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Jobs report signals more job loss to come in Pennsylvania

07.28.09

Jobs report signals more job loss to come in Pennsylvania

BY PAUL TUCKER
THEUNIONNEWSABE@AOL.COM

REGION, July 5th- The Keystone Research Center (KRC), a Harrisburg based nonprofit, nonpartisan economic research organization, analysis of the Pennsylvania economy suggest the Commonwealth must maintain spending to forestall additional job loss.

The Keystone Research Center said the carnage in the national job market continued unrelenting in June, with the United States shedding 467,000 jobs and the national underemployment rate reaching 16.5 percent, roughly one in every six Americans in the labor force.

KRC believes the decline in the United States jobs report signals more job loses are to come for Pennsylvania.

The KRC stated the June national job report number place the debate about Pennsylvania’s state budget in a new context. It is well known to economists that the best way for state government to limit job loss in an economic recession is to maintain spending levels.

Nobel Prize-winning economist Joseph Stiglitz and others have shown that direct spending reductions may generate more adverse economic consequences than tax increases, particularly tax increases on higher-income households. That means tax increases can be the least damaging way to close state fiscal deficits in the short run and provide for long-term economic growth.

Basic economics underscores that Pennsylvania Governor Edward Rendell’s proposal to balance the state’s budget in part through an increase in the state’s personal income tax is on target and that alternative course of draconian cuts in state spending would reduce job creation and increases unemployment. So far Pennsylvania unemployment remains about a percentage point lower than the national rate, an advantage that translates into 60,000 jobs. The wrong budget agreement would jeopardize that Pennsylvania advantage, the KRC wrote.

The Keystone Research Center analysis states the basic economic reasons that maintaining state spending ideally through revenue increases that fall on higher earners are straight forward:

• Government injects every dollars it raises into the economy.
• Taxpayers, by contrast, save some of their income and those savings do not stimulate the economy in the short run. The income of higher earners is most likely to be saved rather than used for consumption or investent in a deeply depressed economy.
• State spending financed through bonds, in effect, through future state revenues, can be especially stimulating to the state economy in the short run, one reason that bond-financed water and sewer infrastructure and the state’s $650 million Alternative Energy Investment Fund are so well timed.

The organization states from the point of view of maximizing short-term creation, an even better alternative to the Governor’s current proposal would be to collect needed state revenues more substantially from higher earners, through a differentially higher tax on investment income. It can be done in Pennsylvania without a constitutional change.

While Pennsylvania’s unemployment rate is lower than the national one, it continues to move higher as the United States labor market weakens further. Moreover, initial claims for unemployment benefits were above 40,000 in Pennsylvania this past week, for the third week in a row.

According to the Department of Labor and Industry, the unemployment rate is higher in every part of Pennsylvania from twelve months ago.

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