makes significantly more than the average high school graduate doesn’t mean that going to college guarantees a higher salary for everyone. In 2011, 25% of workers with a bachelor’s degree earned less than $38,000 and 10% earned less than $27,000, whereas 25% of the people with a high school diploma but no college degree earned over $48,000 and 10% earned $66,000 or more. In other words, many people with just a high school diploma make more money than many who have a college degree.

Will the need for a college education increase in the future? You’ll often hear people say that “most new jobs in the future will require a college education.” That’s true, but it only applies to truly new jobs, i.e., jobs that have never existed before. 70% of job opportunities in the future will be existing jobs that become available due to retirements, relocations, and promotions, and experts project that most of those replacement jobs will not require a college education.

For example, thousands of manufacturing jobs will be opening up every year as current workers retire. But only 20% of production job openings in the future are expected to require an Associate Degree or higher. Just because they don’t require a college degree doesn’t mean the workers can be dumb; indeed, today’s manufacturing firms need people who can operate sophisticated computerized machinery and implement customized production processes, and that requires far more proficiency in mathematics than was required of the typical assembly line worker in the past. Training is typically provided by the companies themselves or by specialized certificate programs, not by four-year colleges. If we’re going to help industries such as manufacturing and energy grow in our region, we need to encourage smart, hard-working high school graduates to pursue the high-paying jobs they offer.

Does the benefit of college outweigh the cost? Although there are clearly advantages to a college degree, it’s very expensive to get one, and for many students, the results may not justify the financial sacrifices they have to make. High school guidance counselors should help parents and high school students understand that going to college isn’t the only path to a rewarding career and a good income, and make them aware of the many high-paying opportunities available in manufacturing and other industries that need a lot of smart workers, but not necessarily college graduates.

A future post will look at why college is so expensive and whether there are ways to increase the value of higher education relative to its cost.

(A version of this post appeared as the Regional Insights column in the Sunday, June 3, 2012 Pittsburgh Post-Gazette.)

How to Get Lower Cost, Higher Quality Healthcare in Southwestern Pennsylvania

2012-05-13T15:23:00.000-04:00

Is it good news that UPMC agreed to extend its contract with Highmark for an extra year?

Did that cause Highmark to file for increases in premiums on many of its insurance policies last week?

If you're confused about who's right and who's wrong and what should be done about healthcare in the Pittsburgh Region, a new report from the national Center for Healthcare Quality and Payment Reform can help. How to Get Lower-Cost, Higher Quality Health Care in Southwestern Pennsylvania explains what's really going on in the healthcare wars, why you're paying too much and getting too little for your health insurance premiums and copays, and what should be done about. Key points in the new report include:

The major cause of high and growing health care costs in the Pittsburgh Region and other parts of the country is the high prices charged by large health systems. (See page 3 for more detail.)
Prices for the same hospital procedures vary by 100% or more between hospitals in the Pittsburgh Region, and the higher-priced hospitals do not have higher quality. (See pages 3-4 and 14-15 for more detail.)
There is no incentive for patients to use lower-cost hospitals for expensive procedures. Highmark does not offer the kind of tiered network product that employers in other regions are using to control costs. (See pages 4-5 for more detail.)
Current healthcare payment systems penalize doctors and hospitals for reducing costs and improving quality. There are better ways to pay for health care, but no health plans in the Pittsburgh Region pay this way, and no health systems in the Pittsburgh Region are offering to be paid differently. (See pages 5-6 for more detail.)
In addition to prices that are higher than necessary, health care costs are high in the Pittsburgh Region because of the over-utilization of hospital services here. The Pittsburgh Region has some of the highest rates of hospitalization, surgery, and emergency room usage of any major region in the country. (See pages 6-7 for more detail.)
The high utilization of healthcare services is not just because the Pittsburgh Region has an older or sicker population. Even after controlling for age and illness, utilization is higher in the Pittsburgh Region than other major regions for both seniors and working-age adults. (See pages 6-7 and 9-10 for more detail.)
The overuse problem is concentrated in hospitals. The Pittsburgh Region has more hospital beds and more hospital employees than other major regions of the country (see pages 8-9 for more detail.) In contrast, the Pittsburgh Region under-invests in primary care, which can help to keep patients well and reduce hospitalizations (see page 8 for more detail.)
Reducing hospital costs doesn’t necessarily mean layoffs. The Pittsburgh Region spends more on hospital equipment and facilities, and less on hospital workers, than other parts of the country. (See page 11 for more detail.) Lower-cost healthcare will require more jobs in primary care offices and home care. (See pages 11-12 for more detail.)
There is relatively little data to determine whether Pittsburgh Region hospitals are providing high-quality care. U.S. News and World Report hospital rankings are based primarily on opinion, not fact, and they give higher rankings to hospitals in the region that have lower quality on objective measures. There is much less information about the quality of hospital care in the Pittsburgh Region than people in other regions have. The limited data available suggest that most hospitals in the region provide equivalent quality care, and some smaller hospitals deliver better care than UPMC. (See pages 12-13 more detail.)
Hospitals provide extremely large discounts to health plans, so if a hospital refuses to contract with a health plan, it could mean that employers or patients could pay 2-4 times as much for care if that hospital is the only place that offers a particular procedure. The best way to prevent this problem is to require hospitals to charge the same amount to everyone. (See pages 14-16 for more detail.)
Increasing competition among health insurance plans in the Pittsburgh Region could increase premiums rather than reduce them. The biggest impact on costs will come from having more competition among hospitals, not health plans. (See pages 16-18 for more detail.)

Is Our Regional Economy Adequately Diversified?

2012-05-06T14:00:00.001-04:00

Financial advisors say that the best way to both preserve and grow your savings is to diversify your investments, i.e., create a balanced portfolio. Putting all of your eggs in one basket is dangerous. The same advice could be applied to a region’s economy. Invest in a range of different industries, and don’t rely on any one sector to create future growth, no matter how good it might look today.

The Pittsburgh Region learned the perils of non-diversification the hard way thirty years ago. In 1981, over 65,000 southwestern Pennsylvanians worked in the primary metals industry (mostly the steel industry), representing 7% of all the jobs and 14% of all worker earnings in the region. By 1983, the region had lost 25,000 of those jobs and over $1 billion in wages and benefits. Because steel was such a big part of the economy here, the ripple effects caused us to lose a total of 70,000 jobs over that two-year period, and because we were more dependent on the steel industry than other regions, Pittsburgh’s economy suffered far more than any other region in the 1980s.

Is our regional economy more diversified today than in 1980?

Although it’s often said that after the 1982 recession, Pittsburgh became a “service economy,” most jobs in every region have always been in the service sector. Today, Pittsburgh is about average compared to other regions in the balance between goods-producing and service sector jobs. In 2011, the Pittsburgh Region had 147,000 jobs in goods-producing sectors, 12.8% of the region’s total jobs. That’s less than places like Cleveland, Milwaukee, and Seattle, where over 15% of jobs are in goods-producing sectors, but more than places like Atlanta, Columbus, or Denver, where fewer than 11% of jobs are outside of the service sector.

Most (88,000) of our goods-producing jobs are in manufacturing, followed by construction (50,000 jobs) and natural resources/mining (8,500 jobs). Although the number of natural resources/mining jobs in the region (which includes natural gas drilling) has nearly doubled over the past five years thanks to the Marcellus Shale, jobs directly related to natural gas are still a very small part (less than 1%) of the region’s economy. However, from a diversification perspective, we now have a higher proportion of jobs in mining and drilling than any other major region of the country except for Houston, which means that our economy is more susceptible to swings in demand for coal and gas than other communities.

It’s also worth noting that although many people say the steel industry is “gone,” Pittsburgh still has more jobs in steel manufacturing today than any major region in the country, and far more than we have in either coal mining or natural gas production. In 2011, the Pittsburgh Region had over 12,000 jobs in primary metals manufacturing, including 7,000 jobs in steel mills, compared to fewer than 4,000 jobs in coal mining and gas drilling combined. Steel jobs are also among the highest-paid jobs in the region, so keeping them here needs to remain an economic development priority.

As for the service sector, more of those jobs in the Pittsburgh Region are coming from private firms than other regions of the country. Only 10.9% of the Pittsburgh Region’s jobs are in federal, state, or local government, the second-lowest percentage among the top 40 regions. That’s partly because many other major cities are state capitals and we’re not, but we also have the third-lowest percentage of jobs in local government (8%) of any major region in the country. (Although we have more units of local government than any other region, collectively they don’t employ more workers.) Given the fiscal challenges facing government today, being less dependent on public sector jobs is a good thing.

At the other end of the spectrum, nearly one-fifth of our private sector jobs are in just three parts of the service sector, and we are far more dependent on them than other regions:

• Health Care. Over 120,000 (10%) of our region’s jobs are in hospitals and doctor’s offices, a higher proportion than the steel industry represented thirty years ago. Most major metropolitan regions are much less dependent on healthcare jobs than we are, including regions with nationally-renowned medical centers. Since there is strong evidence that we’re spending far more on healthcare in Pittsburgh than we should, our high dependency on healthcare has become a weakness, not a strength, for our economy. (See "Reducing Hospital Costs Can Benefit the Region's Economy.")

• Higher Education. We have over 40,000 jobs in colleges, universities, and professional schools, a higher proportion (3.6%) than any major region except for Boston. Although it’s not likely that any of our colleges will pick up and move away, federal and state funding cuts for higher education could make it difficult for those schools to retain all of the jobs they currently have.

• Company Headquarters. Although we are no longer the leading Fortune 500 headquarters city we once were, we still have 37,000 jobs in “management of companies and enterprises,” the third highest percentage (3.2%) among the major regions. Although our high quality of life has helped us attract and retain company headquarters, poor air service, high taxes, or inadequate mass transit could force some companies to consider moving their headquarters elsewhere in the future.

So our economic eggs are still in too few baskets, just different ones than thirty years ago. And just like then, we could suffer if we don’t proactively try to diversify. That doesn’t mean trying to pick any particular industry to grow; for many years, regional leaders here have tried to pick “the” industry that will drive the region’s economy. First it was computer chip design, then biotechnology, then robotics, and now energy. Although all of those efforts created new jobs, none of them had the dramatic results that promoters promised. And that’s a good thing, because our region is stronger precisely because we now have strengths in all of those areas, not just in any one of them.

Instead of trying to pick winners, the best regional economic development strategy is to help all types of businesses create and retain jobs. We need to encourage innovative startup companies no matter what kinds of technology they develop, and we need to have a good business climate, with competitive taxes, sound infrastructure, and an educated workforce, in order to retain and grow the many different types of businesses and jobs that are already located here.

(A version of this post appeared as the "Regional Insights" column in the Sunday, May 6 Pittsburgh Post-Gazette.)