Shrinking Pennsylvania Workforce Puts Budget Surplus And Reserves At Risk | State

With economic experts expecting a few years of average economic growth before a return to normal, the biggest concern is Pennsylvania’s shrinking labor force.

The Independent Fiscal Office on Tuesday announced its economic and fiscal outlook through fiscal year 2027-28 which touched on federal projections as well as what it expects to happen in Pennsylvania.

The IFO expects normal growth of 50,000 jobs a year, or an increase of around 1.8% in real GDP, to return to the Commonwealth by 2025. However, as its population ages out of the labor force, the state’s labor force participation rate will struggle to recover. before COVID-19. The rate is the number of people in the labor force, either employed or looking for work.

“From a demographic perspective, it’s fair to say that Pennsylvania probably faces more challenges than most states due to population contraction, and the decline in labor force participation rate has been more important here,” said IFO director Matthew Knittel.

For example, the IFO noted that the working-age population (20-64) fell by 131,000 from 2019-22 and expects a further decline of 128,000 people from 2022-25.

“We are very concerned about how we will get more residents back into the workforce to facilitate job creation,” Knittel said.

In July 2017, Pennsylvania had a labor force participation rate of 63.4; by July 2022, that figure had fallen to 62.3.

With a lower activity rate and a shrinking population, the IFO worried about a labor shortage. Population scarcity and stagnation pose a risk to economic growth, as The Center Square previously reported.

To reach the pre-pandemic norm of 50,000 new jobs each year, the participation rate would have to increase by 0.8 percentage points each year, according to the IFO. However, this is a tall order.

“If you look at the data, it never happened,” Knittel said, noting that labor force participation data goes back to 1976.

As a result, IFO projections do not expect Pennsylvania to return to its job numbers until 2025.

The IFO outlook estimates that tax revenue will increase by 3.1% through 2027-28, increasing the General Fund from $43.7 billion in 2022-23 to $49.6 billion in 2027- 28. However, government spending will increase by 3.3% over the same period, from $42.7 billion to $51.5 billion.

Unless economic growth improves, the IFO projects budget deficits to wipe out the current budget surplus of $6.7 billion and the rainy day fund of $5 billion by 2027-28 , with deficits beginning in 2023-24.

Along with concerns about a labor shortage, the IFO outlook also reported that housing affordability was at “record highs” and “80+ rapidly accelerating” as the population of the Commonwealth is aging, increasing demand for public services and funds.

Michael A. Bynum