Plain Dealer: Ohio’s Middle Class Continues to Struggle

Cleveland Plain Dealer
CLEVELAND, Ohio – Ohio hasn’t completely bounced back from the recession.

We’re not talking about only the Great Recession, but also the one in the early 2000s.

Analyses of several economic statistics — from income to number of jobs to labor-force participation rates —show that the year 2000 was a high-water mark to which Ohio has yet to return in the 21st Century, experts say.

As a result, middle- and working-class Ohioans have taken a battering ever since then.

“Ohio has borne the brunt of the weakening middle class for the past 30 years, and especially the past 15,” said Brendan Duke, policy analyst at the Center for American Progress in Washington, D.C., a liberal educational institute funded primarily by donations.

Take median household income, for example. In 2000, median household income in Ohio was $58,115, but by 2013, it had dropped to $46,398, according to Duke’s analysis of Census data. (All figures are in 2013 dollars.) That was a 20.5 percent drop. Only four other states – North Carolina, Michigan, Delaware and Nevada – had greater percentage drops in income during that period.

Duke’s analysis doesn’t include 2014 figures because it was done before the Census Bureau released those numbers last week. Because of a redesign, some income data is not directly comparable; so an update of his analysis was not immediately available. However, he said an additional year of data would not change the more than decade-long trend.

Median household income in the United States fell from $56,860 to $51,939 between 2000 and 2013, Duke found. His analysis showed that household income in Ohio was $1,255 higher than the national median in 2000. By 2013, it had plummeted to $5,541 below the national median. Ohio was still playing catch up even shortly before the Great Recession began in December 2007. By then, such income had only reached $55,162. (The recession ended in June 2009.)

“Median household income in Ohio didn’t even recover back to its 2000 level before the Great Recession,” Duke said. “What you see nationally is that the U.S. had hit its 2000 level once again by 2007.”

Duke’s analysis of Labor Department data on median wages show a similar trend. Ohio workers have experienced declining pay and the Buckeye state lags the nation’s median wage, though the gaps tend not to be as wide as with household income.

Median wages in Ohio fell from $36,101 in 2001 to $34,250 in 2014. (Figures are in 2014 dollars.) That 5.1 percent drop ranked Ohio 48th of 50 states. Only Idaho and Michigan saw steeper declines.

Nationally, wages fell only 0.15 percent during the time period to $35,004. As with household income, Ohio had a higher median wage than that of the nation in 2000 — by nearly $1,000. By 2007, Ohio was about $800 short of returning to the state’s 2000 median, while the nation’s median was slightly higher than where it had been before the 2001 recession. By 2014, Ohio was trailing the state’s 2000 median by more than $1,800 and was nearly $500 below that of the nation.

Veronica Kalich, who chairs the economics department at Baldwin Wallace University, said Ohioans would have found it even more difficult to have dealt with these steep income declines amid rapidly rising inflation.

But “inflation is very low,” she said. “People will find that they have more money in their pockets even with a change in income.”

Fewer Jobs

Ohio has yet to recover all the jobs lost since both recessions. Employment in the state is still down 42,000, or by 0.8 percent, since the Great Recession, according to George Zeller of Cleveland, an economic research analyst. He starts counting from March 2006, which was the state’s pre-recession employment peak.

He said Ohio lost 225,100 jobs, or 4.0 percent, from 2000 to 2015, which have still not been recovered. The nation already has recovered the jobs lost stemming from both recessions.

Ohio’s struggle to recover these lost jobs has had a bearing on wages, said Greg Lawson, policy analyst at the Buckeye Institute for Public Policy Solutions, a conservative advocacy group or think tank that is part of the State Policy Network seeking to set policy debate.

“Ohio lost more private sector jobs than any state in the country except Michigan between 2000 and 2010,” he said. “The reality is that we haven’t recovered all of our jobs. You look at these jobs being lost, and it isn’t going to be surprising that there are going to be income implications for households.

“When you see the labor market tightening up, that is when you will start to see opportunities for increasing wages,” Lawson said.

It is a case of supply and demand: Too many workers chasing too few jobs. What has happened in Ohio is an exaggerated version of what has gone on nationwide.

Not surprisingly, Ohio’s struggle to recapture jobs has been accompanied by a shrinking labor force. People leave the labor force for a variety of reasons. Some return to school. Others retire. Still others are discouraged workers, who give up looking for employment for fear of being unable to find a job.

David Cooper, a senior economic analyst at the Economic Policy Institute in Washington, D.C., examined Labor Department data to look at the prime age employment to population ratio, based on the share of those 25 to 54 who are currently employed.

“It is the single best measure of the health of the labor market,” he said. “It excludes all the folks who may be retiring and excludes all the folks who might be going to school.” The institute’s goal, according to its website, is to broaden the discussion about economic policy to include the interests of low- and middle-income workers.

In the second quarter of 2015, Ohio’s prime age employment to population ratio was 78.9 percent. Nationally, 77.4 percent of the prime age working population was employed. In the second quarter of 2000, Ohio’s prime age employment to population ratio was 82.3 percent and 81.7 percent for the nation.

“That means about 4 percent fewer of Ohio’s population today in their prime working years have a job than did 15 years ago,” he said.

Cooper said discouraged workers have played a role in lowering the prime age employment to population ratio.

“It is a significant factor,” Cooper said. “I don’t know specifically whether it is the dominant factor.”

Even though they are jobless, discouraged workers can play a role in lowering the unemployment rate. In order to be counted as unemployed, a person must be both jobless and actively looking for work. So, those who have dropped out of the labor force aren’t counted.

“Just looking over the past year, Ohio’s unemployment rate fell by 0.7 percentage points,” he said. “Over the same period, Ohio’s labor force shrank by 0.5 percent. That means that even though Ohio had a drop in unemployment, we can’t be sure that all of that drop was people finding jobs. A significant portion of it was probably folks giving up the job search.”

Is there a Kasich factor?

Gov. John Kasich, who is running to become the Republican nominee for president, often says that Ohio’s unemployment rate is lower than that of the nation. In August, Ohio’s jobless rate was 4.7 percent. The nation’s jobless rate was 5.1 percent. Such a comparison doesn’t show how Ohio’s labor market stacks up to that of the U.S.

Kasich’s campaign boasts about the number of jobs that were created since he took office in 2011. More than 343,000 jobs have been created in the state under his tenure.

Duke of the liberal Center for American Progress said the number isn’t very impressive when taken into context. Ohio reached its lowest point of employment and highest post-recession unemployment rates in 2010. He said also factor in that Ohio was one of the hardest hit states during the recession. By 2011, there was nowhere to go but up, Duke said. Because of this, he said Ohio’s job growth rate should have exceeded that of the nation.

“Looking at job growth in the United States, beginning in January 2011 and going until July 2015, U.S. employment grew 8.6 percent. In Ohio, it grew 6.5 percent,” he said.

Duke said policies pushed by President Barack Obama spurred job growth in Ohio. They include the auto bailout and the Affordable Care Act, also known as Obamacare, since the auto and health care sectors accounted for nearly 19 percent of the jobs created during Kasich’s tenure.

Lawson, of the conservative Buckeye Institute, questions how much any governor could influence the performance of any state’s economy.

“We oftentimes give governors too much credit when times are good, and we put too much blame on them when times are bad,” he said. “If the entire economy of the United States is doing well, the states are often doing well.

“In the 1990s when (George) Voinovich was governor, Ohio was doing quite well,” he said. “The U.S. economy was doing well.”

Can things be turned around?

Lawson said Ohio’ job growth problems started long before the recession in the early 2000s.

“Since about 1973, Ohio has had a really hard time keeping its job growth at the national average,” he said. “It is really not a recent phenomenon. It really transcends whoever was in the governor’s mansion of either party. It is a structural challenge that Ohio has had for decades.”

A major characteristic of Ohio’s job loss since 2000 has been the disappearance of manufacturing jobs. They went from comprising 18 percent of the state’s employment in 2000 to 13 percent by 2015.

“In early 2000, Ohio employed over 1 million workers in manufacturing jobs,” Kalich of Baldwin Wallace said. “By 2009, the number had plummeted by almost 40 percent to its all time low of about 612,000. Since then, there has been a small recovery in manufacturing jobs, but in total, the number is below 700,000 — at 686,800 — as of August 2015. Ohio has not recovered over 340,000 jobs in manufacturing.”

At the same time Ohio was losing manufacturing jobs, the state was gaining jobs in the education and health services sector. Most of the growth was in health care, which increased by 33 percent from 586,800 jobs in 2000 to 781,700 by 2015, Kalich said. Jobs in education grew about 36 percent, from 86,000 in 2000 to 117,400 in 2015. Education and health went from being 12 percent of Ohio’s jobs in 2000 to 17 percent by 2015.

This shift has an impact on wages. Average hourly wages in manufacturing, at $24, are about $3 more than they are in education and health services.

“The health care sector also includes a lot of lower-paying jobs,” she said.

Kalich said other sectors increasing their share of jobs included professional and business services, which went from 11.5 percent in 2000 to 13.2 percent in 2015. Leisure and hospitality increased from 8.5 percent in 2000 to 10 percent by 2015. While wages in professional and businesses are similar to those in manufacturing, the leisure and hospitality sector has many low-paying jobs.

For experts such as Zeller, the economic research analyst, developing a strategy for growing jobs in Ohio should focus on increasing manufacturing jobs. He said the state – as well as the national economy – hasn’t been able to find a suitable replacement. Low-wage jobs, such as home care workers, have comprised much of the post-recession job growth.

Mark Sniderman, executive in residence in the economics department at theWeatherhead School of Management at Case Western Reserve University, disagrees.

“This decline in the overall share of manufacturing employment has been a trend that has been going on in Ohio and the United States and many other countries of the world, including China,” he said. “As manufacturing enterprises become more and more efficient, they are able to produce more value of production with fewer people.”

Sniderman said education is the key to improving Ohio’s labor market. According to recently released Census data, Ohio ranks 36th nationally in the percentage of residents, 25 and older, holding at least a bachelor’s degree. In 1990, only 17 percent of Ohioans held degrees, with the state ranking 39th. He noted that states with the highest levels of education, such as Connecticut and Maryland, also had higher median household incomes.

“Wages, broadly speaking, seem to be correlated with skill level,” he said. “If we want to get the wages of working people to be higher, then we want people to have more skills. If we want to be able to attract employers, the workers have to have higher skill levels.”

Sniderman said education is a long-term prospect that isn’t always politically expedient. For example, he said improving early childhood education would ultimately lead to a better-educated labor force.

“It is a lot easier to say why don’t we build this bridge or repave these streets or do this or that because you could actually see the bridge, and people feel that they could understand where the money is going,” he said.

“Maybe they don’t have that much confidence when they can’t see it right in front of them when money is used to enhance education, but there is a huge social benefit to doing that,” Sniderman said.

Some of the experts noted that wages have fallen or become flat – not only in Ohio, but nationally – as jobs in once heavily unionized sectors, such as manufacturing, have disappeared.

“The percentage of union membership is declining, so good or bad, the pressure isn’t there anymore for wages to be higher,” Kalich said.

Duke said several studies have shown that up to one-third of declining wages among men may be do to declining union membership.

Lawson, who supports right-to-work laws, said while union members have higher wages than their non-union counterparts, he believes unions ultimately lead to fewer jobs being created.

“They can be a little intransigent when it comes to management relations,” he said. “One of the biggest problems in Ohio is that public-sector unions increase the cost of government. That creates tax issues and competitive issues that don’t create the right environment for businesses wanting to come to Ohio.”

Duke said because the Midwest was traditionally one of the most unionized regions of the country, income inequality hadn’t been significant here. Troubling to him, is that income inequality in Ohio has risen.

He found that in 2000, the middle class’ share of income generated in the state was 49.5 percent. By 2013, it had fallen to 47.2 percent.

While the middle class’ share of income is greater than the U.S. average of 45.8 percent, Duke still expresses concern about rising inequality here.

“In Ohio, we see a 4.6 percentage point decline in the share of income going to the middle class,” he said referring to difference in share between 2000 and 2013. “In the U.S. there was also a decline, but it was a 1.9 percent decline.”

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