The State of Working Kentucky 2012: Jobs by Industry

Kentucky’s economy continues to change, with a decline in manufacturing jobs and a shift toward more jobs in the service sector—a trend that has accelerated with the weak economy of the last few years. These changes have big implications for the job quality of Kentucky workers.

Kentucky experienced growth in manufacturing jobs throughout the 1990s, reaching a peak of 310,000 jobs in the year 2000. For about the last ten years, however, manufacturing jobs have plummeted with Kentucky losing nearly one-third of its factory employment over that period. Job loss has been both in durable goods (like appliances and furniture), which declined 35 percent over that time, and in non-durable goods (such as cleaning products and office supplies), which declined 25 percent.

 employment by industry revised

Source: Economic Policy Institute analysis of Current Employment Statistics survey data

At the same time, service sector employment either grew or remained relatively stable. Employment in education and health services, for example, kept increasing even through the recession-induced period of high unemployment. Professional and business services also experienced only a slight dip in 2008, while the job level for leisure and hospitality services has grown slightly. 201,000 Kentuckians worked in retail in 2011, about as many as worked in manufacturing.

The sector of trade, transportation and utilities is actually Kentucky’s biggest source of employment with 364,000 jobs in 2011, but employment in that sector has been relatively flat for the last ten years. Government employment has also been stable in Kentucky in recent years. Despite the attention given to natural resources and mining, they make up only one percent of state-wide jobs.

There are clear patterns in Kentucky’s changing job mix. Good-paying jobs historically available to those with relatively low levels of formal education, such as in manufacturing and mining, have been declining. Taking their place are service sector jobs, either those that require more education (such as some professional and business services, or in the education and health care sectors) or those that are typically low wage (including retail and leisure and hospitality).

These trends are leading to eroding wages for many low- and middle-income Kentuckians. Yet these changes aren’t entirely inevitable—they are driven substantially by policy decisions at the federal and state levels. Trade and other policies that drive globalization are pitting Kentucky’s manufacturing workers against lower-paid workers in other countries, and few standards apply. Kentucky lacks an adequate state strategy geared toward developing high-wage, high-skill manufacturing jobs, and remains focused primarily on recruiting outside industries based on being a cheap location to do business. The extent of unionization also plays a big role in job quality—the new jobs in the service sector are far less likely to be unionized than traditional jobs in manufacturing.

What’s needed is an approach to building an economy that protects and promotes job quality and economic security for more Kentuckians in all sectors. Otherwise, we’ll see a continuing erosion of what’s left of the state’s middle class.

The State of Working Kentucky 2012 is a series of blog posts highlighting how Kentucky workers and families are faring in key indicators of economic well-being including employment, income and wages.

The State of Working Kentucky 2012: Race

The weak economy of the last few years has had far-reaching effects, but some groups have been harder hit than others. In particular, African Americans in Kentucky have suffered enormous job losses and continue to face a daunting labor market.

Over the last decade, unemployment for white Kentuckians remained consistently just below the state unemployment rate, while unemployment for African Americans was substantially higher—particularly toward the end of the decade. For whites, unemployment grew from 4.9 percent in 2001 to 10.1 percent in 2009, before dropping to 8.9 percent in 2011. In contrast, African American unemployment shot up from 7.3 percent in 2001 to 16.3 percent in 2009—and peaked at 19.4 percent in 2010.

The gap between the unemployment rates of whites and African Americans in Kentucky had nearly closed during the late 1990s and early 2000s, when the country was at near full employment. In 2002, the difference in unemployment rates for the two groups was only 1.2 percentage points. In 2010, the unemployment rate was 19.4 percent for African Americans and 9.5 percent for whites—a difference of nearly 10 percentage points.

Race

Source: Economic Policy Institute Analysis of Current Population Survey Data

African Americans are also more likely to be underemployed—meaning they are either unemployed and actively looking for work, employed part-time but would prefer a full-time job, are discouraged from finding a job or are unable to work because of a barrier like child care or transportation. In 2011, the underemployment rate for African Americans in Kentucky was 25.8 percent—compared to 14.5 percent for whites. Like the unemployment rate, the underemployment rate has grown considerably for African Americans in recent years; it was only 10.3 percent in 2001.

The state is experiencing the beginnings of economic recovery, but African Americans continue to face an extremely difficult labor market. In order for these inequalities to decrease markedly, the national economy needs to once again achieve near full employment—which at current rates of job growth will not happen for many years. More also must be done to address discrimination, inequalities in education and other factors that contribute to the state’s racial gap in employment.

The State of Working Kentucky 2012 is a series of blog posts highlighting how Kentucky workers and families are faring in key indicators of economic well-being including employment, income and wages.

The State of Working Kentucky 2012: Education

There is no question that greater levels of education are associated with higher wages and employment rates in Kentucky, and employment has been declining among those with less than a college degree in recent years. However, median wages have been stagnant for Kentuckians at all education levels over the last ten years—suggesting that our problems with job quality are more complex than just a skills gap.

Kentucky has seen wage stagnation across the board, but for those with some college or a high school degree, the trend is not new. Real (inflation-adjusted) wages have been relatively stagnant for the past thirty years. And while data are not available for all thirty years for those with less than a high school degree, there is evidence that their wages have actually been declining; real median hourly wages were $12.37 in 1979 and $10.00 in 2007. In contrast, wages for those Kentuckians with at least a bachelor’s degree were rising until the last decade or so when they flattened.

education 1 

Source: Economic Policy Institute Analysis of Current Population Survey Data

Those with lower levels of education are also more likely to be unemployed. The employment to population ratio, a measure of the proportion of the state’s working-age population that is employed, is highest for those with a bachelor’s degree or higher (76.7 percent in 2011) and lowest for those with less than a high school degree (27.9 percent in 2011). For those with some college or a high school diploma, labor force participation has been declining for about the past 15 years. During that time period, the employment-to-population ratio has been consistently high for those with at least a bachelor’s degree—and consistently very low for those with less than a high school degree.

 education 2_0

Source: Economic Policy Institute Analysis of Current Population Survey Data

For an individual, obtaining more education is clearly more likely to result in a job and in higher wages. But regardless of education, median wages have been stagnant in Kentucky. And those Kentuckians with less than a college degree—who make up the overwhelming majority of the adult population—are struggling with eroding employment opportunities.

While in the long run increased levels of education will improve the state economy, education alone cannot solve Kentucky’s economic problems. Policy changes are needed that will improve job quality across the board. In the short-term, that includes investments that will increase the pace of overall job growth, which will ultimately lead to higher wages. It also means strategies like increasing the minimum wage, addressing declining unionization and tackling the erosion of jobs in sectors like construction and manufacturing.

The State of Working Kentucky 2012 is a series of blog posts highlighting how Kentucky workers and families are faring in key indicators of economic well-being including employment, income and wages.

The State of Working Kentucky 2012: Wages

Working Kentuckians have experienced a lost decade in terms of wage growth, a trend that is undermining family economic security across the Commonwealth and will likely persist at least as long as the unemployment rate remains high.

During the last few years of the 1990s and the beginning of the last decade, median wages in both Kentucky and the U. S. climbed considerably. That happened because the nation had practically reached full employment, which by limiting the supply of available workers gave them the ability to obtain somewhat higher wages. The typical worker in Kentucky also gained ground relative to the nation at that time. In 1991, the median wage in Kentucky was only 85 percent of the U. S. average, but by 2001 it was 94 percent.

That progress stopped abruptly with the recession in the early 2000s, and since then median wages have been flat or slightly declining in both Kentucky and the nation. In 2011, real (inflation-adjusted) median wages in Kentucky were 4 percent lower than they were in 2001.

 Wages 1

Source: Economic Policy Institute analysis of Current Population Survey data

Wages at the worst-paid jobs in Kentucky have also been eroding over the last decade. Real wages at the 10th, 20th and 30th percentile were 5 percent, 7 percent and 8 percent lower in 2011 than they were in 2001, respectively. Real wages at the top in Kentucky also declined over that period, though not as much. Real wages at the 90th percentile were only 1 percent less in 2011 than they were in 2001.

 Wages 2

Source: Economic Policy Institute analysis of Current Population Survey data

The trend in wages is also seen in workers’ benefits. In 1980-82, 70 percent of Kentucky workers had employer-provided health insurance, but only 56 percent did in 2008-2010. 51 percent had an employer-provided pension in 1980-82, but only 42 percent in 2008-2010.

One way Kentucky families are responding to these trends is by simply working more hours. The average two-parent Kentucky family worked 360 more hours a year in 2005 than they did in 1980, an increase of 11 percent.

There are a number of causes of sagging compensation. The two recessions of the last decade and the resulting high unemployment rates play a big role—and will continue to do so until the unemployment rate drops considerably. Declining unionization is also a factor. Unionized Kentucky workers made 37 percent more in 2011 than those workers who weren’t members of a union. Also critical are the weakening of the minimum wage and other labor standards, as well as policies driving globalization and the elimination of good-paying manufacturing jobs.

The State of Working Kentucky 2012 is a series of blog posts highlighting how Kentucky workers and families are faring in key indicators of economic well-being including employment, income and wages.

Penny Increase in Sales Tax Would Worsen Tax Fairness and Fail to Fix Long-Term Revenue Problem

A couple of legislators have floated the idea of raising the sales tax by one percentage point rather than taking action on a tax reform package. But such a plan would make Kentucky’s tax system less equitable while doing nothing to address the fundamental challenge of long-term revenue growth.

Increasing the sales tax would be a very regressive approach, meaning that it would impact low- and middle-income Kentuckians more than those with higher incomes. Research by the Institute on Taxation and Economic Policy (ITEP) shows that the poorest 20 percent of Kentuckians pay over six times more of their income in sales taxes than the richest one percent of Kentuckians do.

 who pays2

Source: Institute on Taxation and Economic Policy

In contrast, the Governor’s tax reform commission proposed a more balanced income and sales tax package. Several of the income tax proposals, including those limiting itemized deductions and phasing out the exclusion of retirement income for those with greater means, would ask more of wealthier Kentuckians. And the 15 percent state earned income tax credit recommended by the commission would make Kentucky’s tax system fairer for those working low-wage jobs.

And fairness should be a high priority. As ITEP has shown, the richest one percent of Kentuckians pay only 6.1 percent of their income in state and local taxes, while low and middle-income Kentuckians pay between 9.4 percent and 10.8 percent.

Also, increasing the sales tax by a penny would do nothing to stop the erosion of sales tax revenue. That can happen only through modernizing the tax by applying it to services that are now untaxed. The Governor’s commission recommended an expansion to some services, and identified a number of criteria to use in selecting specific services—including a focus on luxury purchases.

Kentucky ranks among the states with the fewest services in its sales tax base, taxing only 28 of 168 services taxed by at least one state. These exclusions are a growing problem because services make up an increasing share of the economy. Kentucky’s sales tax base has fallen from about 54 percent of the state’s economy in 1979 to approximately 41 percent in 2008.

There is no question Kentucky needs more revenue to roll back devastating budget cuts; invest more in education, health and other critical areas; and pay back existing debt. But it must do so in a way that is fair—recognizing the vast difference in ability to pay between wealthy Kentuckians and the poor—and that improves the state’s troubling long-term revenue trends.

The State of Working Kentucky 2012: Youth

In times of recession and high unemployment, it’s particularly hard for young people to find jobs. Competition for the jobs that do exist becomes more intense, making it harder for less-experienced workers to obtain employment.

That can be seen in the unemployment rate for Kentucky youth under age 24, which stood at 19.9 percent in 2011 compared to 9.5 percent for the entire Kentucky workforce. Young adults have experienced the brunt of the economic downturn and their climb from the trough of the recession has been slow.

The youth unemployment rate rose substantially after the recession began in 2007. It increased from 12.7 percent that year to a peak of 20.6 percent, or one in every five, in 2010. In comparison, during the recession and its aftermath the annual unemployment rate rose as high as 9.7 percent for Kentuckians ages 25 to 54 and 7.5 percent for those ages 55 and older.

youth table

Source: Economic Policy Institute analysis of Current Population Survey Data

Even more telling of the struggle experienced by young adults is the underemployment rate—which in addition to the unemployed includes those who have taken part-time jobs to make ends meet but would prefer full-time work and marginally attached workers who would like work but are currently discouraged or are unable to work because of barriers like transportation. The overall underemployment rate for youth in Kentucky jumped from 19.6 percent in 2007 to 31.3 percent in 2011. So, nearly one in every three young adults in the Kentucky workforce would like full-time work but cannot find it.

The disproportionate effect of the economy on young people is also demonstrated by the share of young part-time workers whose part-time status is involuntary and due to economic reasons. That share rose from 13 percent in 2007 to over one in every four by 2011.

The economic situation facing young Kentuckians is made worse by the rising cost of higher education. Tuition increases result primarily from state budget cuts to postsecondary institutions—a decline, adjusted with inflation, of nearly 23 percent since 2008 in state-per-student spending. The combination of rising education costs and scarce employment make it more likely that young adults will suffer long-term consequences as a result of current economic conditions.

As indicated in one report, those consequences include a loss of human capital and work experience that results in lower future wages. Unable to find work that matches their education, young people who find jobs during bad economies often do so in fields requiring less training, leading to a degradation of skills and a lower-wage career trajectory. Graduating during an economic downturn has a large, negative effect on wages compared to those entering the labor market in good times.

The need for faster job growth spurred by short-term federal investment is critical for young adults in Kentucky both to help them make ends meet now and to improve their long-term economic well-being.

The State of Working Kentucky 2012 is a series of blog posts highlighting how Kentucky workers and families are faring in key indicators of economic well-being including employment, income and wages.

Seeking Tax Fairness Out of Tax Reform

Tax Commission Recommendations Raise Needed Revenue but Include Big Corporate Tax Cut

The new plan from the Governor’s Blue Ribbon Tax Reform Commission rightly puts the first priority on raising needed revenue to address Kentucky’s budget challenges. The commission finalized a package that raises approximately $659 million in the first year and closes various holes in the tax code that are limiting the pace of state revenue growth.

The most important changes involve strengthening the individual income tax. After much debate, the commission made the right decision in choosing to maintain a graduated income tax after pressure from some commissioners to move to a flat tax. While the commission’s proposal reduces income tax rates slightly, it also makes them somewhat more graduated and raises $475 million more from the income tax alone.

The plan raises revenue in part by putting a cap on itemized deductions of $17,500 that will particularly limit deductions for higher-income people while protecting many middle-income Kentuckians. The recommendations also include a proposal to lower the income tax exclusion on retirement income from its current $41,110 to $30,000, and to phase out that exclusion entirely for those with more than $60,000 in total annual income. Both of those changes will make the income tax somewhat more progressive while lessening restrictions on income tax growth.

Also, very importantly, the commission recommended a refundable earned income tax credit (EITC) at 15 percent of the federal credit. The EITC is a proven policy that helps lift working families out of poverty. An EITC will also help address the unfairness of the state tax system.

Other important recommendations include expanding the sales tax to include some services, particularly luxury services; removing the restrictions that House Bill 44 sets on property tax growth at the state and school district levels; and raising the cigarette tax to $1 a pack (along with an increase in other tobacco taxes) to improve health. The commission proposed creating a one percent state-wide utility tax on both businesses and residences that would be earmarked to school funding.

The biggest problem with the final recommendations is the inclusion of about $110 million in unneeded corporate tax cuts that comes from a proposal to move to a single sales factor formula in calculating corporate income taxes, which we have critiqued here. That $110 million price tax is an increase from the $65 million estimate that commissioners received from consultants a few months ago. Single sales factor would be a big tax windfall to a minority of large corporations, and there is no guarantee or requirement that those companies will grow jobs or increase investment in Kentucky because of the tax cuts.

These cuts were passed despite information shared with the commission showing that Kentucky’s business taxes are already low compared to other states, and despite a lack of evidence demonstrating that business tax cuts are a cost-effective way to create jobs. The recommendations would wipe out more than one-fourth of Kentucky’s corporate income taxes.

The commission also missed on other opportunities, including turning down a proposal to establish sunsetting (expiration) dates on tax expenditures. It recommended instead to simply review such expenditures at least once every five years. But sunsetting dates are growing in popularity among states because they pressure decision makers to better prioritize budgeted programs and tax expenditures, both of which are essentially an appropriation of funds. Virginia recently passed legislation requiring that all new tax expenditures sunset at least once every five years.

The recommendations can and should be improved as they move forward, particularly through changes that assure corporations pay their fair share for the investments in education, infrastructure and other public services from which they benefit. But there are a number of very strong elements in the commission’s plan that should be preserved, including the emphasis on creating substantial new revenue and the ideas to strengthen the state income tax.

*Blog updated to reflect final revenue estimates

 

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Editorial