Sources of Income in the Pittsburgh Region
Most discussions about the Pittsburgh Region’s economy focus on changes in employment, businesses, or population. But jobs and people per se don’t drive the regional economy, money does – money in the form of personal income.
The Pittsburgh Region ranks well in terms of per capita personal income. In 2004 (the most recent year available), southwestern Pennsylvania had the 53rd highest per capita personal income among the 361 metro areas in the country, and it ranked 22nd among the largest 40 regions. If the numbers were adjusted for cost of living differences among regions, its ranking would be even higher.
But what are the sources of this income?
When most people think of “personal income” they think of salaries and wages from jobs. But only 66% of the Pittsburgh Region’s personal income comes from employment earnings – one of the smallest portions of any of the top 40 metro areas in the country. Another 15% comes from dividends, interest, and rent, which is about average among other regions.
The final contributor to income is “transfer payments” – primarily Social Security, Medicare, and Medicaid benefits. This is where southwestern Pennsylvania is unique. Nearly $1 out of every $5 in the Pittsburgh Region’s economy each year comes from transfer payments, the highest percentage among the top 40 regions.
By comparison, regions such as Atlanta, Austin, Dallas, Denver, Houston, and San Francisco get only 8-9% of their income from transfer payments. If you didn’t count transfer payments, Pittsburgh’s per capita income ranking among the top 40 regions would drop from 22nd to 32nd.
The reason for the high level of transfer payments is simple – a larger proportion of southwestern Pennsylvanians are retired or elderly than in almost any region in the country. The seniors on Social Security spend much of that income here, and because the Pittsburgh Region has a strong network of hospitals and long-term care, their Medicare and Medicaid benefits are spent here, too.
The large amount of Medicare and Medicaid dollars coming into the region has helped to fuel the growth of the region’s health care and social services sector, which is now the region’s largest employer. And because the jobs in health care are relatively well-paid, this sector contributes over 12% of the region’s employment-generated income, the 3rd highest percentage among the top 40 regions.
There is one sector of the region’s economy that is still bigger than health care, and that’s manufacturing. Although only about 9% of the jobs in the region are in manufacturing, over 14% of the region’s employment income comes from manufacturing. That’s because the jobs in manufacturing have better pay and benefits than other sectors. Pittsburgh ranks 12th among the top 40 regions in the country in the proportion of regional income from manufacturing, and Pittsburgh’s manufacturing jobs have the seventh-highest average earnings.
The third largest sector of the economy after manufacturing and health care is government, which provides 11.4% of the Pittsburgh Region’s earnings. However, despite concerns locally about too much government, that’s a smaller share than most regions in the country – in fact, in several regions, 20% or more of their income comes from federal, state or local government.
What does this mean for the region’s economy?
- Far from being a drain on the economy, senior citizens, and the income they receive (not just from retirement and medical benefits, but also from employment and interest earnings), support a lot of jobs. Moreover, their benefits grow even during recessions, helping to offset the impact of job losses in other sectors. Although the Pittsburgh Region needs more young people to start and staff new businesses, its seniors are important, too. (For additional information on the impact of seniors on the region's economy and how that may change in the future, see the 1999 report on The Economic Impact of the Elderly in Allegheny County, and the January 2, 2000 Post-Gazette Op-Ed "We're Getting Younger Every Year.")
- The health care industry is a major source of jobs and regional wealth, and also is the foundation for a regional biotechnology industry. Changes in federal and state policies on Medicare and Medicaid need to be monitored closely, since they could have a significant impact on the health care industry and the region’s economy. (As noted in the section on Jobs, the health care industry has been the leading generator of jobs in the Pittsburgh Region over the past 6 years.)
- Don’t write off the manufacturing sector because jobs are decreasing. Pittsburgh still is one of the nation’s leading manufacturing regions, and income from manufacturing jobs has been increasing even though there are fewer jobs. In particular, technology jobs pay high wages and are less likely to be outsourced to other regions.