Statement by Keystone Research Center Following Release of PA Employment Report for August and in the Context of Continuing Financial Market Turmoil

Harrisburg, September 19, 2008--In the wake of today's release of new employment numbers for Pennsylvania and of this week’s financial market turmoil—the bankruptcy of Lehman Brothers, the government takeover of AIG, and discussion now of the government buying bad mortgage debt at a deep discount—the Keystone Research Center issued the following statement on the critical need to prevent the financial market turmoil from causing further damage to the Pennsylvania economy and to the working families of the commonwealth:

The Pennsylvania economy—whether measured in terms of job loss, housing price declines, or mounting mortgage foreclosures—has thus far weathered the storm in financial and housing markets better than many parts of the country. But Pennsylvania has still lost 7,000 jobs since December and the August unemployment rate of 5.8% is the highest since early 2003. Housing prices are falling in all but one area of the state and mortgage foreclosures are going up.

If the national economy continues to deteriorate, employment losses in the state will worsen over the coming months, and state tax revenues will fall further. These problems come at a time when we also face two large and long-term challenges—an energy/climate crisis and economic stagnation for most Pennsylvania families.

In the past eight years, despite the expansion of the national economy, wages and income have remained stagnant for the vast majority of families. This wage and income stagnation is one reason that many families depended on rising home equity to maintain their consumption. In our recent report, The State of Working Pennsylvania 2008 (online at www.stateofworkingpa.com), the Keystone Research Center detailed the poor performance of the economy for typical families in the commonwealth.

To respond to these challenges and to counter the weak labor markets that may be with us over the next 12 to 36 months, Keystone Research Center renews its call for a second federal economic stimulus package. We also urge state lawmakers to encourage national action and do what is possible at the state level to stimulate the economy. A new national economic stimulus should kick-start the economy and position the country and state to compete for the long term. The package should include

• revenue-sharing with the states, to avoid cuts in critical services that would further fuel a downward economic spiral
• investment in the country’s workforce, so that unemployed and underemployed workers can feed their families and sharpen their skills. Such human capital investment would help Pennsylvania businesses and workers emerge from the economic crisis primed to compete in the global economy
• investment in infrastructure—starting with a clean and green transportation system—and in energy efficiency, renewable energy, and clean manufacturing.

With buyouts, bailouts, and bankruptcies dominating recent headlines, discussion has shifted away from the fact that stagnating wages and incomes were one of the roots of the current crisis. Stagnant family incomes contributed to the expansion of the sub-prime mortgage market and to the financing of consumption through unsustainable home equity loans and other consumer debt. A second national stimulus package is needed to stabilize the economy and to provide the time needed to implement policies that restore long-term, shared prosperity.

The Keystone Research Center is a nonprofit, nonpartisan organization seeking to promote a more prosperous and equitable Pennsylvania economy.