(see a larger figure)

Despite being better educated, young workers in Pennsylvania now earn 10 percent less than their counterparts did some 30 years ago.

According to a new report by the Center for Economic Policy and Research in Washington, D.C., the wages of Pennsylvania workers between the ages of 18 and 29 are lower today by $1.24 per hour than wages for similar workers in 1979 (in 1979 after adjusting for inflation the typical young worker earned $12.24 per hour).

In June, there were 43,600 people officially unemployed in Philadelphia County. At 7% the unemployment rate in Philadelphia is now a full percentage point higher than in June of last year. As the U.S. economy goes so goes Philadelphia’s economy so the news that U.S. growth in GDP during the 2nd quarter came in slower than expected despite the economic stimulus is a worrisome development.

On Tuesday, the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve will meet to set the federal funds rate. One of the current voting members of the FOMC is Charles Plosser the President of the Philadelphia Federal Reserve.

Plosser has called for the FOMC to “act preemptively” and begin raising the federal funds rate to slow the economy because he is concerned about containing inflation.

He believes that inflation is already too high and fears that unless the FOMC acts to raise unemployment further, wages will begin to rise in response to recent spikes in food and energy prices. Rising wages would in turn set off a new round of price increases and lead to a wage-price spiral.

There is one huge problem with Plosser's view, there is no evidence that wages are beginning to accelerate, to the contrary wages in recent months are growing more slowly which is precisely what you would expect when employment is falling. It is important to remember that wages are sticky and therefore don’t quickly adjust to current labor market conditions so Plosser could be worried that recent spikes in food and energy prices will show up in wages a year from now. But here again the problem is that an economic expansion just ended in which wages and incomes for all but the wealthiest failed to keep pace with the growth in prices. Indeed in the last two and half decades the only time there has been sustained and broadly shared wage growth was when unemployment rates reached historic lows in the late 1990s.

In a recent speech Plosser responded to this kind of criticism with the following argument:

“In recent months I have heard some analysts suggest that the current economic situation is not like the 1970s because unions are less prevalent and there is no evidence as yet of a wage-price spiral. Thus, a weak economy, with rising unemployment and declining payroll employment, will presumably prevent workers from demanding higher wages. But, again, that story has things backwards. It is not demands for higher wages that kick off the spiral, but the loss of confidence that the central bank will keep inflation controlled, which, in turn, leads to a rise in inflation expectations. The wage-price spiral is not the cause of the inflation, but the result. This means that if monetary policymakers wait until they see the evidence of a wage-price spiral, they will be too late — the public will have lost confidence in the Fed’s ability to keep inflation under control, and this will make the job of bringing inflation down much more costly and difficult.”

As Paul Krugman has explained Plosser is of the view that wage growth is influenced by the growth in consumer prices. So in his view if the central bank signals it will do nothing about rising prices, workers will demand from their employers wage increases that match or beat the rise in inflation which is the first step in a wage-price spiral.

The alternative view is that wage growth is shaped by trends in the labor market. This means that spikes in commodity prices will not translate into rising wages. It is of note that most workers nationwide and in Philadelphia have lost ground against inflation not in just the last six months but in the last six years.

Of course this is not an academic exercise, Plosser is aggressively advocating taking steps that would slow the economy and push unemployment higher in Philadelphia. He is doing this even as most economic indicators are signaling a worsening rather than improving economic situation.

Is it too much to ask that such a policy stance require more than a gut feeling? There is no evidence that inflation in food and energy prices has begun to seep into other prices in the economy. The economic and social costs of unemployment especially in a city like Philadelphia are substantial and should have significantly more weight than the fear that inflation might–someday–maybe–perhaps accelerate.

--Mark Price

Last week Freddie Mac as part of the release of its financials published data on housing prices in the first quarter of this year. The data show a decline in housing prices in Pennsylvania of 1.3 percent in the first quarter of 2008, the first such decline since 1995. The fall in prices in Pennsylvania was smaller than the declines measured in 37 states, including five of Pennsylvania’s nearest neighbors.

(see a larger figure)

In another thread Sean a.k.a MrLuigi wrote:

“"Poverty" is kind of too vague a word for the multiple layers of social dysfunction that plague our city and feed into the cycle of violence. If it were simply "poverty" you could just write everyone a big check and they would stop shooting at each other over petty beefs. The young men shooting each other in this city are almost never killing each other because they literally can't afford to eat. Its a way more nefarious web of broken family structures, broken schools, chronic unemployment, drug enforcement that says "its OK to push this illicit economy into those kinds of neighborhoods, and culture of misplaced bravado and shallow materialism. If we dump everything into the word "poverty" without being more specific, its no longer targeted enough to do much good terms of figuring out the "how" of urban violence. Its not just lack of dollars that makes Philly's mean streets mean, its a very particular system of failure of the social fabric. That said there are million and one things we can do to direct people away from crime and the underground activity before they feel that their only choice. There are a million and two things to make sure they have other options once they do get caught up in it and, as eventually happens, they get busted.”

Sean, I may be reading you wrong but I find the distinction you draw between poverty and “social dysfunction” a bit too elegant.

The Center for Economic and Policy Research (CEPR) and the National Low Income Housing Coalition (NLIHC) have released a short briefing paper estimating the cost home ownership and rental costs in 20 metropolitan areas including Philadelphia.

In the following table rental costs are Fair Market Rents. Monthly ownership costs are calculated based on 75 percent of the median sale price of homes in the region and three different interest rates, 6% (low), 7% (middle), and 8% (high) on a thirty year fixed rate mortgage.

The authors argue that because ownership costs are significantly higher than rentals costs the housing market in the Philadelphia metropolitan area was one of the bubble markets.

As a follow up to both of Fabricio’s posts celebrating Dr. King’s life and work I thought I would post some information on union membership in the Philadelphia Metropolitan area as well as link everybody to some new research quantifying the benefits of union membership.

In Metropolitan Philadelphia just under one in four African Americans are members of a union.

With the national economy showing signs of a recession now would be a good time to review the employment situation in the Philadelphia region.

What if this is as good as it gets?

Wednesday new figures on employment in the region were released by the Bureau of Labor Statistics. Payroll employment in January increased over the same month a year ago by 11,000 jobs or .6%. Employment growth in January lies somewhat below a post-2001 recession peak of 1.5% achieved in the summer of 2005.

Economists Robert Shiller and Dean Baker have both argued that housing prices over the past century have more or less kept pace with the rate of inflation. In recent years however housing markets in many parts of the country experienced appreciation in housing prices that have far exceeded the rate of inflation. The Philadelphia metropolitan area (Philadelphia, Bucks, Chester, Delaware, Montgomery) is one of those areas with inflation-adjusted housing prices growing 52% between the fourth quarter of 2001 and the fourth quarter of 2006.

New data on housing prices has been released for the fourth quarter of 2007. Here is a brief summary of that new data.

In his column Paul Krugman discusses the reasons he is worried that recent efforts by the Federal Reserve to stabilize financial markets are falling short. Of particular interest is the following quote:

"First, we had an enormous housing bubble in the middle of this decade. To restore a historically normal ratio of housing prices to rents or incomes, average home prices would have to fall about 30 percent from their current levels."

The ratio of housing prices to rents is a way of trying to sort out whether housing prices are overvalued. What you’re doing is comparing prices to an estimate of the rents a homeowner could earn if instead of living in their home they rented it out. It’s calculated in the same spirit as a price-earnings ratio on a stock. The higher the ratio is relative to its long run average the more you worry that housing prices are unsustainably high. We can calculate a version of the housing price to rent ratio for the Philadelphia Metropolitan Division (PA Portion).

Enlarge the figure

There was a lively exchange here over personal and social responsibility. While I don’t wish to diminish the importance of these issues in developing social policy it is often lost in these conversations that many of the consequences of the breakdown in both personal and social responsibility often fall upon the shoulders of children.

Today a series of reports on the well being of children and youth in Philadelphia’s neighborhoods were released by Philadelphia Safe and Sound. Here are links to the first three of the eleven planned reports, Bridesburg/Kensignton/Richmond , Lower North Philadelphia and West Philadelphia.

The picture below is not exactly a Albert Yee but aesthetics aside, a picture with a story.

The question I put to all of you is what is that story? What does it imply about the health of the Philadelphia economy? Is anything missing? What doesn’t it imply? I realize that in campaign season this is like throwing red meat to hungry tigers but maybe we will learn something.

Bad news about Philadelphia’s long standing and expensive social ills is not hard to find.

On Tuesday of this week New Jersey Policy Perspective (NJPP) released Mapping the Route to Dollars: AAA Mid-Atlantic's Four-State Tour (see their Inquirer op-ed ) a report which tells the story behind the departure of the headquarters of the auto club from Philadelphia.

The headquarters of AAA Mid-Atlantic (formerly the American Automobile Association) located in Philadelphia since 1901 moved in 2005 to Wilmington, Delaware taking with it more than 500 jobs. Although only 30 miles from Philadelphia AAA Mid-Atlantic maintained that a major reason for its move was Wilmington’s more central location in the region.

NJPP tells the rest of the story behind the move.

From the Governor’s budget address on February 8th of this year.

“Second, the minimum wage must be increased in Pennsylvania and it must be increased now. The economic support for an increase is undeniable. The public will and demand for an increase is overwhelming. And the political willingness for an increase is bi-partisan. I ask you to also pass this month a minimum wage increase to $7.15 an hour effective January 2007 to show our support for the 423,000 hard working people who are struggling to make ends meet in our great Commonwealth.”

And from today’s Patriot News on whether the Senate will follow up yesterdays vote in the House to raise the minimum wage: